The U.S. Department of Labor recently initiated a nationwide pilot program referred to as the Payroll Audit Independent Determination (“PAID”) program.  The stated purpose of the program is to facilitate resolution of potential overtime and minimum wage violations under the Fair Labor Standards Act (“FLSA”).  The expectation is that FLSA claims will resolve more expeditiously and without litigation thus improving employer compliance with wage and hour laws and getting back wages to employees more quickly.

How it Works

Employers audit their payroll practices for potential non-compliance and if it is determined that violations have occurred do the following:

  • Specifically identify potential violations;
  • Identify affected employees;
  • Identify applicable time frames of violations; and
  • Calculate the amount of back wages owed.

Once this has been done the employer contacts the DOL to discuss issues for which it seeks resolution, following which the DOL will determine the manner in which it would like to receive the following information:

  • Back wage calculation with supporting evidence and methodology;
  • A concise explanation of the scope of potential violations which might be included in a release of liability;
  • A certification that employer has reviewed all of the PAID program’s information, terms and compliance assistance materials; and
  • A certification that the employer meets all of the eligibility criteria for the program.

Criteria for Eligibility

  • An FLSA covered employer;
  • Employees at issue are not subject to prevailing wage requirements under the H-1B, H-2B, or H-2A Visa programs, the Davis Bacon Act, Service Contract Act, or any Executive Order;
  • No findings in the prior five years by the agency or a court that the employer has violated minimum wage or overtime laws by engaging in the same compensation practices for which it seeks relief;
  • Not currently a party to any litigation asserting that the compensation practices at issue violate FLSA minimum wage or overtime requirements;
  • Not under current investigation by the DOL for the practices at issue;
  • Not aware of any recent complaint by employees or their representatives to the employer, the DOL or a state wage enforcement agency regarding the same practices; and
  • No previous participation in the PAID program for the same practices.

The DOL maintains discretion over whether an applying employer will be accepted in the PAID program.  Employers found to have engaged in bad faith will be rejected.

Once an employer is accepted into the program and provided the necessary information to the DOL, the wage and hour division will determine the back wages owed.  The employer will need to pay the back wages in the next pay period after being notified of the amounts due. To receive the funds, employees will need to release the employer from liability for the wages at issue only.

The program provides employers, who are sometimes the first to discover that errors have been made, the opportunity to come clean and make things right without having to go through the expense of a full scale audit or, even worse, litigation.  For example, many who carefully audited their overtime classification policies in preparation for the anticipated increase in the salary threshold a year ago, likely found that they had misclassified employees based on the duties test.  This program could give those businesses the opportunity to correct those classification errors and pay back wages.  These companies can avoid liquidated damages, which double the liability, and the assessment of civil penalties.