Recently, the Wage and Hour Division (“WHD”) of the federal Department of Labor announced a new pilot program called the Payroll Audit Independent Determination (“PAID”) program. The program is intended to facilitate quick resolution of potential overtime and minimum wage violations of the Fair Labor Standards Act.  The WHD hopes that the program will be used by employers to resolve claims without litigation and that the program will improve employer compliance with the FLSA.  The WHD intends to implement this pilot program for a period of six months.  After six months, the WHD will evaluate the effectiveness of the program and determine whether any modifications may be necessary.

Who is eligible to participate?

All FLSA-covered employers are eligible to participate in the program. However, employers may not use the process to resolve any issues that are currently being investigated by the WHD or that are being litigated in court, arbitration, or otherwise.  In addition, an employer cannot use the program if an employee’s representative or counsel has already communicated an interest in litigating or settling the wage-and-hour issues.  The program is intended to cover potential violations of the FLSA’s overtime and minimum wage requirements, such as claims for off-the-clock work or misclassification of employees.

How does it work?

First, employers are required to review information about the program and certain compliance materials that will be available on the WHD’s website. After the review, employers then must perform an audit of their payroll practices to determine if there are any non-compliant practices.  If the employer finds compliance issues, the employer must then:  (1) specifically identify the potential violations, (2) identify which employees are affected, (3) identify the timeframes in which each employee was affected, and (4) calculate the amount of back wages owed to each employee.

After conducting this analysis, the employer then reaches out to the WHD. At that time, if the WHD finds that the employer is eligible to participate in the program, then the WHD will advise the employer how it should submit certain information, including the following:

• The calculations of back wages owed with supporting evidence and an explanation showing how the calculations were made;

• A concise explanation of the scope of the potential violations for inclusion in a release of liability;

• A certification that the employer reviewed all of the information, terms, and compliance assistance materials;

• A certification that the employer is not litigating the compensation practices at issue and, likewise, has not received communications from the employee expressing an interest in litigating or settling the issues; and,

• A certification that the employer will adjust its practices to avoid the same potential violations in the future.

Who gets PAID?

Under the program, employees will receive 100% of the back wages owed. Employees are expected to benefit because they will receive back wages quicker than going through the normal administrative or litigation process.  Employees have the option of accepting the payment of back wages, but they are not required to do so.  If an employee does not accept payment, then the employee will not release any private claims he or she may have against the employer.  The employee may then proceed with a lawsuit or administrative proceeding.

If the employee does accept payment, the employer will receive a limited release covering those violations identified during the time period for which the employer is paying the back wages.  It is not a broad release of any and all FLSA-claims the employee may have, and it is unlikely to release any state-related wage-and-hour claims.  Also, the WHD does not waive its right to conduct any future investigations of the employer.  The employer, however, will receive a release from additional damages related to the violation at issue, such as payment of liquidated damages or civil monetary penalties.

After the WHD assesses the back wages that are due, it will issue a summary of unpaid wages and issue a form describing the settlement terms, which the employee must sign to receive payment. The employer then must pay all back wages due by the end of the next full pay period after receiving the summary of unpaid wages.  The employer must provide proof of the payment to the WHD.

Bottom Line

This program can potentially be beneficial to employers because employers may be able to resolve FLSA claims without having to pay liquidated damages and without incurring significant attorney’s fees.  On the downside, there is always some risk of bringing potential FLSA claims to the DOL’s and employees’ attention because it could lead to investigations or litigation that would not otherwise have occurred.  Also, the fact that releases under the PAID program will be limited in scope and will likely not cover state-related claims means that employers should carefully weigh all their options before choosing to participate in the program.  Regardless of whether you participate in the program, employers should be conducting routine audits of their payroll practices.