U.S. Department of Labor Launches Wage and Hour Self-Reporting Program

By: Jennifer Budoff

July 12, 2018

On March 6, 2018, the U.S. Department of Labor (“DOL”) announced a new pilot program, the Payroll Audit Independent Determination (“PAID”) program, which encourages employers to self-report inadvertent overtime and minimum wage violations under the Fair Labor Standards Act (“FLSA”).  The program, which is expected to launch in April 2018, will be rolled out as a six month pilot program, after which the DOL will decide whether to make the program permanent based on its effectiveness, participation rate, and results.
The PAID program will provide a framework for proactive resolution of overtime and minimum wage violations under the FLSA.  The program’s primary objectives will be resolving FLSA violations without the need for litigation, improving employers’ compliance with overtime and minimum wage obligations, and ensuring that more employees receive the back wages they are owed at an expedited rate.
In keeping with the DOL’s message that it prefers compliance assistance over enforcement actions, PAID will provide employers with an opportunity to proactively address potential wage and hour violations under the FLSA, while at the same time helping to protect themselves against litigation threats from the DOL and individual employees.
To participate in the PAID program, employers will need to audit their compensation practices for potentially non-compliant practices.  If the employer discovers any non-compliant practices the employer must: (1) identify the potential violations; (2) identify the affected employees; (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.  The employer will then provide this information to the DOL, which will inform the employer of the manner in which the information must be submitted.  The DOL will then evaluate the information provided, assess the back wages due, and issue a summary of unpaid wages along with forms describing the settlement terms for each employee, which the employee must sign to receive payment.  Employers must subsequently pay all back wages due by the end of the next full pay period and provide proof of payment to the DOL.
While all FLSA covered employers are eligible to participate in the program, employers may not use the program to resolve claims that are already being investigated or litigated. Moreover,   employers may not participate in the program if the DOL determines they are acting in bad faith or under investigation for the violations at issue, or if they are repeat offenders seeking to use the program to resolve recurring violations.
The DOL is promoting the program as a win-win for both employers and employees.  As an incentive to employers to participate, the DOL will not require additional payment of liquidated damages or civil monetary penalties when employers participate in the program and work with the DOL in good faith to fix and resolve the compensation practices at issue.  Moreover, if the affected employee accepts the settlement terms provided by the DOL to resolve the violation, he or she will release the right to bring a private cause of action under the FLSA for the identified violations.   On the flip side, the program aims to ensure that employees receive the back wages they are owed at a much faster rate without having to pay any litigation expenses or attorneys’ fees.  However, many questions about the program remain. For example, while the program contemplates that employees would release their FLSA claims in exchange of payment from the employer, it is not clear whether DOL will allow that release to be extended to other claims, such as those that would exist under state wage payment and collection laws.
As the launch date approaches, Mintz Levin will continue to monitor any updates issued about the program, and will provide additional guidance and information as it becomes available.  In the interim, we recommend that employers who believe they may be out of compliance with the FLSA consult with counsel and consider participating in PAID as a means of getting ahead of potentially costly and time consuming litigation.