Reducing the Risk of and Surviving a DOL Wage and Hour Audit

What risk does an employer face from failing to pay employees correctly under the federal minimum wage and overtime laws of the Fair Labor Standards Act? Companies who are interested in the answer might ask one of the 176,957 employees who received back pay awards and civil money penalties in 2025 amounting to over $300 million. These compelled payments were the result of nearly 17,000 concluded compliance actions (“audits”) by the Wage and Hour Division (WHD) of the Department of Labor.

That is a lot of money. And companies should not like those odds. This is true especially when considering that most audits are initiated by complaints from disgruntled employees, rather than as a result of random audits selected by WHD. Few companies can claim they never had a disgruntled employee storm out the door, threatening to report the company to every government agency under the sun while shaking his fist (or, at least, gesturing with a finger).

A prudent company must consider what steps it can take to protect itself from this risk. The answer includes steps to take before an audit and steps to take during an audit.

Before an Audit – Audit Yourself

The most common wage and hour mistakes that an employer makes, and which often result in back pay awards and civil penalties during an audit, are ones that the company can discover and correct before a WHD Investigator appears at the door. The most common wage and hour mistakes include: (1) misclassifying employees as exempt from minimum wage and overtime pay, when they properly should be classified as non-exempt; (2) accidentally destroying employees’ exempt status by taking deductions from their pay, most often for partial missed days (whether for sick leave or personal leave); (3) deducting for lunch periods even when employees are not relieved entirely from their duties (being available to answer phones during lunch still is considered working, even if the phones do not ring); and (4) miscalculating overtime pay, which often is more complicated than it seems because of legal issues such as the fluctuating workweek principle and the nuances of calculating an employee’s “regular rate” from which overtime is calculated.

Conducting an internal FLSA audit is simple: call your company’s employment lawyer and ask them to assist you. The investment is nominal in contrast to the potential back pay awards and fines that would result from having any mistakes identified by a hostile WHD auditor rather than by a company’s own counsel.

During an Audit – Know What to Do and What not to Do

Whether a company has had the foresight to conduct an internal audit before a WHD Investigator arrives or not, the company can protect itself from unnecessary risk by knowing what to do and what not to do during an audit.

Here are some of the most important guidelines:

• Do not produce any documents until your attorney has reviewed them. Companies obviously must comply with a federal agency’s request for documents. Nevertheless, companies have no obligation to produce more documents than is required by law. Without guidance, companies tend to overshare, unnecessarily exposing them to additional risk. Moreover, how the documents are presented also matters. A well-organized production of documents gives the Investigator greater confidence that he does not need to keep digging to find the information he is looking for.
• Be courteous and professional. No employer wants to be audited. But once an audit has been initiated, treating the Investigator with annoyance, hostility, or reluctance only increases the likelihood that the Investigator will keep digging until he finds something.
• Do not be too eager to admit liability or to negotiate a resolution. If a company recognizes that it has made mistakes in complying with the FLSA, the human tendency of admitting the mistake often surfaces quickly. That urge often is followed by a desire to begin negotiating a resolution of the mistakes that have been conceded. Eagerness in this context rarely is beneficial. An Investigator is not going to negotiate a resolution until he has completed his investigation and analysis, and admissions during this process simply give him more ammunition to work with. Companies should let the process play out. When conclusions are reached, there will be plenty of time to determine whether a negotiated settlement can be achieved – especially if the results are less dire than anticipated.

Compliance with the FLSA’s wage and hour requirements matters. Companies not only should want to assure that they are paying their employees lawfully, but they also should be wary of the potentially exorbitant cost of noncompliance that can result from a WHD audit. The attorneys at Luchansky Law regularly assist businesses in conducting internal audits to eliminate any concern that a government audit would result in an award of back pay or fines. And if a WHD Investigator initiates an audit, we step in and handle the investigation crisply and effectively. If you have questions about wage and hour compliance or government audits, call me at 410.522.1020, or email me at lucky@luchanskylaw.com.