On March 6th, the U.S. Department of Labor’s Wage and Hour Division announced a new compliance initiative that will be attractive to many employers. It's called the “Payroll Audit Independent Determination Program,” a/k/a “PAID.”
In a nutshell, the program allows employers to conduct self-audits of their payroll practices to see if what they’re doing raises compliance concerns under the Fair Labor Standards Act (“FLSA”). These audits could reveal practices in which employees may be working off-the-clock, are misclassified as exempt, or are not having their overtime rates properly calculated. If the covered self-audit identifies these concerns, then the employer can avoid litigation and liquidated damages by disclosing the problems to the DOL and paying the employees any unpaid overtime to which they should have been paid. Many employers have been interested in self-correcting violations—violations which are often inadvertent—but they have been reluctant to do so if it could open a “Pandora’s Box” of litigation.
These self-audits are optional for employers, and employers can choose or not choose to bring their findings to the DOL’s attention. If they do share their findings with the DOL, though, and offer to make the employees whole in terms of unpaid overtime, the DOL will oversee the payments and allow them to serve as settlements to any claims relating to the practice at issue. There is still some risk, though, because some employees may decline the payments and thereby may still sue.
Not every employer will be able to take advantage of the PAID Program. If the employer is already being audited by the DOL, or if the employer is already in overtime litigation or has been threatened with litigation, then the PAID Program cannot be used to shield it from liability under the FLSA.
The program is still evolving and some details have yet to be announced. We expect those details to be provided soon. For instance, it’s unclear as to whether the back pay is to cover the two- or three-year periods under the FLSA’s statute of limitations. Hopefully, the look-back period will be two years, and that is plausible since doing the audit reflects the “good faith” needed for that shorter period to apply. Further, at this time, the program is not to be viewed as permanent. To the contrary, the DOL has stated that it is a “pilot” that will be reviewed in six months. At that time, the DOL will assess the program’s effectiveness and determine if it will continue with or without modifications.
In any event, the DOL is providing employers with an unprecedented opportunity to do self-audits and consider making employees whole for any mistakes uncovered, and know that they are in compliance going forward, while avoiding the risks and costs associated with letting some questionable practices continue. Such audits, particularly those that reveal no compliance issues, may also serve to clearly establish a good-faith defense should a claim later arise. Consequently, this may be an opportunity worth seizing. Employers are encouraged to speak with their attorneys regarding the advantages and potential disadvantages associated with possible participation in the program and for assistance in conducting the self-audits.