Five Record-Keeping Mistakes That Lead to DOL Audits

Why Recordkeeping Triggers Audits

The Department of Labor's Wage and Hour Division (WHD) selects employers for investigation through employee complaints, referrals from other agencies, and targeted enforcement initiatives focused on specific industries. But once an investigation begins, your records are your primary defense. Incomplete, inconsistent, or missing records shift the burden to you — and auditors interpret gaps unfavorably.

Here are five recordkeeping failures that commonly lead to audit problems and costly back-pay awards.

Mistake 1: Not Tracking Hours for All Non-Exempt Employees

The FLSA requires employers to maintain accurate records of hours worked for every non-exempt employee. This includes start and stop times for each workday and total hours worked each workweek.

Common failures include:

• Relying on employees to self-report hours without verification. If an employee reports working 40 hours every week for a year and your records consist only of their self-reported timesheets, an auditor may question whether those records are accurate.
• Not capturing all hours worked. Time spent responding to emails before or after the shift, attending mandatory training, or performing setup and cleanup work counts as compensable time and must be recorded.
• Rounding that consistently favors the employer. Rounding is permissible only if it averages out over time so that employees are fully compensated. Rounding practices that systematically shave minutes create liability.

Fix: Use a reliable timekeeping system — electronic time clocks, mobile timekeeping apps, or web-based systems that capture actual start and stop times. Review records for patterns of unrecorded work.

Mistake 2: Incomplete or Missing I-9 Forms

While I-9 audits are typically conducted by Immigration and Customs Enforcement (ICE) rather than DOL, incomplete I-9 forms can also surface during other investigations and indicate broader compliance problems.

Common errors include missing forms for current employees, incomplete Section 2 (employer verification), expired documents that were not re-verified when required, and forms that were completed late (Section 1 must be completed no later than the first day of employment; Section 2 within three business days of the start of work).

Fix: Conduct an internal I-9 audit annually. Verify that a properly completed form exists for every active employee and that forms for separated employees are retained for the required period (three years from hire or one year from separation, whichever is later).

Mistake 3: Poor Documentation of Exempt Employee Classifications

If an auditor questions whether an employee is properly classified as exempt, you need to produce evidence supporting the classification. This includes documentation of the employee's actual duties and how they meet the applicable duties test, evidence that the employee is paid on a salary basis at or above the required threshold, and records showing the salary has not been improperly docked.

Fix: Maintain a classification analysis for each exempt position that maps the employee's duties to the specific exemption criteria. Keep this analysis current and update it when duties change.

Mistake 4: Failing to Maintain Payroll Records for the Required Period

The FLSA requires employers to retain payroll records for at least three years. This includes each employee's name, address, date of birth (if under 19), sex, occupation, regular rate of pay, hours worked each day and each workweek, total wages paid each pay period, deductions from wages, and the pay period dates.

Supplementary records — time cards, wage rate tables, work schedules, and records explaining additions to or deductions from wages — must be kept for at least two years.

Many employers purge records too early, especially when employees leave. When an audit reaches back two or three years and the records are gone, the employer cannot defend its pay practices.

Fix: Set retention schedules that meet or exceed legal requirements. Many employment attorneys recommend retaining payroll records for at least five to seven years to account for state law requirements and potential litigation.

Mistake 5: Inconsistent or Missing Deduction Authorizations

Every deduction from employee wages — other than those required by law (taxes, garnishments) — should be supported by a signed written authorization from the employee. This includes deductions for benefits premiums, retirement contributions, uniforms, tools, or overpayment recovery.

Unauthorized deductions that reduce pay below minimum wage or cut into overtime are FLSA violations. Even deductions that do not reduce pay below minimum wage can violate state laws, many of which have stricter rules about permissible deductions.

Fix: Maintain signed deduction authorization forms for every voluntary deduction. Review your deduction practices against both federal and state law requirements.

Building a Defensible Recordkeeping System

Good recordkeeping is not about generating mountains of paper. It is about systematically capturing and retaining the specific records that demonstrate compliance:

1. Use electronic systems where possible for accuracy and easy retrieval
2. Assign responsibility for recordkeeping to specific individuals
3. Conduct annual internal audits of your records
4. Establish clear retention schedules and follow them
5. Train supervisors on their role in accurate timekeeping and documentation

When DOL auditors arrive, the employers who fare best are those whose records are organized, complete, and readily available. The time to build that system is now, not the day the auditor calls.