The Wage and Hour Division of the United States Department of Labor announced on March 6, 2018 that it will launch a new nationwide pilot program, the Payroll Audit Independent Determination (PAID) program, which is designed to facilitate resolution of potential overtime and minimum wage violations under the Fair Labor Standards Act.

According to the WHD, “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.”

Although the PAID program is designed to ensure that employees are paid all minimum wages and overtime compensation they are due under the FLSA, the WHD says there are benefits for employers as well:

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.

All employers will be eligible to participate in the program. However, an employer may not initiate the process to resolve any issues for which WHD is already investigating the employer, or which the employer is already litigating in court, arbitration, or otherwise. An employer likewise may not initiate the process when an employee’s representative or counsel has already communicated an interest in litigating or settling the issue.

To participate in the program, employers must first review the requisite information about the program and compliance assistance materials—all of which will be available on the DOL’s website. After reviewing the materials, employers must then audit their compensation practices for potentially non-compliant practices. If the employer discovers any non-compliant practices, or if the employer believes its compensation practices may be lawful but wishes to proactively resolve any potential claims anyway, the employer must then:

  1. Specifically identify the potential violations;
  2. Identify which employees were affected;
  3. Identify the timeframes in which each employee was affected; and
  4. Calculate the amount of back wages the employer believes are owed to each employee.

The employer then contacts WHD to discuss the issues for which it seeks resolution. Unless WHD denies the employer’s request to participate in the program at the outset, WHD will then inform the employer of the manner in which the employer must submit required information, including the following:

  1. Each of the calculations described above—accompanied by both evidence and explanation concerning how the calculations were made;
  2. A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;
  3. A certification that the employer reviewed all of the information, terms, and compliance assistance materials;
  4. A certification that the employer is not litigating the compensation practices at issue in court, arbitration, or otherwise, and likewise has not received any communications from an employee’s representative or counsel expressing interest in litigating or settling the same issues; and
  5. A certification that the employer will adjust its practices to avoid the same potential violations in the future.

WHD will then evaluate the information and contact the employer to discuss next steps, including the collection of any other information necessary for WHD to assess the back wages due for the identified violations.

After WHD assesses the back wages due, it will issue a summary of unpaid wages. WHD will also issue forms describing the settlement terms for each employee, which employees may sign to receive payment. The release of claims provided in the form will match the previously agreed-upon language and, again, must be limited to only the potential violations for which the employer had paid back wages. WHD will not distribute the back wages. Employers must pay all back wages due by the end of the next full pay period after receiving the summary of unpaid wages, and provide proof of payment to WHD expeditiously.

WHD will implement this self-audit pilot program nationwide for approximately six months. At the end of the pilot period, WHD will evaluate the effectiveness of the pilot program, potential modifications to the program, and whether to make the program permanent.

The PAID program offers attractive incentives to employers with FLSA compliance problems who wish to right their ships. The prospect of avoiding potential liquidated damages, civil penalties, and attorneys’ fees and costs could encourage many employers to enter the program. It is unclear if and how states will coordinate with the federal government in the implementation of this program.