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Spring Cleaning: Self-audits and Preparing to Respond to External Audits
Practical Law Legal Update 6-525-2570 (Approx. 5 pages)
Spring Cleaning: Self-audits and Preparing to Respond to External Audits
| Published on 19 Mar 2013 • USA (National/Federal) |
Resources to assist employers conducting self-audits and responding to government agency audits.
The first signs of spring often inspire a thorough cleaning of one's home or other affairs to prepare for the new season ahead. Employers that haven't audited their employment practices in a while should consider their own spring cleaning of these practices. President Obama has made clear that he plans to continue his aggressive enforcement agenda in his second term, and now is an excellent time for employers to ensure they are prepared.
Audits by government agencies have been on the rise since President Obama first took office in 2009. Several agencies have received funds to hire additional investigators to ensure employment laws are enforced. For example:
- The Department of Labor (DOL) has added more than 350 new investigators over the last several years to increase enforcement of wage and hour laws, including proper classification of exempt and non-exempt employees, proper overtime payments and a host of other Fair Labor Standards Act of 1938 (FLSA) issues (see, for example, Wage and Hour Division: Bridge to Justice and Article, Wage and Hour Investigations).
- The IRS has increased investigations into classification of independent contractors (see, for example, Legal Update, IRS Expands Voluntary Worker Classification Settlement Program).
- Immigration and Customs Enforcement (ICE) has stepped up its enforcement of employer compliance with immigration laws (see Practice Note, Government Audits of I-9 Forms: IRCA Enforcement: Strategy Against Unauthorized Workers).
- The Equal Employment Opportunity Commission has also made clear that increased enforcement is a priority (see, for example, Legal Update, EEOC Approves Strategic Enforcement Plan for Fiscal Years 2013 through 2016 That Includes a New Enforcement Priority).
- The Occupational Safety and Health Administration (OSHA) has ramped up its audits of employers to ensure compliance with health and safety laws.
Just this week, President Obama nominated employee-friendly Thomas Perez, current head of the Justice Department's Civil Rights Division, as Secretary of the DOL. This move is being hailed by some as a sign of even heightened enforcement efforts to come.
Employers can face severe financial and other consequences if they are found in violation of any of these laws. For example, employers found to have misclassified employees as independent contractors may be liable for back wages, overtime pay, unpaid benefits and unpaid tax obligations (see Practice Note, Independent Contractor Classification). And some agencies, such as OSHA and ICE, may levy major fines against employers.
To best prepare for an audit, employers should consider auditing their own practices before a government agency does. In addition, employers should have a game plan for how they will respond to government audits once they are faced with them. A practiced response will ensure that employers handle the audits as smoothly as possible and minimize their exposure to liability.
Practical Law Company has a collection of resources to help employers both conduct self-audits of their own employment practices and to respond to governmental audits when and if they do face them, including: