In 2018, the Wage and Hour Division (WHD) witnessed a record-breaking increase in the number of wage and hour claims against employers, recovering nearly $304 million in unpaid violations. Two years later, a global pandemic has turned business operations upside down and made compliance more difficult than ever.
Employers are currently facing unprecedented workforce management challenges. Luckily, the Wage and Hour Division (WHD) has made adjustments to face concerns head on. In June, the WHD announced that they would no longer be assessing pre-litigation liquidated damages for a number of circumstances. In light of COVID-19, the WHD may be offering leniency in the hopes of encouraging employers to use the Payroll Audit Independent Determination (PAID) Program and resolve payroll mistakes as quickly as possible.
Let’s talk through COVID’s latest impact on the WHD and why now may be the best time to conduct a payroll audit for your hourly workforce.
Update on Liquidated Damages
In the past, additional fees were owed for every dollar in back wages owed in FLSA wage-and-hour violations—on top of liquidated damages. As of July 1, however, the WHD has stopped assessing pre-litigation liquidated damages for any of the following reasons:
- there is no clear evidence of bad faith and willfulness;
- the employer’s explanation for the violation(s) show that the violation(s) were the result of a bona fide dispute of unsettled law under the FLSA;
- the employer has no previous history of violations;
- the matter involves individual coverage only;
- the matter involves complex section 13(a)(1) and 13(b)(1) exemptions; or
- the matter involves State and local government agencies or other non-profits.
With many of the costs from liquidated damages lifted, now may be the best time to consider conducting an audit within your business. Doing so means taking a proactive approach towards resolving FLSA issues and lowering the overall cost of any HR mistakes that were made in the past.
Why Now May Be the Best Time to Audit (The PAID Program)
As previously stated, the WHD promotes PAID as a way for employers to correct unintentional FLSA violations without the need for litigation. It provides a chance to correct payroll mistakes your business may have made since the start of the coronavirus without the same consequences as past violations.
Consider the following reasons to conduct an audit:
- To assuage concerns that COVID-centered changes may have led to improper payouts within the last year;
- To compensate disrupted HR processes that led to missed pay periods;
- To avoid the burden of litigation and compounded fees by self-reporting possible violations to the WHD’s Payroll Audit Independent Determination (PAID) program; or
- To re-assess your current HR software solutions or manual processes for accuracy.
As previously mentioned, the PAID program allows employers to work with the WHD to correct FLSA mistakes and manage wage-related issues as the world adapts. Regardless, auditing will help you proactively avoid wage and hour issues. Check out our blog the pros and cons of conducting audits through the PAID program for more information.
How to Conduct Payroll Audits
In order to avoid costs associated with wage and hour violations, you may be considering conducting an audit or reporting violations to the PAID program. If that’s the case, here are some recommended steps for completing an audit:
- Review the employees listed on your payroll. Verify that the employees listed in your system actively work for you or did during your desired audit period. If more workers are listed than you had or currently have working for you, make corrections immediately.
- Analyze payroll records closely within the audit period. Examine your employees’ pay rate(s), hours worked, and final payout to ensure you’ve paid each the correct amount. Make sure pay rates are up-to-date and any raises or salary reductions match your employee’s records.
- Verify time is correctly labeled. If you offer your employees paid time off (PTO), you need to make sure it has been properly labeled in your records. That way, you can subtract used paid time off from your employee’s available PTO and confirm you’ve paid employees correctly for time actually worked.
- Reconcile your payroll. Compare your audit findings with pay records to verify that your totals match your bank withdrawals/statements and general ledger. If there is a discrepancy, closely examine your records to identify the root of the problem.
- Confirm tax withholdings, remittance, and reports are accurate. Verify you withheld and remitted the correct tax amount from employee pay—and that those numbers match IRS payroll reports as well. Make sure to include federal income, Social Security, and Medicare taxes from each employee’s wages in addition to state or local taxes.
How EPAY Can Help Employers
With EPAY’s Payroll and Tax solution, conducting payroll audits and securing compliance is easier than ever. Our time and attendance system connects directly to our payroll software to eliminate manual processes and ensure optimum accuracy. Our solution also maintains detailed time and attendance records to serve as your on demand audit trail at any point in the year.