Earlier this month, the Federal Department of Labor (“DOL”) announced a new pilot program for employers to audit and self-report their payroll practices to the DOL. The program is dubbed the “Payroll Audit Independent Determination” program, or “PAID” for short. To incentivize employer participation in the PAID program, an employer who discovers and reports “inadvertent” employee payment errors—including errors that violate the Federal Fair Labor Standards Act—may avoid punitive DOL fines and costly litigation by simply correcting the payment error and paying all back wages.
As employers are well aware, the Fair Labor Standards Act (“FLSA”) is the primary Federal law regulating payment of wages and salaries. Generally, the FLSA requires employers to pay employees at least the (Federal) minimum wage, pay at time-and-a-half for overtime work, and also regulates which employees are exempt from overtime pay requirements. Violations of the FLSA, even accidental, may trigger expensive wage-and-hour litigation as well as stiff fines from the DOL on top of any assessed back wages.
Under the PAID program, an employer who discovers potential wage-and-hour violations after performing a self-audit may report the violations to the DOL’s Wage and Hour Division. This report must contain specific information, including: which employees were affected by the violation, how long the violation existed, and the amount of back wages the employer believes are owed to each employee. After submitting that information, the DOL may request additional documentation, including evidence supporting the employer’s recommendation for the amount of back wages owed, as well as a certification that the employer is not currently litigating the matter, and/or, has not already received communications from employees’ attorneys regarding wage violations.
If the DOL determines that the employer is eligible to participate in the PAID program and further agrees with the employer’s calculation of back wages, the Department then issues forms and settlement agreements for employees to sign. Employees who sign the agreement are then eligible to receive payment for back wages from their employer. By signing the agreement, employees also waive their right to pursue their FLSA claims in court, and receive payment faster than they would by going through drawn-out litigation. For employers, participation in the PAID program theoretically mitigates the risk associated with a wage-and-hour lawsuit. In addition, the DOL will not levy “liquidated damages,” or “double damages” against an employer who participates in the PAID program. In other words, an employer participating in the PAID program would only be required to pay employees’ back wages, and would not be required to pay any additional fines, penalties, or fees.
While the program seems like a win for both employers and employees, there is reason for caution. First, there appears to be nothing that obligates employees to sign settlement agreements issued by the DOL. Therefore, there is the risk that employees may choose to pursue their claims in court and seek additional damages, or, assert other claims along with FLSA violations. Second, and of particular importance to employers in New York state, it is unclear whether a settlement through the PAID program would also waive employees’ claims under the New York State Minimum Wage Act. Analogous to the Federal FLSA, the New York State Minimum Wage Act sets New York-specific requirements for overtime pay and overtime exemptions, as well as a host of other state-specific requirements, like “call-in pay.”
Given the risk associated with any wage-and-hour issue, employers should seek experienced legal counsel when reviewing or modifying their pay practices.
