DOL’s PAID Program: Wage and Hour to Supervise Settlements When Employers Voluntarily Disclose Violations

On March 6, 2018, the U.S. Department of Labor (DOL) announced an upcoming nationwide pilot designed to streamline the resolution of minimum wage and overtime violations of the Fair Labor Standards Act (FLSA).  According to DOL’s Wage and Hour Division (WHD), the ‘Payroll Audit Independent Determination Program’, aka ‘PAID’, will be a means to resolve FLSA claims expeditiously and without litigation, to improve employers’ FLSA compliance, and ensure that more employees receive the back wages they are owed in a timely fashion.

PAID will start out as a six-month pilot.  At the conclusion of the six months, WHD will evaluate the results and determine whether to make it permanent.  Employers participating in the pilot would conduct self-audits of their pay practices and voluntarily report violations and underpayments to WHD, which will then supervise the back wage payments.

Employers subject to the FLSA are eligible to utilize PAID.  However, WHD has announced that employers may not use the program to address FLSA violations at issue in litigation or arbitration, or that are under investigation by WHD, or that were also disclosed in previous investigations.

To participate in the program, an employer would first review the information and guidance about the program and the FLSA compliance assistance materials that will “soon” be available on the PAID website.  Next, the employer would specifically identify potential violations, along with the affected employees, the time periods they were impacted by the violations, and compute the back wages due each employee.  The employer would then contact WHD to get approval to utilize the program.  If WHD approves, the employer would provide WHD with detailed information on the nature and scope of the violations, the back wage computations, and certification that the employer is not engaged in litigation or arbitration and is not the subject of a current or previous WHD investigation of the same violations.  

After WHD assesses the information provided by the employer, it will issue the employer a summary of unpaid wages, and official receipt/release forms describing the settlement terms for each employee, which employees may sign upon receipt of back wage payment.  The release of claims provided in the form will be limited to the specific violations and time frames for which the employer computed back wages. Employers are responsible for issuing prompt payment directly to the affected employees.

The FLSA authorizes the Secretary of Labor, through the DOL, to supervise the payment of unpaid minimum wage or overtime compensation due employees under the FLSA.  It also provides for employee private rights of action to remedy FLSA violations.  The statute further provides that the acceptance by any employee of a DOL/WHD supervised settlement amount acts as a waiver by that employee of his or her right to file an action to recover any alleged unpaid wages, liquidated damages, and attorneys’ fees.  WHD says that under the PAID program, an employee may refuse back wage payment and thus retain his or her private right of action under the FLSA.  (Historically, in DOL/WHD supervised settlements, individuals have been simultaneously provided with the release of claims and the check.  Cashing the check has, historically, subjected the employee to the waiver even if the employee did not sign and return the release document to the employer or to the DOL / WHD.

The PAID website states that the program will be a positive development for both employees and employers.  Employers may avail themselves of the DOL’s back wage payment supervision and waiver issuance provisions, allowing them to obtain WHD concurrence in resolving FLSA violations without being subject to a full WHD investigation.  Under the program, employers would not be subject to DOL assessment of liquidated damages or civil money penalties, a potentially huge cost savings to the employer.  Employees benefit by having violations corrected and back wages restored much faster than under a WHD investigation, litigation, or arbitration.

During my WHD career, the agency allowed employers to perform self-audits similar to the PAID pilot.   However, WHD believed that if the agency did not conduct an investigation, it would be unable to properly confirm the violations. Thus WHD believed that giving employers the protections of DOL-approved back wage payments and official release/receipt forms for self-audits was not warranted.  In addition, WHD felt providing protections for self-audits could have negative impacts on employees’ private FLSA rights to bring their own suits.  Thus, prior to the PAID pilot program, WHD would not issue “official” DOL release / receipt forms.  It appears that opinions mays have changed at the DOL.

WHD has not announced a date when the PAID pilot will begin.  As this is being written, the website has only general outlines of the program.  In the absence of procedural details, it is difficult to evaluate how effective, or how popular, the pilot will be.  It also remains to be seen whether employers will be willing to “invite” WHD to review their pay practices.  And there is no word from WHD on what would occur if an employer interested in PAID contacts WHD and admits to FLSA violations, and WHD denies the use of the PAID program.  In that situation, WHD would be aware of FLSA violations – would they follow up with an investigation of their own?  Or issue a press release?

And an employer needs to be mindful that, even if it is operating under the PAID program, an employee or group of employees can decline the proffer of payment and institute private FLSA litigation.  Most likely the self-audit materials would be the subject of discovery in that litigation.

Even absent program details, any employer considering participating in the PAID program would be well-advised to get professional employment law assistance before contacting WHD and starting a self-audit under the PAID program.  

For any questions regarding Payroll Audit or Employment & Labor Law, please contact Mike Staebell. 

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed. 

- Mike Staebell