Conducting Proper Employment Practices with a Wage and Hour Audit

Running a staffing business entails managing many details, and your client may need to conduct proper employment practices with an audit. The Fair Labor and Standards Act, or FLSA, is essential in ensuring compliance. The federal government enacted this regulation to protect workers from exploitation and unjust employer actions, and it prohibits child labor.

How Employment Practices Works

The federal government’s Department of Labor conducts wage and hour audits either with or without prior notice, and staffing agencies must be ready at all times by staying informed about proper employment practices and conducting self-audits. 

Audits and Employment Practices

The Department of Labor periodically checks on companies through wage and hour audits. These checks might be random, or the Department of Labor might focus on particular industries. This federal agency might also audit companies with previous FLSA violations or new complaints. During these checks, auditors usually inspect payroll records for the past two years for both current and former employees.

If federal auditors find a willful violation, the U.S. Secretary of Labor may sue for past wages and an equal amount of liquidated damages. Furthermore, staffing agencies could face heavy civil penalties for willful violations. Employment practices liability insurance helps protect employment agencies from potentially devastating fines incurred from federal wage and hour audits. 

Conducting FLSA Self-Audits

Preparation is the key to successful FLSA inspections. It is why clients should perform wage and hour audits themselves and carry employment practices liability coverage. A thorough FLSA compliance self-inspection involves multiple steps. This well-spent time could save staffing agencies thousands of dollars in fines. Companies should review multiple employment practices and paperwork, including regular and overtime pay calculations, employee classifications, and records and policies. 

Each of these areas could pose risks for potential fines and penalties. 

Regular and Overtime Pay Calculations

This business aspect of a self-audit ensures proper practices and calculations they have used. Initially, the inspection would include checking cases, such as employees working in different positions with different pay scales and unique timekeeping systems. There is also a need to ensure all hourly employees receive at least $7.25 as mandated by federal law, although some states have mandated hourly rates higher than $7.25. Likewise, ensuring all employees who worked overtime received time-and-a-half pay for every hour over 40 weekly hours is vital. 

Good employment practices mean staffing agencies and all companies must be able to account for payment given to each employee along with hours worked.

Records and Policies

A comprehensive internal audit should review timekeeping practices in many essential areas, including:

  • Payment and pay period dates
  • Total wages for every pay period
  • Time when workweek begins, day and hour
  • Up-to-date employee information

In short, timekeeping must be thorough and focused, detailing a company’s payroll operations transparently.  

Employee Classifications

Companies must be able to classify employees accurately as exempt or non-exempt based on federal criteria.

Solid Employment Practices and Self-Audits Decrease Risk

Companies with proper employment practices have decreased risks of failing government wage and hour audits. Companies that regularly conduct their own internal audits reduce financial risks even further. Businesses with the slightest risk also carry employment practices liability insurance. 

About World Wide Specialty Programs

For the last 50 years, World Wide Specialty Programs has dedicated itself to providing the optimal products and solutions for the staffing industry. As the only insurance firm to be an ASA commercial liability partner, we are committed to that partnership and committed to using our knowledge of the industry to provide staffing firms with the best possible coverage. For more information about Staffing Professional Liability Insurance or any other coverage, we have available to protect your staffing business, give us a call at (877) 256-0468 to speak with one of our representatives.