FLSA Compliance & Wage and Hour Audit

An FLSA audit is a systematic review of an employer’s pay practices, job classifications, and recordkeeping against the requirements of the Fair Labor Standards Act. The audit identifies workers who may be misclassified as exempt when they should receive overtime pay, employees whose hours are not properly captured, and pay practices that fall below minimum wage requirements. A proactive internal FLSA audit allows employers to correct problems before a Department of Labor investigation or employee lawsuit forces them to.

Non-exempt employees must receive overtime pay at 1.5 times their regular rate for all hours worked beyond 40 in a workweek. Whether an employee qualifies as exempt depends on both a salary threshold test and a duties test. As of 2024, the minimum salary for exempt status is $684 per week ($35,568 annually). Employees who fail either the salary test or the duties test — regardless of their job title — must receive overtime pay. Common misclassifications include assistant managers, inside sales staff, and employees with mixed duties.

The most common FLSA violations include: (1) misclassifying employees as exempt when they do not pass the duties test; (2) failing to pay for all hours worked, including pre-shift activities, required training, and time to complete required paperwork; (3) rounding time incorrectly in the employer’s favor; (4) making improper deductions from exempt employee salaries; (5) failing to include all required pay (bonuses, commissions, shift differentials) in the regular rate when calculating overtime; and (6) requiring off-the-clock work. Any of these can result in back wages, liquidated damages, and civil penalties.

FLSA violations can be extremely costly. Employers found in violation must pay all back wages owed for up to two years (three years for willful violations), plus an equal amount in liquidated damages — effectively doubling the liability. The DOL can also assess civil money penalties of up to $1,000 per violation for repeated or willful violations. In class action lawsuits, total settlements routinely reach hundreds of thousands or millions of dollars when violations affect large groups of employees.

The statute of limitations is two years for non-willful FLSA violations and three years for willful violations. Employees can recover back wages, liquidated damages, and attorney’s fees for unpaid wages going back up to three years. Employers have no right to assume a violation is “too old” to matter — the clock runs from the date of each violation, meaning recurring pay practices create ongoing liability.

No. The FLSA requires employers to pay non-exempt employees for all hours worked, including time the employer “suffers or permits” the employee to work — even if the employer did not explicitly request the work. Employers cannot instruct employees to work off the clock, use company equipment after hours without compensation, or complete required training on personal time. Employers have an affirmative duty to establish accurate timekeeping systems and prohibit off-the-clock work. Allowing it to continue, once discovered, creates liability regardless of whether it was explicitly authorized.

Most investigations begin with a complaint from a current or former employee. Investigations can also be triggered by industry-wide sweeps targeting high-risk sectors (construction, food service, healthcare), random audits, or referrals from other agencies. Once an investigation opens, the Wage and Hour Division has authority to review up to three years of payroll records, interview employees without supervisors present, and examine time records, employment classifications, and pay policies. Employers have no right to advance notice — which is why continuously accurate records and proactive audits are essential.

For the most common exemptions (executive, administrative, and professional), an employee must pass both a salary basis test and a duties test. Under the salary basis test, the employee must receive at least $684 per week as a predetermined, fixed salary not subject to reduction based on hours worked. Under the duties test, the employee’s primary duty must meet specific DOL criteria. Titles are irrelevant — classification depends entirely on how the employee actually spends their working hours. Catapult conducts a systematic review of each job classification against current DOL guidance to identify and correct misclassification risk before it becomes a liability.