U.S. Department of Labor’s Pilot FLSA Self-Audit Plan

03/12/2018 / Phyllis Karasov

This week the United States Department of Labor’s Wage and Hour Division (WHD) announced a new six-month pilot program, the Payroll Audit Independent Determination (PAID) program. This program is intended to facilitate resolution of potential overtime and minimum wage violations under the Fair Labor Standards Act (FLSA). The program’s objective is to resolve such claims quickly and without litigation. It also aims to improve compliance by employers with overtime and minimum wage obligations. The advantage to employees is that they will receive back wages faster. If an employer pays back wages pursuant to the PAID program, the WHD will not seek liquidated damages or civil penalties.

How it Works

To participate in the program an employer is to audit its compensation practices for practices that do not comply with the FLSA. If the employer discovers any violations or potential violations, the employer must then:

1. specifically identify the potential violations;

2. identify which employees were affected;

3. identify the timeframes in which each employee was affected; and

4. calculate the amount of back wages the employer believes are owed to each employee.

After assembling all of this information, the employer is to contact WHD. WHD will require that the employer certify that it is not litigating the compensation practices and that it will adjust its practices in the future to avoid these same potential violations. WHD assesses the back wages due and issues a summary of unpaid wages. WHD then issues forms describing the settlement terms for each employee which the employees have to sign to receive payment. The employer is responsible for contacting its employees.

Employers should evaluate their situation and their willingness to pay back wages before participating in the program. It is unclear what the scope of the WHD’s release of claims will be, but it clearly will not cover any state law claims and it most likely will not include any claims other than those under the FLSA. Employers may also be concerned about submitting their pay practices to the WHD. Furthermore, if an employee refuses to sign the release of claims the employee is free to commence a lawsuit against the employer for the violations, about which they may not have been aware had the employer not participated in the PAID program.

Employers that are aware of potential FLSA violations should consult with legal counsel before making any decision to participate in the PAID program.