DOL’s New PAID Program: Why Employers Should Proceed with Caution

DOL’s New PAID Program: Why Employers Should Proceed with Caution

DOL, FLSA
March 26, 2018

Earlier this month, the Wage and Hour Division of the Department of Labor announced a new pilot program, the Payroll Audit Independent Determination (PAID) program. The PAID program is aimed at expediting resolution of employers’ inadvertent overtime and minimum wage violations under the FLSA without litigation. According to the DOL's press release, the Wage and Hour division will "oversee resolution of the potential violations by assessing the amount of wages due and supervising their payment to employees.” If an employer chooses to participate in the PAID program and to “proactively work with the Division to fix and resolve their potential compensation errors," the DOL will not impose penalties or liquidated damages to finalize a settlement. The pilot program is expected to go live in April. After six months, the DOL will evaluate the results of the program to determine whether it has been effective and whether to continue the program going forward.  Read the DOL’s press release here.

Although the PAID program is being touted as beneficial to both employers and employees, employers should tread carefully. We noticed that the currently available description of the program is devoid of any mention of how violations resolved via the program will be viewed by the DOL in the future. For example, if an employer is audited in the future, will new violations be deemed “repeat violations” resulting in penalties? Will they be deemed "willful" resulting in a longer look-back period? What position will the DOL take regarding whether different types of future violations will be deemed repeat or willful? Similarly, if an employer seeks to use the PAID program to resolve similar violations in the future (referred to by at least one organization as a "get out of jail free card"), will this result in the DOL’s refusal to allow participation in the program and instead result in an audit with self-reported violations for which the employer is now facing repeat and/or willful violation status? As of last week, the DOL indicated that it had not yet determined what its position will be in these circumstances; however it anticipates that it will address these issues in April when the program goes live.  

Until these and other questions are answered, employers may be better served by conducting their own internal audits and paying employees back wages without releases. The statute of limitations for back wages is two years (three years if willful), and while the FLSA does not permit employers to seek unsupervised releases of back wage claims under the FLSA, it does not prohibit employers from simply eliminating potential liability by paying back wages without a release. If employees are dissatisfied with the back wage payments, they may complain to the DOL; however, ensuing audit and enforcement activity should come up empty if the employer has already paid appropriate back wages and corrected the oversights.   

A special note to federal contractors - the PAID program does not appear to include the opportunity to resolve violations under other wage and hour laws applicable to federal contractors, for example, the Service Contract Act (SCA) and the Contract Work Hours and Safety Standards Act (CWHSSA). These laws are typically enforced in conjunction with FLSA enforcement actions, thus this begs the question of whether a federal contractor who participates in the PAID program will face an overlay of audit and enforcement action under other laws not included in the PAID program.    

Employers are anxiously waiting for the DOL to provide additional information and instructions for the PAID program. Until then, while the program has the potential to create the "win-win-win" situation some commentators are suggesting, assuming there is assurance to employers relevant to how outcomes under the program will be treated in the future, employers should be circumspect about diving into this pool - it is appealing but it could be quicksand.