How to handle wage and labor investigations

Labor is one of the top expenses hoteliers face, and it doesn’t come without its own set of issues. In addition to hoteliers pushing to maximize revenue while controlling costs and managing expenses, labor and wage investigations threaten to take another bite out of wallets.

Over the past five years, more than $1.2 billion in back wages were recovered by the Wage and Hour Division of the United States Department of Labor. In 2016 alone, the WHD found more than $266 million in back wages for more than 280,000 workers, and of that $77.2 million in low-wage industries for 106,000 workers.

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It’s clear that the government has no intention of slowing down wage and labor investigations, and hoteliers need to know how to handle an audit in order to protect their business. Deepa Subramanian, associate at Ogletree Deakins, a labor and employment law firm, offered some advice for hoteliers should a federal audit happen at their properties.

First, she said the business will receive a letter in the mail, but it won’t be accompanied by much information and little notice will be given before the auditor’s visit.

“When you get the letter, there could be a variety of reasons. They could have received a complaint or they could be doing random audits of businesses in the area. Or they could be targeting hotels,” Subramanian said during a recent webinar titled “Best Practices When Under a Wage and Hour Investigation” hosted by the Asian American Hotel Owners Association.

Subramanian advised to be as friendly as possible and attempt to reschedule the audit if possible, although the auditor won’t usually grant too much of an extension. In the meantime, hoteliers should start compiling the records requested by the auditor, which can include pay records, overtime records or personnel files. Then, speak with the auditor to determine the scope and purpose for the audit.

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“Don’t be scared to ask them questions, but be cautious,” Subramanian said. “Be careful when talking to the auditor because you’re always on the record. They are never just casually having a conversation with you. Stay guarded but ask for more information.”

Then, Subramanian said it might be time to consult legal counsel before the audit becomes too involved. “We’ll get calls from clients after the first round, and then there may be a possible violation when they come to us. It’s harder for us to deal with because we couldn’t put up the proper protection prior to the audit.”

During the Visit

Subramanian said there are several things hoteliers need to keep in mind to prepare for the auditor’s visit. First, it’s important to verify the auditor’s credentials.

“We have heard stories of competitors coming up with this investigation story to try to get into their competitor’s documents and see what their numbers look like,” she said. “Make sure you check the auditor’s credentials.”

Hoteliers should only gather the documents requested—and don’t give more than what was requested. Have documents ready for review when the auditor gets there, keeping a list of exactly what was provided. It’s equally important not to volunteer additional information outside of the documentation. Then, designate a room where the auditor can look through the records. It’s also a good idea to designate a company representative to be available during the audit. At the end of the audit, ask for a summary of the results.

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When it comes to the documentation, hoteliers need to know what’s in them. Audit and inspect all the documents that will be reviewed so that when questions arise, they can be answered. It’s also important to review timekeeping policies and the employee handbook to stay knowledgeable.

“Know your procedures, because even though the timekeeping policy may not be one of the requested documents, a question might come up from the auditor about how your employees track their time,” Subramanian said. “You want to make sure you know that policy front and back.”

Hoteliers also should not be afraid to stamp confidential or proprietary information and redact accordingly.

“If you have a document that has multiple pieces of information in it and the auditor has only asked for one of those pieces of information and the rest is confidential and you don’t want it to be known, you can redact that document as needed,” Subramanian said.

The auditor might also request to walk around the hotel. He or she won’t disclose the reason for the walk-through, but in most cases auditors are looking to make sure all of the required legal postings are displayed in employee break areas and that the workplace is clean with no safety hazards.

“If there is a potential safety hazard, the Department of Labor may make referrals to [the Occupational Safety and Health Administration],” Subramanian said.

After the Audit

If violations are found, the Department of Labor will work with the hotelier to settle the matter. For example, if the department finds a hotelier has not been properly paying overtime to non-exempt employees, it will calculate and crunch the numbers it thinks the business owes employees.

“At this point you should have an attorney involved, but you would go back and forth with the Department of Labor and try to determine if you can get a different settlement amount so that you don’t necessarily have to give them the amount that they first asked for,” Subramanian said. “You can make a counteroffer and negotiate.”

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If a violation is found and the matter isn’t settled, she said hoteliers will face additional monetary penalties and possibly jail time.