DOL Launches Payroll Audit Independent Determination (PAID) Program to Promote Self-Reporting and Early Resolution of Wage and Hour Claims

On March 6, 2018, the U.S Department of Labor's Wage and Hour Division announced its new Payroll Audit Independent Determination (PAID) program. Initially being rolled out as a six-month pilot program, PAID provides employers with a unique opportunity—and indeed, motivation—to proactively address potential wage and hour underpayments under the Fair Labor Standards Act (FLSA) while simultaneously helping to protect themselves against litigation threats from the DOL and individual employees. While the details of the PAID program are yet to be announced, the DOL has announced the basic outline. 

All FLSA-covered employers are eligible to participate in the program to seek the early resolution of potential wage and hour violations.  The program cannot be utilized to resolve an already-existing litigation or administrative enforcement, or a known threat of litigation/enforcement action (e.g., claims identified in a demand letter).  Employers with a history of repeat violations are not currently eligible to participate.  

The employer must start by conducting a thorough self-audit of its pay practices to determine if any potential violation exists.  At the conclusion of the audit, the employer can choose to contact the DOL and request participation in the program.  Unless the DOL denies the employer’s request to participate,1 the DOL will then require the employer to submit specific information regarding the alleged violation: the specific type (e.g., misclassification, failure to pay overtime), the specific employees affected, the specific duration of the violation, and the amount of back wages owed.  The employer is also required to provide several certifications to the DOL including, but not limited to, certifications about its audit practices and a certification that it will adjust its pay practices going forward to avoid the same potential violations in the future.

At the conclusion of the review process, the employer is obligated to pay in full (100%) the wages owed to the employees.2 The employer must pay these wages no later than the next regularly scheduled pay period that occurs after it receives the final determination from the DOL of the summary of unpaid wages.  In return for this payment, and certification of future compliance, the DOL will not require the payment of liquidated damages or civil monetary penalties.  Also, the DOL will craft a form for employee signatures waiving their FLSA claims for the specific violations corrected.  The employees can decline to sign the waiver and reject the back wages on an individual basis; but, if most employees accept the back wages, the likelihood of class action litigation should decline.  The waivers also will have no impact on state law claims.  Another consideration for employers to consider is that documents submitted to the DOL during this process may be subject to Freedom of Information Act requests, and certainly any attorney-client privilege will be waived.

The DOL will initially roll out the pilot program starting in April 2018.  At the conclusion of the six-month period, the DOL will evaluate the effectiveness, participation rate, and results of the program, at which point it will determine whether to make the program permanent in either its original or a modified format.

Littler will provide additional guidance on this new and exciting program as it unfolds, including an upcoming webinar.  Additional details will be provided as soon as they are available.

See Footnotes

1 The DOL has not yet identified the grounds on which it would reject an employer’s request to participate. Presumably, however, a rejection could occur if the employer has a history of DOL investigations and violations, or tries to use PAID to resolve an issue that is the subject of active litigation.

2 While the employer may dispute the amount owed and seek reduction of the payment in that manner, the DOL will not accept anything less than a dollar-for-dollar payment of whatever sum is finally determined as owed.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.