Jan 10, 2019

U.S. Department of Labor extends its voluntary pilot program for self-reporting employers

The United States Department of Labor (DOL) extended its Payroll Audit Independent Determination (PAID) program for another six-month period. Touting the voluntary program as a win-win for employers and employees, the DOL encourages employers to avoid wage and hour litigation expenses and statutory penalties by self-reporting and self-correcting minimum wage and overtime pay violations of the Fair Labor Standards Act (FLSA). Employees are incentivized to participate quickly recovering two years of back pay without pursuing litigation.

Once accepted into the PAID program, employers report their own FLSA wage violations to the DOL and submit a calculation of the back wages they believe they owe to their employees. When participating, employers must agree to pay 100 percent of the back wages owed over a two-year period at their employees’ next regularly scheduled pay period. The resulting settlement will be supervised by the DOL and will include an appropriate and necessary release of these FLSA claims. 

On April 11, 2018, there was immediate push back of the PAID program from several states. The attorneys general of New York, California, Connecticut, Delaware, Illinois, Maryland, Massachusetts, New Jersey, Pennsylvania, Washington and the District of Columbia, wrote a joint letter to Labor Secretary Alexander Acosta that expressed concerns about the PAID program. They described the PAID program as an “amnesty program” that allowed “employers who violated labor laws to avoid prosecution and penalties in exchange for simply paying the back wages their employees were already owed under federal law.” They criticized the relief from statutory penalties as giving employers the opportunity to take “interest-free loans” from their employees after committing “wage theft.” They also feared that not imposing liquidated damages would remove “an essential deterrent for employers not break the law.” They raised additional concerns that participating employers may coerce their unwitting employees into signing releases of their state law claims when presented with their PAID program back wages.    

To promote and further explain the PAID program and to answer some concerns, the DOL presented a series of educational forums in the fall of 2018. The DOL clarified it would not seek a third year of back wages under the FLSA. Critically, the DOL also indicated it would not seek press releases when an employer participated and would endeavor to keep the identities of participating employers confidential.

The DOL also advised it would not investigate the merits of the issues reported but simply would review the back wage calculations for accuracy. This addressed some employers’ concerns about exposing their business records to a much broader DOL investigation and audit. To further encourage participation, the DOL explained that it expected the process, start to finish, to take around 90 days. 

On its webpage the DOL posted testimonials from participants who extolled the benefits of the PAID program. One employer from a local government described her experience as “very good and smooth.” She wrote, “it felt like a very easy process and I didn’t have to try to fix things alone but I had the help of the [DOL] to make sure it was completed correctly.” She also touched on a concern that many employers may have about contacting the DOL, “I know some people might feel frightened to contact the [DOL] with a program, but I saw it as an opportunity to learn and make sure we were doing things right.”

In another testimony an employer representative wrote, “upon my client discovery that it had a back pay exposure under the [FLSA], they wanted to take immediate steps to properly pay its employees what was owed and to mitigate its legal exposure.” He noted, “upon contacting the [DOL], we were immediately assigned to an investigator who provided us with a very detailed explanation of the steps needed to apply for participation in PAID.” He concluded, “we have found through this experience that the PAID program was an excellent option to meet my client’s needs.”

The DOL also included testimonials from employees. One wrote, “I thought it was great my employer participated in the PAID self-audit program so that we could get back wages. It was nice to get the money that was owed to us and not have to fight for it.” Another wrote, “receiving back wages was definitely a pleasant surprise.” 

Other than these testimonials, there is little information about the experiences employers and employees have had with the PAID program. Since submitting the letter to Sec. Acosta, there has been no public comment from the attorneys general. Certainly, employers should presume state agencies will continue to vigorously monitor violations of state labor laws. Nevertheless, it is encouraging that the PAID program was extended and that it has generated positive responses from both employers and employees.

If considering participating in the PAID program, employers should keep in mind that they are not eligible to participate in the program if they are currently under investigation or are recently engaged in wage and hour litigation. For an employer with concerns of possible FLSA violations and back wage obligations, however, voluntarily auditing and self-reporting to the DOL through the PAID program may present an avenue to satisfy those obligations without penalty or interest.

Chuhak & Tecson’s Employment Law Practice Group will continue to monitor the PAID program and provide information as it becomes available. If you think your business might be a candidate for this program, the DOL has given your businesses until April 2019 to enroll. Contact one of our employment attorneys 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 January 2019 Employment Focus newsletter.