Running a profitable small business in New York State is no easy task. Juggling finances, employee relations, and the day-to-day operations has become increasingly difficult in a turbulent, uncertain economy. And that is why being conscious of New York State's labor and wage laws, which are often nuanced and confusing, is critical. A failure, even if unintentional, to abide by the state's labor and wage laws could result in an unanticipated audit by the New York State Department of Labor (NYSDOL), and the fines that may follow from that audit could be described as shocking and crippling.
These failures, which are subject to a NYSDOL audit, could be unintentional, but in some instances, the NYSDOL will treat genuine mistakes much like it will treat intentional errors. For instance, if a business mistakenly pays an employee the incorrect overtime rate or neglects to meet the weekly salary threshold for overtime-exempt employees per state law, then the business may be subject to an audit from the NYSDOL. An honest mistake like this could be dangerously costly – well beyond what it would take to make the employee "whole."
Penalties under the NYSDOL Audit
Under Labor Law §219, the NYSDOL has the ability to direct
payment for interest on all wages owed, which is currently set to
16 percent via Banking Law §14-a. That, unfortunately, is just
the tip of the iceberg.
Should the NYSDOL audit uncover that an employer owed wages to employees, it will seek to assess liquidated damages pursuant to Labor Law §218. These amounts could be devastating depending on the circumstances. The statute allows for damages of up to 100 percent of the unpaid wages "plus the appropriate civil penalty." Labor Law §§198 (1-a) and 662 (2) provide that liquidated damages shall be assessed unless the employer provides a good faith basis for believing that the underpayment was in compliance with the law. The civil penalty can be just us much as the wages owed – or, in the worst cases, up to 200 percent of the wages owed.
The NYSDOL is technically supposed to consider statutory factors pursuant to Labor Law §218 (1) before assessing civil penalties, including "size of the employer's business, the good faith basis of the employer to believe that its conduct was in compliance with the law, the gravity of the violation, the history of previous violations and, in the case of wages, benefits or supplements violations, the failure to comply with record-keeping or other non-wage requirements."
Example Cases
But what does this look like in practice? Let's take as an
example In the Matter of Port Café, a New York
State Industrial Board of Appeals (IBA) decision from December
2024. In that case, the NYSDOL found that Port Café owed
$174,757.91 in unpaid wages. On top of those wages, the NYSDOL
assessed 100 percent of liquidated damages – so
another $174,757.91 – along with a civil penalty in the
amount of another $174,757.91, increasing the total amount
owed to approximately $690,500. Luckily (if you can say that) for
the business in Port Café, the IBA affirmed the
liquidated damages but revoked the civil penalties due to the
company's "size ... good faith of the employer, gravity
and type of monetary violations." Port Café is
a cautionary tale.
Once you are subject to a NYSDOL audit, there is a real cause for concern that the NYSDOL will assess damages and penalties that far exceed the amount of unpaid wages – sometimes up to 200 percent more. As hard as it is to believe, much of a NYSDOL decision to assess these extreme penalties is discretionary. The NYSDOL advises that it will give consideration to the size of a business, the good faith of the employer, and other factors, but some businesses still end up better off than others. The business in Port Café resorted to challenging the 200 percent of civil penalties with the IBA, which ultimately agreed that these penalties were excessive, but other times the IBA has affirmed these penalties.
In In the Matter of the Petition of Lookman Afolayan and Buka NY Corp, a June 2021 IBA decision, the business was subject to a NYSDOL audit that found unpaid wages amounting to $27,851.75. Even with the considerations as discussed above (e.g., size of business), the NYSDOL assessed 100 percent liquidated damages and 100 percent civil penalties – raising the amount owed to an astonishing $116,138.77. What was once a somewhat manageable amount to be owed by this business had snowballed into devastating fines and penalties.
Takeaways
With all of that said – and with the "bad news"
aside – what should a business do if it is subject to a
NYSDOL audit? An attorney can help guide the next steps, including
gathering documentation that is responsive to the NYSDOL audit and
ensuring "good faith" compliance so that the business has
a stronger likelihood of avoiding the fullest extent of statutory
liquidated damages and civil penalties. If penalties have already
been assessed, having an attorney evaluate the totality of the
audit and how the discretionary factors were applied by the NYSDOL,
if at all, is critical to potentially reducing the damages owed on
appeal.
Being subject to a NYSDOL audit and the potential statutory penalties is undoubtedly an uncomfortable and costly scenario, and the best way to dodge this situation is to comply with the relevant New York State wage and labor laws. Small miscalculations and errors could result in harsh penalties – and the one true way to avoid it altogether is to properly follow each applicable labor and wage law in New York State. This includes the overtime laws, the exemption laws, and the child labor laws, to name a few. An attorney can assist with assessing the applicability of these laws to a business to confirm compliance, and while that may appear painstaking, it is a way to safeguard compliance with the law to avoid an unexpected NYSDOL audit and the excruciating penalties that may follow.
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.
