Employers face increasing complexities in managing their workforce and adhering to ever-changing employment laws.

One main threat from this complexity comes from violating wage and hour laws. Even minor errors in a company’s pay practices can cause costly legal disputes, damage to a company’s reputation, and financial penalties. One of the best ways to minimize these threats is to get in the habit of conducting a routine wage and hour audit.

The Benefits of a Wage and Hour Audit

An effective wage and hour audit has numerous benefits.

  1. It will ensure your pay practices conform to the latest legal requirements.
  2. If errors exist in your pay practices, you can take prompt remedial action minimizing the legal exposure.
  3. A successful audit can enhance employee morale. Transparent and fair compensation practices are crucial for maintaining positive employee relations. By conducting regular audits, you send a message to your workforce that their well-being and rights are important to your organization. This commitment can foster employee loyalty, boost morale, and improve overall job satisfaction.
  4. A proper wage and hour audit can help you identify inefficiencies in your payroll processes and systems helping you gain efficiencies.
  5. Finally, if you make an error with your classification decisions, reviewing your practices in good faith can itself minimize exposure.

The best local example of this last point is shown by the Fourth Circuit decision of Calderon v. GEICO Gen. Ins. Co. The Calderon plaintiffs sued GEICO seeking overtime pay and claiming a certain position at GEICO was improperly treated as an exempt position.

The Calderon court found plaintiffs were correct that the position was improperly classified as exempt. But the Court determined GEICO did not violate the wage and hour laws willfully. Central to the court’s finding was two audits GEICO performed examining whether the position was exempt.

While the court concluded GEICO got it wrong and the position was non-exempt, it found the evidence showed GEICO tried its best to resolve a difficult exemption question and did so reasonably. The finding removed an entire year of overtime exposure for GEICO. Such a result never would have been possible had GEICO not audited its classification decisions in good faith.

Conducting the Wage and Hour Audit

Conducting routine wage and hour audits is an essential practice for any business seeking to ensure compliance with employment laws, mitigate risks, and improve operational efficiency.

The benefits are far-reaching, from avoiding legal disputes and financial penalties to fostering positive employee relations and gaining a competitive advantage. Avoiding the issue is a risky proposition given the increasing number of wage and hour claims and litigation.

Before you get started with your audit, you should consult your legal counsel to make sure the review is structured to best protect your business.

For more information, contact Michael Neary at 301-657-0740 or [email protected].