The Wage and Hour Division (WHD) of the U.S. Department of Labor recently announced that it will soon implement the “Payroll Audit Independent Determination,” or PAID, program. The new program provides employers with an opportunity to correct minimum wage and overtime errors under the Fair Labor Standards Act (FLSA) and to reach final resolution of any outstanding pay issues with employees who accept the back wage payment.
If an employer conducts an internal audit and discovers that it has violated the minimum wage or overtime requirements of the FLSA, the employer will be able to request participation in the PAID program. The employer can then pay all back wages due, presumably for a two-year period (but no liquidated damages or civil money penalties), and obtain a final settlement and waiver of any further FLSA liability.
Currently, the ability to obtain enforceable waivers of FLSA rights in exchange for back wage payments is limited to doing so in the context of active wage and hour investigations by the WHD or with court approval. In other words, an employer cannot, on its own, simply pay back wages owed to employees (or former employees) and have them sign enforceable releases. The new PAID program offers employers the ability to obtain WHD “supervision” and the finality of resolving pay issues under the FLSA when employees accept the back wage payment.
The program is not available where a wage and hour investigation has already begun, the employer is already in litigation or arbitration over FLSA compliance, or the employer has already been contacted by counsel for an employee or employees regarding litigation or potential resolution of FLSA claims. An employer cannot repeatedly use the PAID program, and participation in the program does not grant an employer immunity from future investigations for FLSA compliance.
Employees and former employees cannot be forced to accept back wage payments and are always free to reject an offer of payment and resolution regardless of an employer’s participation in the PAID program. In such cases, there is no waiver of FLSA rights, and employees and former employees who decline payment remain free to pursue litigation if they believe FLSA violations have occurred.
It is unclear whether the PAID program will require employers to include former employees in back wage calculations and any resolution of unpaid wages. While the WHD has not specifically addressed this issue, it is likely that employers granted permission to participate in the PAID program will also be required to offer back wage payments to former employees given that the WHD typically includes former employees in its compliance investigations.
Employers who discover mistakes in compensating employees, including errors in calculating or paying overtime, might want to consider the PAID program. The program has not yet been officially launched and WHD should be providing more details about it soon. In the meantime, employers who become aware of potential wage and hour violations in their workplaces should consult legal counsel for guidance.