On Tuesday, March 6, 2018, the United States Department of Labor (DOL) announced a self-audit pilot program called “Payroll Audit Independent Determination” (PAID). The DOL plans to launch it soon nationwide, and will evaluate the effectiveness of the program after its initial six (6) month trial period.
According to the DOL, PAID will allow employers to proactively resolve potential overtime and minimum wage violations under the Fair Labor Standards Act (FLSA), including improper overtime pay calculations, misclassifications of exempt status, and “off the clock” violations. The program is not available to resolve claims that are already being investigated by the WHD, or in litigation or threatened litigation. The DOL cites the following objectives of its pilot program:
- Resolve claims expeditiously and without litigation
- Improve employers’ compliance with overtime and minimum wage obligations
- Ensure more employees receive the back wages they are owed and faster
- Reduce litigation expenses
How is the Program Anticipated to Work?
While the program has not officially launched, DOL issued a FAQ page on the new program which outlines how the program will work, and the anticipated benefits and limits of the program to both employers and employees. The DOL will provide further implementation details on its official launch
To participate, the employer will be required to utilize DOL’s compliance materials to self-identify potential non-compliant practices. If the employer identifies any non-compliant practices or believes potential claims are likely, 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.
Upon completion of the initial audit, the employer contacts the Wage & Hour Division (WHD) of the DOL for participation in the program. If DOL accepts the employer into the program, the DOL will require submission of a concise explanation of the scope of potential violations, calculations supported by evidence and explanation, a certification of having reviewed DOL’s compliance materials, non-litigation, and adjusting its practices prospectively. So far, no information is provided on how this information is retained and/or whether it is subject to disclosure pursuant to a Freedom of Information Act (FOIA) request.
Ultimately, after WHD assesses back wages due, it will invite the employees at issue to resolve the matter with the employer by issuing a summary of unpaid wages due and settlement terms, including a narrow release limited only to the identified violations during the timeframe employees were affected. At that point, employees will have the choice of accepting the payment and executing a narrow release or not. Employees are not required to participate.
Anticipated Benefits and Limitations of the Program
A major goal of the PAID program is to reduce litigation costs and penalties surrounding inadvertent FLSA errors, including significant attorney’s fees. However, reaching this goal is dependent on mutual agreement of both the employee and employer, and it requires the employer to admit a violation (or possible violation) at the outset. The employee is notified of the violation and is not required to resolve the matter. Additionally, the program only involves claims under federal law and although unclear, it seems unlikely that the contemplated releases would include resolution of parallel state wage claims.
Practically speaking, participation in this program may decrease the likelihood that DOL will prosecute an employer for an admitted violation it is seeking to resolve, and the employer may be able to avoid imposition of liquidated damages in a lawsuit brought by an employee or group of employees. However, the lack of guaranteed resolution will likely hamper the effectiveness of this program, particularly in higher damage exposure cases and in those states that impose more penalties (or have longer statutes of limitation) than under FLSA.
Prior to making any voluntary disclosure to the DOL under this program, employers would be wise to seek legal counsel on the likely benefits vs. drawbacks in their particular situation.