Department of Labor Audits

[geekgirldany]

I had a customer call and said that he received a letter that he is being audited for last year from the State Dept Of Labor.
I've never had a customer audited by the labor dept before. I have always done his payroll. What are some of the reasons the dept of labor may audit a taxpayer?

[taxmandan]

States have become real aggressive about workers' comp insurance coverage and of course the independent contractor vs. employee. It may only be a fishing trip, unless he forgot to mention to his payroll person those 'other non-employee' workers he hires at his business .

[JG EA]

For a few years all my payroll clients were audited each year. It was just something Worker's Comp did.

Occasionally I had forgotten to not charge the 1/3 of overtime and so it came out better for the client.

I haven't had one in in the office for long time, but one of my payroll clients that has a lot of subcontractors is audited all the time. The payroll part is never an issue and fortunately they take care of the subcontractor part because I don't get their books in a timely manner to be able to do so.

[geekgirldany]

Okay, I thought it might have something to do with subcontractors. He does have probably 3-5 subcontractors that I do 1099s on. Thank you guys for the information. Like I said never had one before. Even when I worked for someone else.

[S T]

Labor Board

Labor Board in your State location could be different than what I am used to in California. I don't know about North Carolina yet, as I have no payroll clients here as we speak.

In California what I can share with you is, two different agencies. One agency handles the actual payroll issues and 1099 forms which is EDD, the other Agency which is the Calif Dept of Industrial Relations which handles, Workman's Comp Coverage, Overtime, and unfair Labor practices which can be anything to wrongful termination to discrimination, not paying overtime, etc.

The Labor Board notice that you received should state what they are auditing or want the hearing for and also request certain documentation. So depending on your State, could be Workman's Compensation Compliance, Overtime Issues, or Discrimination, etc.

I have about a 70%/30% ratio of winning with the Calif Dept of Industrial Relations. It is hard to win when an employee files unfair termination in Calif unless we can prove "outright" employee theft! Those were the ones that I lost. We had the documentation, just could not always prove it to satisfy the Board. Overtime has not been an issue, as I watch my payroll clients very closely, and Workman's Compensation coverage is not an issue, as I watch that very closely as well.

Could be if the client recently had the privilege of a Workman's Compensation audit, that the Work comp carrier turned them in, for having a misclassifed independent contractor that should have been an employee.

Sandy

[August @ ADG Financial]

Worker's Comp Audit's

I also do these for our clients. Some of my clients get so frustrated with the auditor because their rates can go up if the audit goes bad. We get a letter from the Compensation Broad for the following records, get them together and meet with the auditor for about 30 minutes. Charge $100. really don’t do much.

Records needed: Payroll Book, Payroll Tax Returns, Cash Book, General Ledger, Tax Returns, Cert. of Insurance for Subcontractors, Invoices and all 1099’s and W-2.

About 4 weeks after the audit owner gets a letter about his new rate. I’ve seen it go up and down. August in NY

[Uncle Sam]

Dep't of Labor Audits

Geek - you're on the right track.
I would expect that the auditors are not only looking for outside contractor documentation with 1099s - but contracts with them looking for the terms of the relationship. IN ADDITION, they would be looking for the certificate of work comp insurance that the outside contractor would need to furnish (depending upon state law).
The employer payroll contributions are only part of what they're looking to reconcile.
Another thought to consider - the auditor also could be looking to check for compliance with submitting W-4 information during the audit period of new employees.

[JohnH]

Sandy: If my experience is representative, you should hope you don't get involved in a Labor Board inquiry In North Carolina. They are nothing at all like Workers Comp audits, which are fairly routine. I've never seen a Labor Board inquiry unless there was an employee complaint regarding minimum wage or unpaid overtime. In the 3 or 4 cases I have seen, it was very unpleasant and adversarial from the initial contact all the way to the end - the employer was assumed to be at fault and there was no way to have a reasonable conversation with the Labor Board agent. Maybe others have had different experiences in NC.

[S T]

NC Labor Board

Thanks John H for the NC info,

California Labor Board audits were not pleasant either and they do tend to take the employee side rather than the employer, but for the clients that I do payroll for, I make them tow the line. I don't allow the employers to play with overtime or other measures, of wages, hours, etc. and almost all of my payroll clients call before a termination. If questionable or in doubt, I have the employer pay the .5 hours( 1/2 hour) of overtime. Payroll files are well documented, even though sometimes they highly scrunitized during a Labor Board Audit.

Thanks to having my employers document actions for probation, termination etc, and video tapes in some cases, we were successful in having a favorable decision from the Calif Labor Board on terminations due to theft, etc. . Only had one issue on overtime and we also received a favorable determination. In Calif, if the Employer can not without a doubt show theft, or risk of harm, the employee is most definitely going to win on a Labor Board Issue, and more than likely will win at the Calif EDD (Unemployment Dept) issue for Unemployment. However, we try the best we can and answer all notices.

Then again, since Calif Labor Board decided to take on the task of Work Comp Compliance, I also make sure my payroll clients have that insurance in place, and I handle the Work Comp audits, so the Work Comp Ins Co, does not report to the Labor Board usually for non comliance. . And we watch the Independent Contractor Status and have the proper documentation to support. I had one construction firm that had an W/C audit, found the Day Labor. The minute I found it in the books I had advised, and sure enough both Agencies in California assessed additional taxes, penalties. Cost that contractor about $4,000 in back taxes, penalites, interest and work comp premiums.

As I said, I don't have any NC payroll clients yet, but I would operate much in the same method.

I am sorry if my prior post sounded like Work Comp audits, as I do those as well. But I have had hand's on experience with the Calif EDD and Calif Labor Audits. I don't like either one of those for sure! They certainly are a challenge and the statisics in favor of the employer are not impressive!

Sandy

[JohnH]

Just to follow up, NC Workers Comp audits are usually pretty easy. I handle most of them via fax or email. The auditors are often independent contractors doing the audits for the insurance companies. The auditor will generally call or write the client for an appointment right away and the client gives the info to me. I'll the contact the auditor & tell them I can't see them for 3-4 weeks, and then offer to email or fax the info within a couple of days (941, NCUI101, copy of W-2 forms, and a payroll summary sheet breaking out overtime). Usually they will go along unless the insurance company insists on a face-to-face visit, because they want to get the report turned in (so they can get paid I guess).

[S T]

Work Comp Audits

John H,

Same in Calif, I have been handling all of my W/C audits by email, fax, mail and a follow up telephone conversation. Makes it easy on the auditor, print out the payroll journals, by quarters or periods, and the same for the state reporting that they need, if business is contractor, turn over the W-9 forms, and state contractors license and a list of payments from QB.

Just received a pre-audit for Calif employer from an agent today, to determine the renewal premium, so can all be faxed or emailed.

Sandy

[geekgirldany]

Thank you all for posting. Very good information! I should be seeing the notice Friday.

I didn't know about workers compensation possibly reporting them. That's very interesting because my customer got into a disagreement with wc over some payments he thought an employee should have received for on the job injuries. Maybe it has something to do with that.

[S T]

Labor Board

Dany,
PM me if you need more info after you receive the notice, we can always talk as well.

Sandy

[Snaggletooth]

SUTA Maybe

I went through a SUTA audit with the Dept of Labor in my state, and it turned out to be the worst audit I've had in 25 years.

In my case, it was a mass reclassification from independent contractors to employee. Absolutely wholesale reclass. If my client paid an extra dime for "full-service" gasoline, this audit would have classified the attendant as an employee.

Collection of SUTA contributions were not really the objective. The big thing in Tennessee is fathers who don't pay their child support. If they are employees, the state will eventually match their SS #s from the quarterly unemployment contribution reports. Then the State will garnishee them immediately without court action.

In Tennessee you have to show your drivers license to buy beer, even if you look like you escaped from a nursing home. This ridiculous thing was touted by the legislature as a means of sparing underage teens from the evils of alcohol, but the REAL reason was to require drivers licenses. The state will jerk someone's license if they are behind on their child support. Failure to pay child support means the state has to cough up welfare money.

Geek, deadbeat fathers have already run away from their responsibility. Running away from Tennessee to a nearby state will not pose a moral dilemma for them.

Guess which nearby state?

[JON]

Dol

in Minnesota does not do WC audits. Usually looking for job classifications, overtime etc-quite often if the State DOL is coming in it is because of a complaint.