On March 6, 2018, the U.S. Department of Labor (“DOL”) announced a new pilot program – the Payroll Audit Independent Determination (“PAID”) – which allows employers to self-report inadvertent overtime and minimum wage violations under the Fair Labor Standards Act (“FLSA”) without risk of litigation or enforcement proceedings. The new six-month pilot program is expected to launch in April 2018.
The lofty goals of the PAID program are to swiftly resolve inadvertent FLSA violations without the need for litigation, improve employer compliance with overtime and minimum wage obligations, and ensure that more employees promptly receive any back wages they are owed.
Should You Participate?
The DOL is promoting the program as a win-win for both employers and employees. But is it? Let’s briefly examine some of the pros and cons for employers.
- Employers can resolve violations without a lawsuit, liquidated damages or civil monetary penalties.
- Employees must release FLSA claims (for the identified violations and time period) in order to receive a settlement under the PAID program.
- Currently, only federal claims under the FLSA will be released, leaving open the possibility of outstanding claims under state wage and hour laws for periods prior to the FLSA’s statute of limitations (and possibly for additional damages or penalties for the period of time covered by the settlement).
- By allowing participation in the PAID program, the DOL does not waive “its right to conduct any future investigations of the employer.”
- Employers can already correct self-discovered FLSA violations without involving the DOL.
How It Works
To participate in the PAID program, employers must first audit their compensation practices for potentially non-compliant practices; and if non-compliant practices are found, the employer must:
(1) identify the potential violations;
(2) identify the affected employees;
(3) identify the time frames in which each employee was affected; and
(4) calculate the amount of back wages the employer believes are owed to each employee.
The employer must provide this information to the DOL for evaluation and an assessment of back wages due. The DOL will then issue a summary of unpaid wages, along with forms describing the settlement terms for each employee, which the employee must sign to receive payment. Finally, employers must pay all back wages due by the end of the next full pay period and provide proof of payment to the DOL.
Employers may not use the PAID program to resolve claims that are already being investigated or litigated, if the DOL determines they are acting in bad faith, or if they are repeat offenders seeking to use the program to resolve recurring violations.
While the possibility of avoiding potential lawsuits, liquidated damages, and civil penalties is certainly appealing, participation in PAID may not make sense in all cases. Depending on the nature and extent of the violation, some employers may wish to correct any uncovered violations on their own without flagging these issues for the DOL – the government agency whose very mission is to investigate those issues – and potentially exposing themselves to increased audits down the road. In other situations, it may make sense to simply address individual claims when and if they arise.
If you suspect you may be out of compliance with the FLSA, we recommend consulting with experienced legal counsel to discuss the benefits and risks of participating in PAID as a way to avoid potentially costly and time-consuming litigation.