Employment Audits Now Can Prevent Fines Later
The past several years has seen companies large and small hit with fines and civil penalties totaling millions of dollars for violating employment laws. In one recent case, the owner of two New Hampshire restaurants agreed to pay nearly $900,000 in back wages and penalties to 63 employees for violating the Fair Labor Standards Act (FLSA).
But complying with federal employment laws and regulations can be burdensome. With frequent updates and amendments, the deadlines, and the massive amount of paperwork and documentation needed for compliance, it’s no wonder some employers just shrug and put off these responsibilities.
Yet, by not obeying federal and state employment mandates, your company could face audits or penalties from U.S. Citizenship and Immigration Services, the Department of Homeland Security, Federal and/or State Department of Labor (DOL), and the Internal Revenue Service (IRS), costing you money, time, and your valuable business reputation.
Being proactive to stay on top of all the federal and state employment regulations is a massive task which may overwhelm your HR department. OperationsInc’s HR compliance experts can handle your HR compliance at the federal, state, and local levels, keeping your company compliant with I-9s, FLSA, and the Affordable Care Act (ACA), among others. As part of our commitment to helping non-profit organizations further their missions, we offer special discounts on these services to qualifying NPOs. Non-profit organizations must also abide by federal employment laws. OperationsInc is committed to helping non-profits remain compliant with employment laws as they continue to provide much-needed help throughout their communities.
The importance of accurate I-9 forms
In January, an Administrative Law Judge fined a staffing company with fewer than 50 full-time employees more than $1.5 million for non-compliance with I-9 rules. The company’s I-9 forms were missing information, verifications, and signatures, especially on the forms of their seasonal workers.
The Department of Homeland Security and U.S. Citizenship and Immigration Services take I-9 forms very seriously. Employers use I-9 forms to verify worker employment eligibility and attest that they don’t have undocumented workers on their payroll. One common mistake made by employers is not using the correct or current I-9 form when hiring new personnel. Using an outdated version when a newer I-9 is available may cause an unwelcome audit notice.
Employers should review all I-9 forms they completed between May 2020 through April 2022. During the COVID pandemic, the Department of Homeland Security allowed employers to use expired driver’s licenses and expired state ID cards for I-9 identification purposes. As of May 1, employers will no longer be able to access expired identification cards to verify an employee’s work eligibility. All employers who accepted expired identification documents need to update their employees’ I-9 forms by July 31 or potentially face audits and fines.
Other common I-9 mistakes include incomplete or incorrect information on the form, failing to provide or verify supporting documentation, or missing filing deadlines. Homeland Security increased penalties for I-9 violations in 2021 and again in 2022, from a minimum of $252 for each paperwork violation to more than $5,000 for a first-time recruiting and rehiring violation.
It only takes one complaint for an FLSA audit
A Fair Labor Standards Act (FLSA) audit can happen to a large or small business without notice and at any time. All it takes is one complaint from an employee not being paid at least the minimum wage or not receiving time-and-a-half pay for work over 40 hours per week. It’s also a violation to fire or discriminate against an employee who has filed a wage or hour complaint, and such actions could lead to additional fines for retaliation.
One recent Department of Labor investigation resulted in two Connecticut business owners paying $150,000 to employees for back wages and damages. In this particularly egregious case, the employers threatened workers and ordered them to kick back $50,000 of wages they were owed. One employee was fired, and others were threatened with termination, blacklisting, law enforcement, and immigration consequences.
When completing an audit, the DOL will inspect employer payroll records for the previous two years, reviewing the records of current and former employees. If auditors suspect that an employer has violated the FLSA, investigators will go back though three years of payroll records.
The DOL looks carefully for repeat FLSA offenders who fail to maintain records and overtime payments, improperly classify employees as independent contractors, take unlawful wage deductions from employees, and pay immigrant workers and minors less than minimum wage. Employers, managers, and supervisors who seize tips from restaurant wait staff and bartenders are also scrutinized and penalized by the DOL.
Employers who willfully or repeatedly violate the FLSA may be prosecuted and fined up to $10,000. A second conviction may result in prison time. Employers who violate the minimum wage or overtime pay requirements are subject to a civil penalty of up to $1,000 for each violation and must pay back wages.
Incomplete ACA Forms Draw IRS Attention
The IRS will investigate and penalize employers who fail to provide affordable healthcare coverage to at least 95% of their full-time employees. An “affordable” plan is one that the lowest paid employee can afford.
In one example of a violation, to avoid paying the Affordable Care Act’s employer mandate, the restaurant chain Dave & Buster’s cut employee hours to avoid having them count as full-time employees. The class action lawsuit filed in federal court resulted in the restaurant chain paying a $7.4 million settlement claim brought by current and former employees. In addition, Dave & Buster’s was enjoined from the activity that was the central charge of the suit.
Since January 1, all health plans offered by employers must be no more than 9.61% of an employee’s household income for employer-sponsored self-only coverage to be ACA affordable. If the offered health insurance to ACA full-time employees and the contribution amount is greater than 9.61% of their household income, employers could be subject to penalties from the IRS under the healthcare law’s employer mandate. For the 2022 tax year, the penalty per employee offered unaffordable coverage is $343.33 a month or $4,120 annually.
If incomplete and incorrect 1094 and 1095 forms are submitted to the IRS, the forms will be rejected. Penalties will result for employers who don’t have accurate information on these forms or fail to file the returns on time. Other factors that may trigger an audit include vague, nonspecific information and inaccurate work hours, especially if there are multiple employees who don’t meet the 130-hour-per-month work limit required for ACA eligibility.
For the tax year 2022, the penalty amount is $280 per return, if filed after the August 1, 2023, deadline. The penalty increases to $570 if an employer intentionally disregards the filing deadline.
Businesses today have so much on their plates, it’s difficult to keep up with ever-changing employment laws and regulations. OperationsInc offers complete HR, payroll, and I-9 audits to ensure your company is compliant with the regulations instituted by the DOL, U.S. Citizenship and Immigration Services, Homeland Security, and the IRS.
