The Wage and Hour Audit Checklist

An employee and wage and hour audit entails examining payroll records, policies and procedures to verify compliance with federal and state employment laws. A wage and hour audit can serve to reassure that your company is in line with these laws or uncover minor issues or violations that might exist within your operations.

Implementing regular internal audits should be part of good business practice in order to detect mistakes early and reduce risks from Department of Labor investigations.

Review of Payroll Records

Due to the COVID-19 pandemic, employers made changes quickly that may expose their business to liability under federal and state wage and hour laws like Fair Labor Standards Act (FLSA).

An audit should review payroll records of any company to ensure compliance with FLSA and local employment law requirements, particularly California's stringent AB 5 regulations. An inspection will cover both exempt and nonexempt classification, such as satisfying both salary basis test and duties test requirements for classification. Overtime pay calculations, leave policies and procedures, independent contractor classifications are also key aspects.

Audits should also encompass employee allowances, from travel expenses and meal breaks to uniform allowances and uniform allowances. This step is especially vital for companies using annualised salaries to compensate staff as these arrangements could place the company in jeopardy of violating minimum wages laws.

Review of Employee Policies and Procedures

One of the primary considerations in any wage and hour audit involves employee policies and procedures. A professionally written employee handbook can ensure compliance with employment regulations, enhance communication among employees and create uniform policy application. Regular reviews of these policies - specifically regarding FLSA exemption classifications, overtime calculations, meal periods and off-the-clock work - should also take place internally.

Conducting regular reviews can significantly lower the risk of misclassifications and other potential violations, and enable you to quickly identify and correct any errors, decreasing the chance of costly federal or state enforcement action. Wage and hour laws are complex and ever-evolving; even an honest mistake could expose you to costly litigation; conducting comprehensive reviews of payroll records and policies will save time and money as your business expands.

Review of Wage Calculations

No matter the size or type of business, it can be challenging to keep up with all of the rules and regulations laid out in FLSA and state law. Even one slip-up could cost your company dearly in fines and penalties.

An internal wage and hour audit can help employers to identify key sources of risk to mitigate, which may help them to reduce potential exposure to class and collective action lawsuits. When conducted alongside legal advice, this type of review may also serve as a partial or full good-faith defense against wage claims brought against their business.

This review should include a detailed examination of each employee's hourly rate, overtime pay status and methods used for tracking hours and verifying payroll deduction accuracy. Furthermore, an audit should explore if employees qualify as exempt based on the three-part test for exemption from overtime pay as well as any expenses they might incur which might decrease their regular hourly rate below minimum wage levels.

Review of Third-Party Payers

Employers frequently rely on third-party pay vendors to manage payroll and employee-related issues. It is imperative that these vendors are checked against federal and state laws to ensure they adhere to them; as part of an employer's wage and hour audit checklist, these payment providers should be evaluated to see if they comply with all relevant statutes.

Wage and Hour Division's Wage and Hour Division responds to complaints, while conducting targeted investigations of specific businesses or industries based on specific factors, such as an industry's relative vulnerability to violations, high overtime payments or wage violations or rapid industry change (either due to growth or contraction). These investigations take place using criteria such as relative vulnerability, high overtime payments or violations or rapid industry transformation (i.e. expansion/contraction).

Even if the government doesn't investigate your business directly, it is still wise to conduct a prophylactic audit as an added layer of protection for attorney-client and work product privileges. Priori has access to an excellent network of lawyers who can review payroll and wage practices to identify any compliance issues.