DOL Announces PAID – the Pros and Cons of the Wage and Hour Self-Audit

Double (liquidated) damages and attorneys’ fees are often the tail that wags the settlement dog in government audits and wage and hour litigation.  Employers now have another strategy for dealing with unintentional wage and hour pay errors – but only on a trial basis.

On March 6, 2018, the United States Department of Labor Wage and Hour Division (WHD) announced a national pilot program for employer self-audit of wage and hour violations under the Fair Labor Standards Act (FLSA). The FLSA is the federal statute that governs payment of minimum wage and overtime pay for nonexempt employees.  The program, aptly named Payroll Audit Independent Determination or “PAID” for short, is intended to facilitate resolution of potential overtime and minimum wage violations under FLSA.  Expected to begin in April 2018, the WHD will implement this pilot program nationwide for approximately six months.

Employers with a history of FLSA violation are not eligible to participate, and employers cannot use the PAID program to resolve an existing WHD audit or investigation, litigation or arbitration.  Instead, the program is designed to unearth and resolve unintentional violations discovered, reported, and corrected by the employer.  For example, the PAID program can be effectively used to resolve violations based on alleged “off-the-clock” work, failures to pay overtime, or misclassification of employees as exempt from the FLSA’s minimum wage and overtime requirements.

The PAID program has pros and cons for employers:

PROS:

  • Employers are able to correct inadvertent minimum wage and overtime violations without litigation.
  • While employer will be required to make payments of all back wages due, the employers who participate and work proactively with WHD will not be required to pay liquidated damages or civil monetary penalties.
  • Employees who accept payment under the PAID program, must execute a limited release of the violations identified under the FLSA.

There are limits to employer benefits under the PAID program.  CONS include:

  • After violations are disclosed, the WHD is not obligated to accept the employer into the PAID program.
  • If individual employees choose not to accept the payment, the employee will not release any private right of action.
  • The limited release required of participating employees will be tailored to waive only the identified violations for the time period for which the employer is paying the back wages.
  • Although not specifically addressed by WHD to date, it appears that employees who accept payment under the PAID program may not be required to release state law claims for the specific, identified FLSA violation.

To participate in the program, employers must review WHD’s compliance assistance materials, carefully audit their pay practices, and agree to correct the pay practices at issue going forward.  Where non-compliant practices are determined, employer must then:

  • Specifically identify the potential violations,
  • Identify which employees were affected,
  • Identify the timeframes in which each employee was affected, and
  • Calculate the amount of back wages the employer believes are owed to each employee.

If the employer is accepted as a PAID participant, WHD will evaluate the information submitted and enter into talks with the employer.  Once WHD assesses the back wages due, it will issue a summary of unpaid wages. WHD will also provide the employer with forms describing the settlement terms for each employee, which employees may sign to receive payment. Again, the release must be limited to only the potential violations for which the employer had paid back wages. Employers are responsible for issuing prompt payment directly to its current and former employees.  WHD will not distribute the back wages.

Employers who have made inadvertent wage and hour errors should consider the PAID program and carefully weigh its pros and cons after a full audit of all its practices to ensure compliance.

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