The Scope of an FLSA Audit

An employer has many choices when selecting the scope of the FLSA Audit. Although the best way to avoid FLSA lawsuits is to audit all payroll practices for all employees, time and cost constraints may dictate a less comprehensive approach. An employer can select any of the following approaches that best fits its particular needs or concerns.

Focused on Specific Departments

An FLSA Audit can be tailored to a specific department or division. Departments that work the most overtime hours - such as police and fire departments - are the best candidates. By focusing on the departments that work the most overtime, the agency can maximize the benefit of the audit.

Limited to Known or Suspected FLSA Problems

Another approach is to complete a limited audit that focuses on known or suspected FLSA issues. For example, the employer could audit whether the employees who do not receive overtime qualify for the overtime exemption under the FLSA salary and duties tests. Another example would be to audit paychecks to ensure that all employees are being paid overtime at the particular FLSA "regular rate" of pay.

Comprehensive Examination of All Payroll Practices

A comprehensive audit reviews all aspects of FLSA compliance for all employees. Although a comprehensive audit is the most detailed and time-consuming option, it also gives the employer a greater opportunity to utilize the good faith defense in the event of litigation. Once an employer completes a comprehensive audit, moreover, updates are necessary only if there are changes in the law or the employer's pay practices.

When Should an Employer Conduct an FLSA Audit?

Preparation for Labor Negotiations

Part of an employer's preparations for labor negotiations should involve an FLSA analysis of collective bargaining agreements and pay policies. Using the collective bargaining process to bring payroll practices into compliance with FLSA requirements can enable an employer to make appropriate changes without generating undue concern.

Revisions to Personnel Rules, Municipal Code or Charter

Portions of an employer's personnel rules, municipal code and charter provisions invariably affect how an employer compensates its employees. As a result, whenever an employer revises its rules, municipal code or charter, the employer should also conduct a FLSA compliance review to eliminate provisions that may conflict with FLSA requirements.

Classification Changes

Whenever an employer creates or modifies a classification, the job duties should be reviewed to determine whether that classification performs duties that qualify for one of the white collar exemptions from the FLSA overtime requirements.

Response to Grievances or Complaints

Employees generally file FLSA lawsuits in response to an underlying labor dispute or a disciplinary action. Thus, an employer is well advised to promptly investigate any grievance or complaint that even remotely infers that the employer's pay practices violate the FLSA. The employer's failure to investigate could preclude the employer from asserting a good faith defense in the event of litigation.