In the multi-employer employee benefit industry, the Department of Labor requires every plan to have a payroll audit compliance program, otherwise known as payroll audits. These audits lay out the Plan’s policies and procedures to test the participating employers’ payroll records to ensure that contributions being remitted to the plan are complete and accurate based on the number of hours that a member works for a contractor. as well as for ensuring that the member is being properly paid in accordance with the collective bargaining agreement.
A payroll audit compliance program serves as a control by which the plan’s fiduciaries can monitor the adequacy of employer contributions and demonstrate that they have been diligent in fulfilling their duties. It also provides a process for the plan’s independent auditor to assess the reasonableness of employer contributions. These programs may be conducted as a part of the plan’s overall collection policy.
Trustees and management have a responsibility to protect plan assets. The testing of employer payroll records helps to fulfill this responsibility. Department of Labor requires that all contractors are tested on a rotational basis – meaning depending on the number of contractors a plan has, each contractor should be tested on at least a 3-5 year cycle. It is management’s responsibility to keep an ongoing schedule that lists out every contractor that is under the collective bargaining agreement, the year they were last audited, the cycle that was audited – (i.e.: January 1, 2018 – December 31, 2019) and the number of members that were tested within that audit period. They are also required to keep a listing of all ongoing audits as well as a planned time frame for when a contractor will be audited again.
In some instances, there may be a reason a contractor is selected for a “special” payroll audit. This might be a result of a contractor that is historically delinquent in remitting contributions to the plan. It might also arise from members complaints to the plan that an employer is not properly reporting all hours of work being performed as required under the collective bargaining agreement. A special payroll audit could also come from a final audit of an employer that has elected to withdraw from the union in order to ensure that they have reported accurately through the date of the withdrawal.
Payroll audits are an area of focus when the Department of Labor comes to visit your plan. If you have the above procedures and policies in place more than likely this will not be an area of concern for the Department of Labor.
If your plan needs assistance in having payroll audit performed, please contract The Bonadio Group and we would be more than happy to assist you!
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.