We all know about dreaded IRS audits, which disrupt business and cost money in professional fees even if there’s no change in returns under examination.
But the IRS isn’t the only government examiner small businesses need to fear.
Here are some other types of audits that the federal government is conducting now.
Audits conducted by the U.S. Department of Labor can be just as onerous as those from the IRS. There are a couple of ongoing areas of concern to the DOL that can trigger audits.
FLSA violations. The DOL continually looks at employers suspected of not paying required overtime, misclassifying workers to avoid the Fair Labor Standards Act (FSLA) for minimum wage and overtime rules, and committing other law violations. For an example, a disgruntled employee may file a complaint that she’s not been paid overtime or a minimum wage.
A DOL auditor can show up at a business, ask to see time slips, payroll records, and other information related to suspected FSLA violations. The auditor can also speak to employees on the premises; the auditor can even contact them at home.
Best defense: Maintain records demonstrating your compliance with the FSLA. For example, keep job descriptions, payroll records, and worker classifications.
ERISA violations. The DOL, along with the IRS, oversees qualified retirement plans. Participants may complain about something, and the DOL will follow up. Or the DOL may act on its own (e.g., spotting errors in forms in the 5500 series).
In 2013 it hired more auditors and expected to audit every plan within 5 to 7 years. Recently, the DOL has been conducting audits of 401(k) plans maintained by small businesses. It’s checking the paperwork regarding investment policies, educational materials provided to plan participants, the fees for investment options, and participation (i.e., that the plan isn’t discriminatory in favor of owners).
Best defense: Follow the DOL’s best practices guidelines for plan administrators. Work with a benefits expert to make sure you are operating your plan in accordance with ERISA requirements.
The Centers for Medicare and Medicaid Services (CMS), which is part of the Department of Health and Human Services (HHS) began last year conducting audits of individuals who claimed a government subsidy (the premium tax credit) when buying health coverage through the Marketplace.
In July, it began sending notices to employers about an employee’s claim that he or she worked full-time for an applicable large employer and was not offered affordable minimum essential health coverage. Employers, while not under the CMS audit, are essentially being examined. If the employee’s claims are so, the employer can be subject to a tax penalty (the employer mandate payment).
Best defense: It’s up to an employer to respond to a notice. Learn more from my earlier blog post.
The Occupational Safety and Health Administration (OSHA) conducts onsite inspections of businesses to ensure the premises are safe for workers. These usually follow a complaint lodged by an employee.
OSHA’s Step-by-Step Guide, which is designed for employees, explains the inspection process for businesses. For example, OSHA rarely gives an employer advance notice of an inspection.
Best defense: You can thwart complaints, accidents, and other problems, by asking OSHA to do a worksite consultation for you. This free consultation can help identify potential hazards. No penalty is imposed for any violations that are found, but you’re expected to fix them.
There’s no end to employer responsibilities, and serious consequences for doing things wrong. Since small businesses don’t have HR departments, they should consider working with outside advisors. The cost of this service to keep out of trouble is substantially less than the time, legal fees, and penalties that could be due after a government audit finds you did something wrong.