Nightmare on Overtime Street

Compliance Gone Wrong: How One Business Learned the Hard Way

In today’s highly regulated business environment, compliance isn't just a box to check—it's essential for protecting your company from legal, financial, and brand reputation risks. A small payroll or labor law oversight can lead to costly fines and severe disruptions to your operations.?

Let us journey together through a true story where one such oversight resulted in an expected visit from the U.S. Department of Labor, turning a regular workday into a "Nightmare on Overtime Street," illustrating how even an unintentional mistake can come back to haunt you if compliance isn't prioritized.?

[Please note: Names have been changed for privacy.]

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It was the last Friday of October, and all the employees at 123 Plumbing were excited about the Halloween festivities planned for the weekend. As Jerry's employees filed in one after another for their 7:30 A.M. start time, he noticed a tall lady dressed in a black suit who was quickly approaching the entrance to the building. “Who could this be so early in the morning?” Jerry asked himself. “Maybe she’s just lost and needs directions.”?

“Good morning, how can we help you?” Jerry asked. She didn’t respond at first but instead handed Jerry a letter from the U.S. Department of Labor (DOL) that was addressed to him. “My name is Deloris from the U.S. Department of Labor, and I’m here to conduct a wage and hour audit on your company,” she explained. Confused and caught off guard, Jerry tried to quickly understand what was happening since he had never heard from the U.S. Department Of Labor. As he read the letter, he was horrified to find out that the audit was scheduled for today, at 8:00 A.M.!

Jerry thought there must be some kind of mistake since he had never received anything from the U.S. Department of Labor, but that didn’t matter.? According to the DOL Agent, “No we did not send you anything prior, this is your notice. Can you show me where I can sit for the next few days?” Jerry asked if they could schedule another time that was more suitable, but that was not an option, unfortunately. He decided to make a quick call to his attorney asking if the Department of Labor could legally do this without notice and his attorney replied, “Yes, you need to provide her with whatever documentation she is asking for.”?

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For the next few days, Deloris requested time records, pay stubs, payroll reports, and job descriptions for each of his 48 employees. The owners spent the next two days gathering information from their accountant, payroll system, physical files, and time system to be scrutinized by Deloris and her DOL audit team. Jerry asked, “What caused this audit? Was it due to a prior employee making a complaint?” Deloris calmly replied, “We are not able to legally disclose the reason for the audit.” Feeling helpless, Jerry became frustrated at how intrusive this process was becoming. “How can the DOL come into my company unannounced and disrupt our operations?” he thought to himself before remembering what the attorney had advised. ?

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Having to gather all the time records proved to be the hardest task to accomplish since they requested all records going back three years. 123 Plumbing had just transitioned to an online timekeeping platform the previous year, but prior time tracking was recorded on physical time cards. This meant that he had to submit two year’s worth of time cards for each employee which took hours to compile. When Jerry thought all records had been retrieved and submitted, Deloris asked for the time records of three additional employees that were missing.

“We don’t have time records for these employees because they are salary and don’t track their hours,” Jerry explained. Deloris looked sternly at Jerry, “These employees should have time records because their positions are eligible for overtime according to the Fair Labor Standards Act (FLSA)” Deloris stated. “Even though they are salaried employees, their duties don’t qualify them as exempt from overtime.” Jerry was more confused than ever, having no idea that salaried employees could be eligible for overtime, and was clueless about the FLSA.

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Deloris left the company headquarters with all the information she had gathered and told Jerry that her decision would be completed in a couple of weeks. Jerry waited anxiously as the worst-case scenarios haunted him. He always tried to be fair to all his employees and would never intentionally do anything that would be considered illegal or non-compliant, but that wouldn’t matter.

After two weeks, the DOL contacted Jerry explaining that 123 Plumbing was ultimately in violation for not paying overtime for the three employees as required by the FLSA. “How would you assume they worked overtime if we have no time cards?” Jerry asked. “How would we know they did not work overtime if their time was not tracked? When time records are not available, we have to use a DOL formula for determining how much overtime was worked during the three-year time period.” At this point, Deloris showed Jerry the calculation used for the three employees which resulted in approximately $19,000 in overtime due to the employees. Jerry was floored by the amount. Deloris added, "We typically will apply penalties/fines for the overtime violations in addition to the back pay, but we are deciding to waive the fines since you have been cooperative throughout this audit.”

In the end, Jerry had to pay each employee their respective overtime pay due and provide proof of payment to the Department of Labor. What started off as a normal Friday before Halloween had turned into one of the worst situations Jerry had experienced in his 20+ years of owning his business. Following the situation, Jerry complied and took all the measures to ensure that this Nightmare on Overtime Street would never happen again!?

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In the wake of Jerry's harrowing experience, it's clear that compliance isn't just a bureaucratic formality—it's a crucial safeguard for your business. The "Nightmare on Overtime Street" serves as a stark reminder that even unintentional oversights can lead to significant financial and operational consequences. As regulations evolve and become more complex, staying informed and proactive about compliance is no longer optional—it's imperative. Don't wait for a surprise visit from the Department of Labor to reveal gaps in your compliance strategy. Instead, take action now to ensure your business practices align with current labor laws.?

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