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IMA Executive News & Views Blog

Should Employers Participate in the U.S. Department of Labor’s “Paid” Program?

Waltz, Palmer & Dawson, LLC is an IMA B2B Partner…

The Wage and Hour Division of the U.S. Department of Labor (DOL) recently announced that it intends to implement a six-month pilot program, known as the Payroll Audit Independent Determination Program, or “PAID”. The PAID program will provide a framework for proactive resolution of overtime and minimum wage violations under the Fair Labor Standards Act (“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. The program, which is expected to launch sometime 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.

Who Can Participate?

All FLSA-covered employers are eligible to participate in the pilot program, however, an employer cannot initiate the process with respect to an issue for which it currently is being investigated, sued, or otherwise faced with a legal challenge where the employee is represented.

Does the PAID Program Require Employees to Participate?

No. Employees can decide whether to accept the payments offered or to reject them and retain all of their rights. It is the employee’s choice whether to accept the payment of back wages due, and employers are prohibited from retaliating against the employee for his or her choice. If the employee chooses to not accept the payment, the employee will not release any private right of action. Additionally, if the employee chooses to accept the payment, releases are limited to the identified violations and time period for which the employer is paying the back wages.

What Claims Are Covered?

The program covers FLSA minimum wage and overtime requirements, including “violations based on alleged ‘off-the-clock’ work” and “misclassification of employees as exempt” that, presumably, underpin minimum wage and/or overtime pay violations.

How does the PAID Program work?

Under the PAID program, if an employer discovers any non-compliant, or even questionable, minimum wage or overtime practices (including, for example, misapplication of the “white collar” or other exemptions), it can provide to the DOL the identity of the affected employee(s), the relevant timeframe and a calculation of the wages owed.  The DOL may agree with the employer’s determinations or may arrive at its own calculations, after which it will notify the affected employees and provide them with a summary of the wages owed and the settlement terms. If the employee executes the settlement agreement, the employer will have to pay the wages due no later than the next regular pay period.

What will an Employer Owe?

The employer will owe 100% of the back wages. The initial overview from the DOL provides that the program will not require “additional payment of liquidated damages or civil money penalties”.

What Happens if the Employer Doesn’t Want to Pay

What are the Potential Consequences of Participating in PAID?

Proactively contacting DOL to admit liability could expose an employer to further scrutiny. Any information provided to the DOL will also be subject to discovery under the Freedom of Information Act by those employees (and former employees), who may not have been part of the initial internal audit. Moreover, possible violations not covered by the period of the employer’s audit, such as mistakes not detected, state wage and hour claims, and other related wage payment claims could also be impacted. As of now, DOL has not clarified if it will waive its right to re-audit the same period covered under the PAID program.

Furthermore, when an employee decides to settle, they will receive notice of the amount to be paid and will be given the option to accept the payment in exchange for a release of claims under the FLSA against the employer. Employers should note that “the releases are tailored to only the identified violations and time period for which the employer is paying the back wages” under the terms of the PAID program. Thus, employers likely will not be able to obtain a release covering possible state or local minimum wage obligations where the federal minimum wage is lower or a general release of other types of claims (e.g., discrimination, breach of contract, etc.). Also, if a state or local law has a longer statute of limitations than under the federal law, the employer could remain exposed to a claim even after settling with an employee. Employers should also consider possible repercussions under local wage theft ordinances or similar laws, such as ordinances in Cook County, Illinois or the City of Chicago, where findings that employers failed to pay wages could create additional liabilities.

So Should Employers Participate in the PAID Program?

Although DOL’s proposal to provide a less adversarial avenue for employers to achieve compliance is a welcome one, it might not be the best choice for employers. It might be very tempting to employers who have struggled with resolving claims outside of court, but employers should be aware that settling a claim through the PAID program may not resolve everything and could leave the door open for other claims as well. The proposed six-month pilot period does not provide an employer with much time to contemplate whether to participate in the program before needing to initiate the self-audit process. Employers should proceed with caution and consult with legal counsel before even considering the PAID program.

As the launch date approaches, Waltz, Palmer & Dawson 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 an attorney.


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