By: Judge Ruth B. Kraft, Esq.
Many employers confuse an employment audit as an IRS tax audit, when in fact the two are very different and require different strategic management. Employment audits can begin in one of two ways. If a worker who lost employment, for whatever reason, applies for unemployment and no contributions to the system have been made on behalf of workers, this will trigger an investigation. Both the worker and the employer will be sent questionnaires and asked to provide additional documentation.
Thereafter, a Dept of Labor auditor may call the employer in for an "informal conference". Oftentimes, in my experience, I have seen this is typically the point at which many employers err. They go to the conference alone or with their accountant, who is extremely knowledgeable about IRS audits but may not have a full understanding of the legal dynamics of a labor audit. The other scenario is one in which the employer does not cooperate, either by failing to provide the requested information or by failing to appear. In such instances, the Dept of Labor may send investigators to the workplace. The investigators could identify themselves and ask to see the books or they can just sit or browse. Think of a restaurant, bakery, beauty salon or jewelry store. They basically are counting the number of workers present and will testify at any hearing as to their personal observations. Is it credible that a restaurant is a one-man show? If the owner asserts that the other individuals present were family members or visiting friends, that will not fly with the Dept of Labor.
It is important that every business owner properly document for anyone who does work at their establishment and that each individuals remuneration is evidenced, even if an individual renders services only on isolated occasions, or if a member of the owner's family. In such a case, it becomes apparent that these workers could be undocumented or working in the "gray market", or "off the books". The point here is that cooperation with inquiries is essential and that, to protect your rights as an employer or business owner, you should seek employment counsel at the first point of engagement. This will be much more fruitful than hiring a lawyer just before a hearing when information has already been placed on the table without the advice of counsel.