On March 6, the U.S. Department of Labor (“DOL”) announced the Payroll Audit Independent Determination (“PAID”) program. PAID is a six-month pilot program that allows employers to self-report potential Fair Labor Standard Act (“FLSA”) violations related to overtime and minimum wage requirements, without litigation, and have the DOL approve back pay amounts to employees. The DOL will not impose penalties or liquidated damages to finalize a settlement for employers who choose to participate in PAID and proactively work to resolve any potential compensation errors.
Oftentimes, employers may be the first to uncover violations of overtime or minimum wage requirements. Most organizations prefer to correct their violations and voluntarily pay their employees the wages they are owed. However, current laws prevent employers from simply paying the owed wages to settle the overtime or minimum wage violations. Fearing federal investigations or costly litigation, many employers choose not to address these violations at all, which can result in losses to both employees and employers.
As practitioners in this area, we always look to prevent litigation and potentially damaging investigations for our clients. We have put together a list of information employers should consider before participating in the PAID program:
- Participating in PAID. In order to participate in PAID, an employer must perform a self-audit. After an employer performs an audit and determines potential violations exist, the employer must then: (i) identify which employees were affected; (2) identify the timeframes in which each employee was affected; and (3) calculate the amount of back pay owed to each employee.
Once the employer assembles the information required, the employer then must contact the DOL’s Wage and Hour Division (“WHD”) to request participation in PAID. If the WHD accepts the request, the employer needs to provide the WHD with the following information and documentation: (i) evidence and explanation of how the calculations for back pay were made; (ii) a concise explanation of the scope of the potential violations for possible inclusion in a release of liability; (iii) a certification that the employer reviewed all of the information, terms, and compliance assistance materials; (iv) a certification that the employer is not currently litigating the compensation practices at issue; and (v) a certification that the employer will adjust its practice to comply with the law.
Once the employer provides the requisite information and acknowledgments, the WHD then evaluates the information and determines the amount of back pay to assess, issues forms describing the settlement terms of the affected employees, and negotiates the terms of a release. The employer is then responsible for distributing the back wages to the employees by the end of the next full pay period and must provide proof of payment to WHD.
- Benefits of Participating in PAID. The greatest benefit for employers participating in PAID is that they can avoid the time, expense, and potential damage of defending a federal wage and hour claim in court. A further benefit is that the DOL will not impose any penalties or liquidated damages to an employer participating in PAID. Essentially, PAID will allow employers to resolve overtime and minimum wage violations faster and cheaper than possible under current law, while also being cleared of any liability.
- Potential Drawbacks of Participating in PAID. As of now, the biggest potential problem of participating in PAID is the uncertainty over how the DOL will operate the program. For instance, it is currently unclear what the DOL would do if an employee contacted by the DOL as part of a PAID program investigation decides to file a lawsuit after learning of potential wage violations. While the DOL allows employers to voluntarily participate in PAID, it does not require the affected employees to accept the settlement terms. Further, if the DOL were to decline to accept an employer’s self-reporting of violations, employers could potentially both admit a violation and invite the affected employees to file suit. Also, if the organization has self-reported egregious violations, the DOL could theoretically deny the employer’s request for participation in PAID and in turn file a lawsuit against the employer and seek penalties and liquidated damages from the employer.
- The Take Away. While the new PAID pilot program has great potential in allowing employers to self-report potential overtime and minimum wage violations in good faith without facing harsh penalties, it remains to be seen how the program will function in practice. Once the initial six-month period is completed, the function of the PAID program may be clearer to employers who wish to participate.