The Wage and Hour Division of the U.S. Department of Labor has recently announced that it will soon be implementing the "Payroll Audit Independent Determination," or "PAID," program. The purpose of the new program is to present employers with an opportunity to correct minimum wage and overtime errors under the Fair Labor Standards Act with a level of finality. Previously, final resolutions were limited to active Wage and Hour investigations in which agreements were reached to pay back wages to the employees covered by the investigation.
Under the PAID program, if an employer determines through an internal audit that it has violated the minimum wage or overtime requirements of the FLSA, the employer will be able to request participation in the PAID program. The employer can pay all back wages due (but no liquidated damages or civil monetary penalties).
In announcing the program, the WHD said, "The PAID program provides a framework for proactive resolution of potential overtime and minimum wage violations under the FLSA. The program's primary objectives are to resolve such claims expeditiously and without litigation, to improve employers' compliance with overtime and minimum wage obligations, and to ensure that more employees receive the back wages they are owed--faster."
The WHD has created a page on its website that briefly describes and provides answers to 12 questions on the PAID program. It is important to note that the program is not available where a Wage and Hour investigation has already begun, the employer is already in litigation or arbitration over FLSA compliance, or the employer has already been contacted by counsel for an employee or employees seeking to litigate or resolve FLSA claims. The WHD also makes it clear that the PAID program is not to be used repeatedly by the same employer.
In answering the question, "Why should employers participate in this program?" the WHD states, "This program enables employers to expeditiously resolve inadvertent minimum wage and overtime violations without litigation. Additionally, although WHD will require payment of all back wages due, WHD will not require additional payment of liquidated damages or civil monetary penalties when employers choose to participate in the program and proactively work with WHD to fix and resolve the compensation practices at issue."
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Employers might ask themselves, "Why do I need to go to the WHD and request to participate in this program when I can just perform my own internal audit and pay whatever additional wages I conclude are appropriate?" The answer is that a purely internal back wage distribution cannot generally give rise to a valid and enforceable waiver of FLSA rights, regardless of what the employee may sign in connection with receiving the back wages. The FLSA is relatively unique in requiring either "supervision" by the WHD of the distribution of back wages, or approval by a court, when an employer attempts to "settle" FLSA rights with finality. The PAID program offers employers the ability to obtain WHD "supervision" and finality when employees accept the back wage payment.
At this time, the PAID program has not yet been officially launched and more details on the program are promised. As of now, the WHD is saying it contemplates an initial six-month pilot program to determine its usefulness, and whether to continue, modify, or terminate the program.
Employers will want to give careful consideration to whether the benefits of the PAID program outweigh the negatives associated with having to turn themselves in to the WHD. It appears clear that employers seeking to participate in the program are not guaranteed the right to participate. It remains to be seen whether the WHD might use denied applications for the PAID program as a basis for selecting employers to be targeted for future investigations.