How to Prepare for a Department of Labor Audit

10/28/2025

A Department of Labor (DOL) audit can arrive without warning — and how your HR team responds determines whether it’s a quick review or a compliance nightmare. From verifying payroll records to reviewing leave documentation, preparation is everything. In this guide, we’ll walk through how to prepare for a DOL audit, including what triggers an investigation, what documents auditors review, and how to organize your files for a smooth, stress-free process.

What Triggers a Department of Labor Audit?

A notice from the Department of Labor can feel random, but audits are rarely arbitrary. They are often initiated by specific events or patterns that catch the agency's attention. Understanding these triggers is the first step toward building a proactive compliance strategy.

The most common trigger is an employee complaint. A current or former employee who believes their rights were violated under laws like the Fair Labor Standards Act (FLSA) or the Family and Medical Leave Act (FMLA) can file a claim, prompting the DOL to investigate. These complaints might relate to unpaid overtime, misclassification, or denial of protected leave.

Even without a direct complaint, the DOL conducts both random and targeted audits. Targeted industries, such as hospitality, construction, or agriculture, which have historically higher rates of wage and hour violations, are often subject to greater scrutiny. The agency may also launch investigations based on inconsistencies it identifies in payroll tax filings or employee benefit plan reports. Data-sharing agreements between federal and state agencies can also flag patterns of non-compliance, leading to a comprehensive DOL compliance review.

Understanding What the DOL Reviews During an Audit

When a DOL investigator arrives, they have a broad mandate to review records related to federal labor laws. Their primary goal is to ensure your organization is compliant across several key areas.

Wage and Hour Compliance

This is the cornerstone of most DOL audits. Investigators will meticulously examine your payroll records, timecards, and pay rate documentation to ensure you are complying with the FLSA. They will verify that non-exempt employees are paid at least the minimum wage, that overtime is calculated correctly at 1.5 times the regular rate of pay for all hours worked over 40 in a workweek, and that your exempt employee classifications are legally sound.

FMLA and Leave Policies

If the audit includes a review of FMLA compliance, the investigator will examine your entire leave administration process. This includes verifying that you provide all required notices (Eligibility, Rights & Responsibilities, Designation), that you are correctly tracking FMLA leave balances, and that your documentation for leave approvals and denials is complete and consistent. They will also review your employee handbook to ensure your leave policies align with the law.

Employee Classification and Benefits

Employee misclassification is a major red flag for the DOL. Auditors will scrutinize the distinction between your independent contractors and employees to ensure workers are not improperly classified to avoid paying payroll taxes or providing benefits. They will also review benefit plan documents and enrollment records to confirm that all eligible employees have fair access to benefits and that contributions are handled correctly under laws like the Employee Retirement Income Security Act (ERISA).

DOL Audit Checklist for HR Professionals

True audit readiness is not about scrambling when a notice arrives; it’s about maintaining a constant state of compliance. Use this checklist as a guide for your ongoing HR practices:

• Maintain Up-to-Date Handbooks: Your employee handbook and all related policy documents should be reviewed and updated annually with legal counsel.
• Keep Records Separate and Confidential: Store I-9 forms in a dedicated binder separate from personnel files. All medical-related documents, including FMLA certifications and ADA accommodation records, must be kept in a secure, confidential file with restricted access.
• Verify Payroll Records: Ensure that all wage statements and pay records are accurate, complete, and retained for at least three years as required by the FLSA.
• Follow Retention Guidelines: Maintain all hiring, training, discipline, and safety records according to the specific retention schedules set by federal, state, and local laws.
• Confirm Labor Law Postings: Regularly check that all mandatory federal and state labor law posters are displayed in a conspicuous location accessible to all employees.

Steps to Take When You Receive an Audit Notice

Receiving an official audit letter from the DOL can be stressful, but a calm, methodical response is crucial. Follow these steps to manage the process effectively from the start.

Step 1 — Notify Internal Stakeholders Immediately

Do not delay. As soon as you receive the notice, inform your internal leadership team, including the head of HR, the CFO, the head of payroll, and your legal counsel. Assembling your response team early ensures everyone is aligned and understands their role in the process.

Step 2 — Request Clarification in Writing

The initial notice may be broad. It is appropriate to contact the assigned DOL investigator to politely request clarification in writing. Confirm the exact scope of the audit (which laws, which employees, and what time period), the specific documents being requested, and the proposed timeframe. This helps you avoid inadvertently providing more information than is required.

Step 3 — Assemble and Review Requested Materials

Begin gathering only the documents that were specifically requested. Before submitting anything, conduct an internal pre-audit review. This is your chance to identify and, if possible, correct any inconsistencies or errors. For example, you might find a miscalculation in an overtime payment that you can fix and document before the auditor sees it. This demonstrates good faith and a commitment to compliance.

How to Organize Records for a Smooth Audit

Disorganized records can slow down an audit and raise suspicion. A well-organized system, on the other hand, projects competence and makes the investigator's job easier, which can lead to a smoother, faster process.

Use a secure, digital document management system to store audit-ready files. Digital records are easier to search, secure, and share with auditors in a controlled manner. Whether digital or physical, your filing system must strictly separate medical records from general personnel files. Create clear, consistent labeling conventions for different types of documents, such as "Payroll_2024_Q3," "FMLA_Leave_Requests," or "Disciplinary_Actions." This logical structure enables you to pull requested information quickly and accurately.

Common HR Mistakes That Raise Red Flags

During an audit, certain mistakes will immediately capture an investigator's attention and lead to deeper scrutiny. Being aware of these common red flags can help you avoid them.

Missing or Inaccurate Pay Data

Incomplete or sloppy time records are a major red flag. If timecards have missing entries, inconsistent rounding practices, or manual edits without explanation, it suggests that your wage and hour tracking is unreliable. Investigators will dig deeper to see if these inaccuracies have led to underpayment of wages.

Misclassification of Employees

Misclassifying employees as exempt from overtime or as independent contractors is one of the most costly mistakes an employer can make. If an auditor finds even one employee who is misclassified, they will likely expand their investigation to review the classification of all employees with similar job titles, potentially uncovering systemic issues.

Lack of Training on Leave and Overtime Laws

When supervisors are not trained on the basics of employment law, they often make critical errors. A manager who discourages an employee from taking FMLA leave or tells a non-exempt employee to work "off the clock" creates significant liability. An auditor can often spot this pattern through employee interviews, which are a standard part of many DOL investigations.

Best Practices for Communicating with DOL Auditors

Your interactions with the DOL investigator should always be professional, respectful, and strategic. Your goal is to be cooperative without volunteering unnecessary information.

Appoint a single, well-prepared person from HR or your legal team to be the sole point of contact for all communications with the auditor. This prevents conflicting information and ensures that all requests are managed centrally.

When responding to questions, be transparent but concise. Answer the specific question that was asked, and do not elaborate or offer unsolicited information. Remember to document everything. Keep a detailed log of all documents you submit, all correspondence, and summaries of all conversations with the investigator.

After the Audit: Follow-Up and Remediation

The audit process doesn't end when the investigator leaves. Your response to the findings is a critical part of your compliance journey.

The DOL will issue a formal letter detailing its findings and outlining any violations discovered. Review these findings carefully with your legal counsel and note any deadlines for response or remediation. If the audit uncovered issues like unpaid wages, you will need to issue back pay immediately.

Use the audit findings as a roadmap for improvement. If the DOL identified gaps in your recordkeeping, implement new procedures and train your team to prevent repeat violations. Document every corrective action you take to demonstrate your commitment to resolving the issues.

How to Build Long-Term Audit Readiness in HR

The best way to handle a DOL audit is to be prepared for one at all times. This requires building a culture of compliance and integrating audit readiness into your daily HR operations.

Schedule internal self-audits at least once a year. These audits, which should mirror the scope of a real DOL investigation, help you identify and fix problems before a government agency does.

Invest in regular training for supervisors and managers. They need to understand the basics of wage and hour laws, FMLA/ADA requirements, and proper employee classification to avoid making costly mistakes on the front lines. Finally, maintain a library of up-to-date templates for everything from FMLA notices to performance improvement plans to ensure consistency and compliance across the organization.

Key Takeaways for HR Compliance Teams

A proactive approach to compliance is always better than a reactive one. A DOL audit can be a manageable event for organizations that prioritize preparation. By keeping all pay, classification, and leave documentation organized and accurate, you build a strong defense. Regular training and internal policy reviews are not just best practices; they are essential strategies that dramatically reduce your audit risk and protect your organization’s financial health and reputation.

Get your HR audit checklist today and ensure your organization is ready for any DOL compliance review.