Payroll Audits: What Every Church Should Know
Payroll Audits: What Every Church Should Know
Preparation can prevent an audit—or handle one if it arises.

Years ago, a panicked client called after the Department of Labor provided notice that it was preparing to audit the ministry's payroll. A disgruntled warehouse worker filed a complaint about unpaid overtime pay, initiating the audit.

The DOL informed me the audit was set for Good Friday—only 72 hours away. I politely informed the federal employee that the ministry was closed on Good Friday. She replied "just a moment." After hearing loud typing on the other end, she continued: "That is not a federal holiday. We will be there Friday."

After an extensive auditing process, we received good news. The DOL determined the disgruntled employee had been paid in accordance with DOL standards.

But there was bad news, too. When the DOL audits an employee's wage and hour claims, it reviews the complainant's file as well as EVERY SINGLE EMPLOYEE file for the past two years, including those recently separated from the employer. In its investigation, the DOL also concluded that the ministry owed thousands of dollars in overtime wages to other employees. No other employee had ever previously complained, and many didn't even want the money. It didn't matter. Lesson learned—and an expensive one at that. Only one complaint can trigger time-consuming and expensive audits placing the entire ministry under the microscope.

The possibility of a DOL audit may cause uneasiness. But with a few practical steps and knowledge of the Fair Labor Standards Act, a church will know the right questions to ask before one emerges, plus the right steps to take to mitigate potential problems.

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