We previously reported the United States Department of Labor’s (DOL) announcement of its newly created Payroll Audit Independent Determination (PAID) Program, which is intended to allow employers to voluntarily identify and correct violations of the Fair Labor Standards Act (FLSA) and resolve potential FLSA claims while also committing to future compliance. The potential advantage with PAID is that the employer would not have to pay liquidated damages in connection with a settlement through the program. The DOL has now provided further information with respect to the PAID program, including information regarding who is eligible to participate and how participation in the program works.
The program essentially has 5 steps, described in more detail below. First, the employer must determine and certify its eligibility for the program consistent with the DOL’s criteria. Second, the employer is required to review compliance materials published by the DOL and receive a certificate of completion. Third, the employer must audit its workforce with an aim of identifying potential violations and calculating related back wages, and then submit detailed related information to the DOL. Fourth, the DOL determines whether the employer is accepted into PAID and will provide the employer with a proposed scope of release of liability for potential violations presented. Fifth, the DOL assesses the back wages due and issues a summary of unpaid wages and settlement terms for each employee. The DOL anticipates that this process will typically take approximately 90 days.
The DOL has provided a free, 1-hour webinar on PAID that can be found here.
Although PAID appears somewhat encouraging, most of the uncertainty and reservations we outlined in our initial alert on this topic remain, including:
Employees are not required to settle. If they choose not to enter into an agreement with an employer, they retain all rights to bring a private cause of action and pursue liquidated damages and attorneys’ fees.
- Even if an employer and employee do reach a settlement, it will not apply to state law claims.
- Although the DOL emphasizes that it will not use data voluntarily submitted by employers in conjunction with PAID, the information will still be subject to the rules and defenses governing Freedom of Information Act requests for DOL investigations.
- The DOL will expect employers to also audit wages for former employees whom the company employed within the FLSA’s two-year statute of limitations period.
Given these potential pitfalls, we strongly recommend seeking legal counsel to discuss the benefits and drawbacks of a specific situation prior to attempting to participate in PAID.
The following paragraphs explain each step in more detail.
Step 1 – Establishing Eligibility for PAID Program
To be eligible for PAID, an employer must certify that the following is true:
- The employer is covered by the FLSA.
- The employees included in the proposed PAID self-audit are not subject to prevailing wage requirements under the H-1B, H-2B, or H-2A Visa Programs, the Davis Bacon Act or Related Acts, the Service Contract Act, or any Executive Order.
- Neither the DOL nor a court of law has found within the last five years that the employer has violated FLSA minimum wage and/or overtime requirements by engaging in the same compensation practices at issue in the proposed PAID self-audit.
- The employer is not currently a party to any litigation (involving a private party or the DOL) asserting that the compensation practices at issue in the proposed PAID self-audit violates FLSA minimum wage and/or overtime requirements.
- The DOL is not currently investigating the compensation practices at issue in the proposed PAID self-audit.
- The employer is not specifically aware of any recent complaints by the employees or their representatives to the employer or its representatives, to the DOL, or to a state wage enforcement agency asserting that the compensation practices at issue in the proposed PAID self-audit violate FLSA minimum wage and/or overtime requirements.
- The employer has not previously participated in the PAID program to resolve potential FLSA minimum wage or overtime violations resulting from the compensation practices at issue in the proposed PAID self-audit.
The employer has a continuing duty to update the DOL on any changes to the above information and/or representations.
Of note, the DOL maintains its discretion to determine whether to accept employers into the PAID program. Potential participants are examined on a case-by-case basis.
Step 2 - Compliance Assistance Review
To participate in the PAID program, an employer must review online compliance assistance materials about the FLSA. There are a total of 12 screens of materials, including a series of short videos on FLSA topics. The employer will be asked to enter its name and the name of its business at the start of the review. The employer must review the material presented on each screen before proceeding to the next item. Videos are hosted on YouTube so employers should view the materials on a device that supports YouTube.
After completing the Compliance Assistance Review, the system will generate a Certificate of Completion that the employer will need to present to the DOL with the rest of its documents.
Step 3 - Conducting the Self-Audit
Once an employer has completed the PAID Compliance Assistance Review and generated and saved the Certificate of Completion, the employer must then audit its business’s compensation practices. The employer should do the following:
- Specifically identify the potential FLSA violations that may have occurred in the last two years;
- Identify which employees were affected within the last two years;
- Identify the timeframes, within the last two years, in which each employee was affected; and
- Calculate the amount of back wages the employer believes is owed to each employee.
It is important to note that if an employer opts to participate in the PAID program, it should not pay back wages to its employees before the DOL reviews and assesses the back wages owed, as employees will not have waived their rights to pursue a private lawsuit for these potential violations under the FLSA if the DOL did not supervise the settlement of the back wages.
Step 4 - Contacting the DOL
When an employer contacts the DOL after conducting the self-audit, it will be asked to provide the DOL with the following:
- The names, addresses, and phone numbers of all affected employees;
- The back wage calculations along with supporting evidence and method used to make those calculations;
- Payroll records and any other relevant evidence;
- Records demonstrating hours of work of each affected employee during the time frame at issue;
- Records to show that the employer has corrected the compensation practices to comply with the FLSA;
- A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;
- A certification that the employer reviewed all of the PAID program’s information, terms, and compliance assistance materials; and
- A certification that the employer meets all eligibility criteria of the PAID program.
Step 5 - Payment of Wages
After the DOL assesses the back wages due, it will issue a summary of unpaid wages. The DOL will also issue forms describing the settlement terms for each employee, which employees must sign if they wish to receive payment. The release of claims provided in the form will reflect the previously provided release language and, again, will be limited to the potential violations for which the employer had paid back wages. Employers are responsible for issuing prompt payment; the DOL 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 the DOL expeditiously.