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The Wage and Hour Division of the U.S. Department of Labor has been actively touting a new nationwide pilot program called the Payroll Audit Independent Determination (PAID) program.  Soon to be implemented for a six-month trial period, PAID is portrayed, in part, as being beneficial to participating employers covered by the Fair Labor Standards Act (FLSA).  But is this the case?

The PAID program, which is purely voluntary, provides for participating employers to self-audit their compensation practices for violations of the overtime and minimum wage requirements of the Fair Labor Standards Act, and to self-identify any such violations to the Wage and Hour Division.  As part of the self-identification process, the employer must also identify the timeframes in which each employee was affected and calculate the back wages owed to each employee.  This information is conveyed to the Wage and Hour Division by the participating employer, along with:

• evidence and explanation of the calculations;
• a concise explanation of the scope of the violations;
• certification that all information, terms and compliance assistance materials have been reviewed;
• certification that the employer is not litigating the compensation practices in Court or elsewhere and has not received communications from the employee’s representative or counsel expressing an interest in litigating or settling the issues; and
• certification that the employer will adjust its practices to avoid these violations in the future.

The Division then evaluates the information, assesses the back wages due, issues a summary of unpaid wages and produces forms with terms for a potential settlement agreement discussed between the employer and employee.  Such terms are limited to back wages, liquidated damages or monetary penalties are not included and all back wages must be paid by the end of the next full pay period.

At this point in the process, the program may appear to be truly beneficial to participating employers.  However, things are not always as they seem.  One must look further at the details.

Under the terms of the PAID program, neither the employee nor the Wage and Hour Division surrender or release any of their rights.  As such, an employee has the right to reject the offered back wage proposal and pursue any private right of action he/she may have.  The Wage and Hour Division, if it so chooses, can pursue and conduct an investigation.  Accordingly, an employer may self-audit and self-identify, fail to reach a settlement and end up with a lawsuit and/or an investigation on its hands.  Had the employer not participated in PAID, the violation(s) may never have been discovered by the employer, the employee, or the Wage and Hour Division, and may have possibly be unknowingly cured (at least for the employer) by the passage of time and a change in employee’s position, or by a change to the employer’s compensation/payroll system.

The stated objectives of the PAID program are threefold:

1. Resolve such claims expeditiously and without litigation.
2. Improve employers’ compliance with overtime and minimum wage obligations.
3. Ensure that more employees receive the back wages they are owed – faster.

However, as it is currently configured, this program is by no means a guarantee of reaching those objectives. While PAID might prove beneficial to a participating employer – if all goes well – the fact that neither the employee nor the Wage and Hour Division surrender or release any of their rights may prove disastrous for the employer.  As such, employers should be leery about participating in the pilot program, and might be best served by taking a “wait and see” approach – wait and see what happens to the program after the six-month pilot program comes to an end.  

While the PAID program may never be adopted by the Department of Labor’s Wage and Hour Division on a more permanent basis, it might reappear with the necessary and appropriate modifications to provide the protections employers need.  The Bowles Rice Labor and Employment Team will keep you posted.