U.S. Department of Labor Announces Self-Audit Program
Mistakes happen. But when those mistakes result in a violation of the Fair Labor Standards Act, what is an employer to do? Pay twice the amount of wages owed to cover both back wages and an amount equal to liquidated damages? Hope no one notices? Well, thanks to the Wage and Hour Division (WHD) of the DOL, another option is now available to provide “make whole” relief to the employees and a binding release of FLSA claims for the employer, without the agency penalties and without the liquidated damages that may provide nothing more than a windfall to employees who have received all wages due. The WHD has announced a new pilot program designed to encourage employer self-reporting of potential minimum wage and overtime violations. Under the Payroll Audit Independent Determination (“PAID”) program, an employer who uncovers potential wage violations during a self-audit may voluntarily report those findings to the WHD, which will work with the employer to pay any wages due to employees without the additional risk of the penalties or liquidated damages the agency might impose were it to initiate the audit. The WHD intends to operate the program for approximately six months and then undertake an assessment of its effectiveness.
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 WHD the identity of the affected employee(s), the relevant timeframe and a calculation of the wages owed. The WHD 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.
While the intent of the PAID program is to resolve potential wage and hour claims more expediently – with less financial cost to employers than if the same issues were uncovered during an agency audit and with faster payment of the wages to the affected employees – participation in the program is not without risks to employers. Many employers are wary of proactively contacting a federal agency with the admission of an error. Employees are also not obligated to accept the proposed settlement terms simply because the WHD has endorsed them. An employee, for example, might consult his or her own attorney, resulting in an increased, rather than decreased, prospect of litigation. That risk is magnified if a significant number of employees are implicated, as the possibility of a viable collective or class action likely would bolster the interest of a plaintiff’s attorney.
In addition, because any settlement will be limited to the potential wage violations and timeframe at issue, the employer will not have the opportunity to obtain a general waiver and release as part of the settlement terms. Notably, employers may not use the PAID program to resolve issues already being investigated by the WHD; that already are the subject of litigation or arbitration (whether actual or threatened); or about which the employer already has been contacted by an employee’s attorney or other representative to settle.
Nevertheless, in industries that currently are, or routinely have been, the focus of WHD audits, or for companies that already have identified substantial wage and hour risks in their workplace, the PAID program provides an option to employers to address and resolve wage and hour compliance issues without fear of the substantial penalties and liquidated damages ensuing from an agency-initiated audit.