Wage and hour inspections could be costly, too
By Jennie L. Phipps • Bankrate.com

Less scary, but potentially more expensive than an OSHA visit, is a letter from the wage and hour division of the Department of Labor (state or federal) seeking your records as part of an investigation into alleged employee pay violations.

"Wage and hour are the most frequently violated federal laws. Violations are everywhere," says David L. Swider, partner with Bose, McKinney & Evans employment law firm in Indianapolis, Ind. Swider believes there are so many violations because the laws are confusing and there's a large discretionary component in their enforcement.

If you find your company didn't follow the laws, the price can escalate quickly. The department has the right to go back four years, even locating employees who no longer work for you. And penalties could be added to whatever it might cost you to make past pay wrongs right.

Here is Swider's advice for making the least of a wage and hour investigation.

Know the rules.
Wage and hour laws are deceptively simple, but they trip up a lot of business owners. Put a good reference book on your shelf, and read it regularly. Swider recommends those sold by CCH Inc. The company tracks, reports, explains and analyzes employment and tax law.

Follow the rules.
Just because the company down the street didn't get caught doesn't mean you won't. Most investigations are triggered by complaints. All it takes is one disgruntled employee or ex-employee to pick up the phone.

Tread lightly.
The U.S. Department of Labor has been promoting its compliance assistance. The agency will send a representative to your workplace or business group meeting to provide seminars and answer questions.

Swider is skeptical about inviting one of these representatives into your building. "It could put you on the radar screen," he says. "My experience with federal and state agencies is that they tend to be one-sided."

Instead, he recommends hiring a consultant who can offer a more balanced business approach. "It may cost you some money, but it could save you in the end."

Play it straight.
The most common wage violation involves incorrectly putting people on the exempt payroll, which makes them ineligible for overtime. Look over your records and straighten out any problems because if the practice is questioned, says Swider, "the employer is going to lose."

The second most-common violation is failing to pay a worker for preparation, clean-up or travel time. Even if it galls you to do it, pay the overtime. "The onus is on the employer to prove that the employee wasn't working more than 40 hours," Swider says. "It's your word against the employee's, and you can watch the money add up quickly."

Be responsive.
The easier you make it for the Department of Labor to inspect your records, the faster this will be over. Sending a response that says, "We didn't do it" without supporting evidence will just bring trouble. Prepare the documents, and send them with a well-thought-out response.

Get those I-9s in shape.
Labor departments are under a lot of pressure to enforce immigration law. That means if a wage and hour inspector finds any violation, he probably will add an immigration inspection to his list. So make sure you have appropriate paperwork -- Form I-9, Employment Eligibility Verification -- on file for each employee.

Remember, they're overworked, too.
In many parts of the country, the Department of Labor will settle happily for a thorough self-analysis. If you recognize that you're at fault, tell wage and hour "mea culpa." Notify every employee and ex-employee who's affected, and rectify the problem by paying back wages. Then spell out the solution for the department. With any luck, the agency will be satisfied by this full and complete action and go away.

Don't roll over if you're not guilty.
The rules are not absolute, even though wage and hour likes to make them sound that way. If you can explain the underlying rationale, the department will frequently defer action. This will probably require hiring a lawyer who knows the ropes, but in the long term, it could save you bigger bucks.

Jennie L. Phipps is a contributing editor based in Michigan.

-- Posted: Jan. 25, 2002