On April 3, 2018, the U.S. Department of Labor’s Wage and Hour Division (WHD) launched the Payroll Audit Independent Determination program (PAID) on a six-month trial basis. The intent of the program is to allow employers to pay back wages to workers for inadvertent overtime and minimum wage violations under the Fair Labor Standards Act (FLSA) while avoiding penalties and litigation expenses.

The WHD’s web page for the PAID program states that the program is designed to “ensure that more employees receive the back wages they are owed – faster.” Under the program, the Labor Department encourages employers “to conduct audits and, if they discover overtime or minimum wage violations, to … work in good faith with WHD to correct their mistakes and to quickly provide 100% of the back wages due to their affected employees.”

Employers cannot participate in the program if they are litigating or have been threatened with litigation, or are being investigated by the WHD or are aware of formal or informal complaints by employees, related to the practice(s) at issue. Also, employers will be excluded if a court or the WHD has found them to have violated the FLSA in connection with the relevant pay practice(s) during the previous five years.

Under the PAID program, employers can submit a self-audit to the WHD, disclosing potential violations and a plan to resolve them. If the WHD approves the plan, employers can distribute additional wages owed to workers, who would sign a release waiving their right to sue under the FLSA. In addition to limiting exposure to potential collective actions, employers will not, per the WHD, have to pay liquidated (double) damages, as they will presumably be acting in good faith by participating in the program. (Liquidated damages are available in the absence of a showing of good faith and a reasonable basis for the employer’s actions.)

But a concern for employers is that the scope of releases under the PAID program would be limited to FLSA claims and would not include potential state law violations. As such, employers could still face liability under state wage statutes that are broader than the FLSA.

Another concern is that employees can accept or reject the additional wages offered and refuse to sign a release. They could then file suit, including a collective action, seeking not only back pay, but also damages for an additional year of liability (the statute of limitations under the FLSA is usually two years, but it can be extended to three years for “willful” violations), as well as liquidated damages and attorney’s fees.

It is helpful for employers to conduct audits of their compliance with wage and hour requirements. Internal audits often reveal inadvertent violations in connection with classification of exempt employees and independent contractors, failure to compensate for some compensable time, and miscalculation of the regular rate and overtime pay, among other issues. But the decision about what to do if the audit reveals a violation – for example, how to correct the compliance issues and whether to participate in a program like PAID – should be made carefully and in consultation with counsel.