On March 6, 2018, the U.S. Department of Labor announced a new nationwide pilot program called “PAID” – Payroll Audit Independent Determination. For an initial 6 month trial period, employers can self-audit their wage and hour practices. If violations are found, an employer can voluntarily report it to the DOL’s Wage and Hour Division (WHD), in hopes of resolving the potential violations without liquidated damages penalties (usually an amount equal to the back wages due) and with a release of claims (as to the violations only).
Why? The DOL is hopeful that employers who discover violations will come forward and pay the employee 100% due promptly, in exchange for a settlement waiver and no liquidated damages, lawsuit, attorneys’ fees, etc. In turn, employees are paid faster than in a lawsuit or DOL investigation, and 100% of what is allegedly due.
Who is eligible? All employers subject to the FLSA. The program cannot be used for any pending investigation, arbitration, lawsuit, or threatened lawsuit (with an attorney involved). Also repeat offenders are ineligible.
What’s the catch? The DOL notes that it is an employee’s right to not accept the back wages, and not release any private right of action against the employer (and they cannot be retaliated against for such refusal). Further, unlike a typical litigation settlement release, the release must be narrowly tailored to only the identified violations (i.e. overtime, minimum wage, off-the-clock, misclassification, recordkeeping (for every violation)), and time period for which the back wages are paid. The WHD can still conduct future investigations of the employer, and employers cannot use the program to repeatedly resolve the same violations. So, in reality, an employer could notify 100 employees that they were paid incorrectly, and 90 accept and 10 reject and file a lawsuit seeking liquidated damages and attorneys’ fees (since they were just told by the employer that they “stole” their wages).
That being said, an employer could, as always, pay the employee the alleged back wages due in a supplemental check, and thus cut off their alleged damages as to that portion (which makes it a lot less attractive as a case to a plaintiff’s attorney), but they will not get a release. Sure, the employee cannot be forced to cash the check, but that would be a remote occurrence. Of course, the employee could still sue, stating they are entitled to interest or liquidated damages, etc., but such suit would likely not sit as well before a court without additional claims (i.e. you were paid what you were due, why are you taking up our limited judicial resources…).
How does the process work? Employers wanting to participate must review the program information and compliance assistance materials that will be available on the PAID website. The employer then conducts the audit and identifies the potential violations, affected employees, time frame, and back wages. Next, the employer contacts WHD to discuss the issues, and the WHD determines if it will allow the employer to participate in the program. If allowed, the employer must then submit information such as the backup calculations, scope of violations for release, certification that this is all in good faith and the materials have been reviewed, and that practices will be adjusted to avoid the same violation in the future. The WHD finally issues a summary of unpaid wages (this is likely the same form they use today except no liquidated damages will be assessed). KEY – once this process has been completed, the employer must issue the back wages by the end of the next full pay period. Thus, employers should be careful to not begin/end the process until ready and able to pay.
In reality…while some are calling it a “get out of jail free card” for employers, I really don’t see it. An employer who discovers an error after a good faith internal investigation can chose to report itself to the DOL. Now, they are on the DOL’s radar with an admission that they believe they have paid their employees in error. The DOL can reject participation in the program and conduct a full investigation. If the DOL allows participation, all affected employees will be notified of the error (who may not have otherwise known), and can chose to opt-out and file a private lawsuit against the employer that just came clean. Further, neither relieves the employer of a future DOL investigation. Get out of jail free card? I think not. More like playing a game of Risk.