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How to Do a 30-Minute FLSA Compliance Self-Audit

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Avoiding slipping up on the FLSA’s rules and regulations is notoriously difficult, both for small businesses as well as large companies with sophisticated HR and legal teams. If your business hasn’t looked recently at its wage and hour practices, use our quick checklist to performing a high-level, 30-minute desk audit to identify some of the most common blind spots that might need further review.

  1. Non-employed workforce. Does your business engage significant numbers of individuals as consultants or contractors? Has a legal analysis been done to confirm that they have been appropriately classified as non-employees?
  2. Exempt classifications. When is the last time your organization looked at the different positions it treats as exempt and verified which exemptions apply and the factual bases on which it is relying for those exemptions? Do you have up-to-date job descriptions for the exempt positions? If this hasn’t been done recently, look again at the various exempt positions, focusing particularly on the ones that might be close calls — e.g., administrative exemptions that rely on the individual having “discretion and independent judgment” on “matters of significance.” Additionally, make sure that your payroll department is only making permissible deductions (e.g., deductions for personal absences of a day or more) from exempt employees’ pay.
  3. Time recording. When was the last time you looked at how non-exempt employees record their time? Are the rules for clocking-in and clocking-out being followed? Has anyone looked recently at the organization’s policy on when employees should clock in and out for meal and rest breaks and confirmed that those comply with FLSA requirements? Also, take a look at how many overtime hours are being worked by your employees — if it’s a significant number, then the potential liability for non-compliance is higher.
  4. Regular rate calculations. In addition to their hourly wages, do you pay your non-exempt employees anything else, such as bonuses, commission or allowances? If so, in most cases those amounts should be included in the regular rate of pay for overtime calculations.
  5. State law. Even if you feel comfortable that your business complies with the FLSA, have you stopped to think about any potential differences under state law? In many cases, compliance with the federal law gets you all the way, but some states (California being the example most commonly cited) have different rules that need to be followed.

If you read through the points above and feel like you are in good shape, then that’s great news. But stay vigilant and keep checking these points regularly. The law keeps shifting, job duties evolve and how things work in practice doesn’t always match your policies. Training and regular review will help guard against your business tripping up.

But if you read through these points and think your business might have blind spots, it’s time to follow up. Work with your in-house or outside counsel to make sure that any further investigations and discussions are privileged. And, of course, be prepared to address any problems you find. It’s never a good idea to identify a potential violation, document it, and then do nothing to fix it.

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.