FLSA Self-Audit: A Practical Guide And Compliance Checklist For Employers

The Fair Labor Standards Act (“FLSA”) remains one of the most frequently litigated employment laws making wage and hour compliance of critical importance for all employers. Employers should treat wage and hour compliance as an ongoing operational priority – not a one-time exercise – and conduct periodic internal audits to ensure policies and practices comport with the law. For Pennsylvania employers, compliance obligations do not stop at federal law. The Pennsylvania Minimum Wage Act (“PMWA”) and the Pennsylvania Wage Payment and Collection Law (“WPCL”) impose additional more stringent requirements. Employers operating in other states or multiple states, should conduct an audit reflecting on both the federal and state specific jurisdictional requirement.

An FLSA audit is an internal proactive review of pay practices, classifications, and recordkeeping to ensure compliance with federal and state wage and hour laws. The benefits of conducting an internal audit include identifying misclassification risks, reducing exposure to collective and class actions, ensuring proper overtime and wage payments, strengthening defenses in the event of claims or investigations, and promoting consistency across operations. Risks from an internal audit are created when employers conduct an audit, but do not address noncompliance. Once the Company has notice of noncompliance, a failure to correct creates a “knowing” violation, subjecting the employer to additional fines and penalties. Audits should be conducted with care as to how documentation is created and maintained, who conducts the audit, and how the results will be dealt with. Below is list of areas for employers to consider when conducting internal compliance audits.

1. Employee Classification Review 

• Confirm exempt employees meet both:
  • FLSA requirements (salary and duties)
  • Pennsylvania requirements – Pennsylvania does not recognize a separate “computer professional” exemption
  • PMWA-specific duties tests (more stringent)
• Re-evaluate administrative exemptions carefully under Pennsylvania law
• Audit job descriptions against actual duties and make any necessary revisions

2. Independent Contractor Analysis 

• Apply federal “economic realities” test
• Consider Pennsylvania-specific scrutiny in misclassification enforcement
• Review written agreements and actual working conditions

3. Timekeeping Practices

• Ensure accurate tracking of all hours worked
• Pay particular attention to:
  • Remote work
  • Off-the-clock communications
• Enforce policies prohibiting unpaid work

4. Overtime Compliance

• Confirm overtime is paid after 40 hours in a workweek
• Ensure proper calculation of the regular rate under both federal and state law
• Review inclusion of bonuses and commissions

5. Payroll and Compensation Practices

• Ensure compliance with minimum wage and overtime rates
• Review all bonus, commission, and incentive plans for compliance with WPCL requirements
• Confirm all promised compensation is paid timely

6. Wage Payment Compliance (WPCL Focus)

• Verify pay frequency complies with Pennsylvania law
• Ensure written policies clearly define when bonuses/commissions are “earned”
• Assess risk of officer or management liability

7. Recordkeeping Requirements

• Maintain payroll and time records for required periods
• Ensure documentation supports hours worked and compensation calculations
• Review template offer letters or other agreements for consistency and compliance with state requirements
• Keep signed compensation agreements where applicable

8. Policies and Training

• Update wage and hour policies to reflect both FLSA and PMWA
• Create policies and train managers on:
  • Distinguishing between exempt and non-exempt roles
  • Overtime obligations and calculating regular rate of pay
  • Prohibition on off-the-clock work
  • Maintaining accurate records
  • FLSA Safe Harbor provisions
• Educate leadership on WPCL risks and personal liability exposure

9. State Law Overlay

• Conduct a side-by-side compliance review:
  • FLSA vs. PMWA vs. WPCL
• Monitor Pennsylvania regulatory and case law developments
• Pay attention to multi-state inconsistencies if operating across jurisdictions

This list lends itself to a customized internal checklist that can be used to evaluate wage and hour practices. Your employment and labor counsel can be helpful in structuring the audit and how to correct any issues of noncompliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.