Why it matters

In an effort to facilitate the resolution of potential Fair Labor Standards Act (FLSA) violations, the Department of Labor (DOL) has announced a new program. The Payroll Audit Independent Determination (PAID) program permits employers to conduct self-audits of their payroll practices for potential minimum wage and overtime violations and voluntarily report any underpayments to the DOL’s Wage and Hour Division (WHD). The agency will then supervise the back wage payments. To participate, employers must identify the violations, the impacted employees and the time periods of the violations, as well as compute the back wages owed to each worker. With this data in hand, the employer may ask to take part in the six-month pilot initiative. The DOL touted the program as beneficial both to workers (who will receive back wages without having to pay any litigation expenses or attorneys’ fees) and to employers, who will not be required to pay penalties or liquidated damages if they choose to participate in the PAID program.

Detailed discussion

A new nationwide pilot program launched by the Department of Labor (DOL) will attempt to expedite resolution of inadvertent overtime and minimum wage violations under the Fair Labor Standards Act (FLSA).

The Payroll Audit Independent Determination (PAID) program aims to resolve overtime and minimum wage violations of the FLSA “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.”

All FLSA-covered employers are eligible to participate in the pilot, with the exception of those already under investigation by the Wage and Hour Division (WHD) or employers already facing litigation, arbitration or similar legal action. “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,” the DOL said.

To participate in the program, employers must audit their compensation practices for potentially noncompliant practices. If the employer discovers any noncompliant practices, or if the employer believes its compensation practices may be lawful but wishes to proactively resolve any potential claims anyway, four steps are required: Specifically identify the potential violations; identify which employees were affected; identify the time frames during which each employee was affected; and calculate the back wage amounts the employer believes are owed to each employee.

The employer then contacts WHD to discuss the issues for which it seeks resolution. Unless the agency denies the employer’s request to participate, WHD will provide direction on how to submit the required information. Additional data (such as evidence and explanation for each of the calculations made by the employer, and a concise explanation of the scope of the potential violations) for possible inclusion in a release of information must also be provided.

Multiple certifications will also be necessary: one indicating that the employer reviewed all the information, terms and compliance assistance materials; a second affirming that the employer is not litigating the compensation practices in court or arbitration and has received no communications from an employee’s representative; and a third that indicates the employer will adjust its practices to avoid the same potential violations in the future.

WHD will evaluate the information and reach out to the employer to discuss the next steps. Once the agency confirms the back wages due, it will issue forms for employees to sign in order to receive payment. Employers must pay all back wages due by the end of the next full pay period after receiving a summary from the WHD and provide proof of payment to the agency.

Employees are free to choose whether to accept the payment of back wages due, and employers are prohibited from retaliating against employees for their choice. If an employee decides not to accept the payment, he or she does not release any private right of action against the employer. On the other hand, if the employee accepts the payment, the release is tailored only to the identified violations and time period and does not provide a broad release of all potential claims under the FLSA.

Employers will not be assessed civil money penalties or liquidated damages if they elect to participate in the program, the DOL promised, although they must agree to correct their pay practices going forward, and the program cannot be used repeatedly to resolve the same potential violations. Participation in the program does not waive the DOL’s right to investigate new or repeat violations.

After approximately six months, the WHD will evaluate the effectiveness of the pilot, determine potential modifications to the program and decide whether to make PAID permanent.

To learn more about PAID, click here.