U.S. Department of Labor introduces pilot program for self-reporting employers

On April 3, 2018, the U.S. Department of Labor (DOL) rolled out the Payroll Audit Independent Determination (PAID) program. This is a six-month pilot program intended to encourage employers to self-report minimum wage and overtime pay violations of the Fair Labor Standards Act (FLSA) to correct these payment errors without paying penalties and litigation expenses. The DOL intends to evaluate the PAID program after six months to determine its effectiveness and propose any necessary modifications. At that time, it will decide whether to make the PAID program permanent. All FLSA-covered employers will be eligible to participate in the PAID program but it cannot be used to resolve existing litigation, administrative enforcement or the known threat of litigation or enforcement action (e.g., a claim made in a demand letter). Also, employers with a history of repeat violations will not be permitted to participate.

Although the details of the PAID program are not entirely clear, an employer will start it by conducting a thorough self-audit of its payroll practices. After the audit, the employer may contact the DOL to enroll in the program. If the DOL accepts the employer’s request to participate in the PAID program, the DOL will require the employer to submit information regarding the alleged violations:

• the type of violation, for instance a misclassification or the failure to pay overtime;

• the employees involved;

• the duration of the violations; and

• the anticipated amount of owed back wages.

The DOL also will require the employer to certify its audit practices and its intention to adjust its pay practices to avoid similar future violations. After the DOL completes its review of the submitted information, the employer will be required to pay the wages owed to the employees at the next regularly scheduled pay period. The employees will be required to release their FLSA claims for the corrected violations but these waivers will have no impact on the employees’ state law claims.

The upside to the PAID program is clear. Underpaid employees receive 100 percent of the wages they are owed and employers will avoid paying liquidated damages penalties under the FLSA along with litigation costs and attorneys’ fees.

But, there are downsides. An employee does not have to accept the payment and could then be litigating wage payment violations with the employer’s admitted underpayment bolstering their claims. Also, should employees accept the payment, they will release only their FLSA wage claims but retain their state law claims, which could result in litigation, penalties and litigation costs and attorneys’ fees.

When an employer self-reports its underpayment, it also is inviting the DOL to review its self-audit. When evaluating the employer’s report, the DOL may find additional wage issues and concerns. Time will tell whether the PAID program benefits both employees and employers and results in heightened compliance with the FLSA.

Chuhak & Tecson’s Employment Law practice group will monitor the PAID program and provide information as it becomes available. If you think your business might be a candidate for this program, one of our employment attorneys will work with you to evaluate your eligibility. 

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Jeralyn H. Baran, Principal

This alert originally appeared in the April 2018 Employment Focus newsletter.