The U.S. Department of Labor’s Wage and Hour Division (WHD) recently announced its plan to launch a new pilot program, the Payroll Audit Independent Determination (PAID). Under this program, WHD will supervise the resolution of potential overtime and minimum wage violations under the Fair Labor Standards Act (FLSA). While WHD has yet to announce an official start date, it plans to implement PAID nationwide for approximately six months. After this initial six-month period, WHD will review the program’s effectiveness and determine next steps.

WHD has promoted PAID for both employers and employees, noting that the program will ensure “employees receive back wages they are owed—faster” and that employers will have the opportunity to “expeditiously resolve inadvertent minimum wage and overtime violations without litigation.” Although PAID will require a participating employer to pay all back wages due, WHD will not seek liquidated damages or civil monetary penalties against that employer.

All FLSA-covered employers may participate in PAID, except that employers may not use the program to resolve claims already under investigation by WHD or subject to litigation in court or arbitration. To participate, employers must evaluate their compensation practices for potential violations of the FLSA. If an employer believes a violation has occurred, the employer must identify the potential violation, including which employees may have been affected, the time period of the violations, and the amount of potential back wages due. Once the employer has this information, it can request to participate in the program.

WHD will then evaluate the information, determine whether the employer owes back wages, and if so, issue a summary of unpaid wages and settlement terms for each employee. To receive payment, an employee must sign the settlement agreement, which will include a release of claims limited to the potential violations identified (potentially leaving employers open to state law claims). The employer must pay all back wages by the end of the next full pay period after the employee executes the settlement agreement.

The program certainly has positive aspects for employers, but the full details remain unclear. For example, will WHD pursue back wages for two or three years? Or, will an employer’s participation in PAID prevent claims of willful violations by employees who choose to not settle through PAID? Wage claims generally have a statute of limitations of two years, which extends to three years for willful violations. WHD has not indicated whether an employer’s disclosure of potential violations will trump any allegations of a willful violation.

WHD has promised to provide additional information about the program and compliance assistance, which should provide more insight into these open questions – stay tuned. In the meantime, employers should focus on identifying FLSA compliance issues and begin to correct those issues immediately. By correcting potential violations, employers begin to cut off liability and tick away at the limitations period. Once WHD fully launches PAID, employers should contact their legal counsel to discuss potential compliance issues and to determine whether to participate in PAID before disclosing any information to WHD.