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Conducting Internal Audits: How To Identify And Correct Wage And Hour Compliance Issues

Strict adherence to federal labor regulations is essential for any business that hires employees. Failure to maintain compliance constitutes a violation of employee rights and may result in serious consequences for the business, including financial penalties and long-term damage to the company’s public image. Companies can protect themselves by conducting internal audits to identify and correct potential wage and hour compliance issues. The experienced employment law attorneys at Schwab & Gasparini help companies ensure compliance and protect themselves from liability. Contact the firm today at (914) 304-4353 to learn more.

What Are the Laws for Wages and Hours?

Federal wage and hour regulations are administered and enforced by the United States Department of Labor (DOL)’s Wage and Hour Division (WHD). Regulations falling under WHD’s purview include the federal minimum wage, overtime pay, child labor, and recordkeeping requirements. 

Most federal wage and hour laws are found in the Fair Labor Standards Act (FLSA). All employers are legally required to adhere to these regulations, along with any applicable state and local wage and hour laws and union regulations. These laws sometimes change, so companies should also make sure to stay aware of current federal and state laws.

The federal wage and hour laws established in the FLSA include:

 

• Minimum wage - Employers must pay either the federal minimum wage of $7.25 or the state minimum wage, whichever amount is higher. 

• Overtime - Nonexempt employees must be paid overtime of at least time-and-a-half for any hours worked over 40 each workweek.

• Hours worked - Employees must be compensated for all hours worked, including all time that an employee is required to be at their place of employment, on duty, or at another assigned workplace.

• Recordkeeping - Covered employers must maintain records for each employee, including personal information, wages earned, and hours worked. These recordkeeping requirements must also be displayed in the workplace with an official FLSA poster.

• Child labor - Federal child labor laws prohibit many forms of employment for children under the age of 14, restrict the hours and types of jobs available to minors under the age of 16, and prohibit hazardous work conditions for minors under the age of 18.

Companies conducting internal audits should carefully examine each of these components to ensure compliance. 

How To Conduct an Internal Audit for Wage and Hour Compliance

Conducting regular internal audits can be a proactive measure to ensure compliance with the guidelines outlined by the FLSA. Businesses can effectively mitigate potential wage and hour compliance issues by evaluating employee classifications, reviewing work-hour records, and implementing corrective measures. 

Evaluating Employee Classifications

Begin the audit by thoroughly assessing employee classifications. Review job descriptions, responsibilities, and duties to ensure accurate categorization as exempt or non-exempt under the FLSA guidelines. Carefully examine factors like job duties, salaries, and exemption criteria to avoid misclassifications that could lead to noncompliance and legal penalties.

Reviewing Work Hour Records

Keeping accurate records is vital for wage and hour compliance. Look over employee work hour records, including timecards, schedules, and overtime hour documentation. Verify that employees are receiving proper compensation for any overtime work performed, in adherence with the FLSA overtime regulations. Identifying and addressing any discrepancies or inconsistencies early can prevent potential noncompliance issues in the future.

Implementing Corrective Measures

After completing the internal audit and identifying potential problem areas, implement corrective measures to address any wage and hour compliance issues. Develop comprehensive training programs for management and HR teams to ensure a clear understanding of FLSA regulations. Establish policies for accurate record-keeping and employee classification, emphasizing transparency and consistency across the company. 

Seeking legal counsel can also help companies better protect themselves from FLSA noncompliance and associated consequences. You can learn more about conducting internal audits by contacting the New York business attorneys at Schwab & Gasparini.

What Are the Consequences of Noncompliance With the FLSA?

Noncompliance with the Fair Labor Standards Act (FLSA) can have severe repercussions for businesses, ranging from legal penalties to damage to employee morale and the company’s reputation. Ensuring that all staff members responsible for record-keeping or pay calculations are aware of, and trained in adherence to, state and federal guidelines can help companies to avoid disruptive investigations by regulatory authorities and potential legal penalties brought on by laxity in internal standards.

Legal Ramifications

One of the main consequences of FLSA noncompliance is the risk of facing legal penalties and lawsuits. Violations such as failure to provide overtime pay, misclassification of employees, or inaccurate record-keeping can result in costly litigation, fines, and potential settlements.

According to the United States Department of Labor, employers who are intentionally or repeatedly in violation of minimum wage or overtime pay laws may be fined up to $1,000 for each violation. Child labor violations are subject to a fine of up to $10,000 for each underage worker whose rights were violated. Intentional violations of the FLSA can also result in criminal charges, accompanied by financial penalties of up to $10,000 in fines, and a second conviction carries a potential prison sentence.

Damage to Reputation

FLSA noncompliance can significantly harm a company’s reputation, leading to a loss of trust among employees and the general public. FLSA legal disputes often generate negative publicity, which can tarnish the company’s image and credibility. This can deter potential clients, partners, and skilled talent from associating with the business. Maintaining a strong reputation as a compliant and ethical employer is vital for creating a positive work environment and attracting top-tier talent.

Employee Morale and Retention

Noncompliance with FLSA wage and hour regulations can negatively affect employee morale and retention rates. Disputes over wage and hour violations, unpaid overtime, or misclassified job roles can erode trust and loyalty among employees. Low employee morale and dissatisfaction can contribute to higher employee turnover, further harming the company’s productivity, stability, and workplace culture. 

Learn More About Internal Audits and FLSA Compliance

Ensuring compliance with federal labor regulations is imperative for all businesses. Noncompliance not only constitutes a violation of employee rights but also invites a wide range of potential consequences, from severe legal penalties to lasting damage to the company’s public image. By conducting internal audits, businesses can proactively identify and rectify potential wage and hour compliance issues. The seasoned New York employment law attorneys with Schwab & Gasparini stand ready to assist companies in upholding compliance and safeguarding against liability. Take the necessary steps to protect your business today by calling the firm today at (914) 304-4353. 

Sun Jan 7 2024, 12:00am