Alicia Koepke, shareholder with Trenam Law in Tampa, Florida.

Recently, the Wage and Hour Division (WHD) of the Department of Labor (DOL) announced a pilot program, called the payroll audit independent determination (PAID) program, to facilitate the payment of back wages owed to employees and accidentally not paid by employers in accordance with the Fair Labor Standards Act (FLSA). The DOL's goal in initiating the PAID program is to resolve FLSA violations “expeditiously and without litigation.” To encourage employers to self-report their violations in accordance with the program, the WHD assured employers that it will not require the payment of liquidated damages or civil monetary penalties by employers who participate in the program, although it will require the employers to pay all back wages owed (i.e., all minimum wage and overtime pay owed).

This article explains the PAID program and the potential advantages and disadvantages to employers who voluntarily choose to use the program.

The Typical Resolution of FLSA Violations

For FLSA violations that are not resolved pursuant to the PAID program, an employer may be obligated to pay the unpaid minimum wages and overtime pay, an equal amount as liquidated damages and an employee's attorney fees and costs. An employer who willfully violates the FLSA can also be subject to civil and criminal penalties. Typically, the failure of an employer to pay minimum wage or overtime pay pursuant to the FLSA is resolved through a DOL investigation or a lawsuit by an employee or group of employees.

The New Alternative: The PAID Program

Now, if an employer chooses to self-report an FLSA violation under the PAID program rather than waiting for the DOL or an employee to uncover the violation, the employer may avoid litigation (and the associated costs), the imposition of liquidated damages and civil monetary penalties. Of course, the employer will have to pay 100 percent of the back wages owed.

Any FLSA-covered employer is eligible to participate in the program, provided it:

• Has not received a communication from an employee or employee representative expressing an interest in litigating or resolving the issue;
• Is not already litigating the issue; and
• The WHD is not already investigating the employer with respect to the issue.

To use the PAID program, an employer must audit its pay practices and agree to correct any errors in the future. If an employer determines that its pay practices violate the FLSA, or if an employer believes its practices are questionable and wants to resolve any potential FLSA claims, the employer must:

• Identify the potential violations, the relevant timeframe and the employees affected; and
• Calculate the back wages owed.

After undertaking these steps, the employer will contact the WHD. Unless the WHD denies an employer's request to participate in the program, it will inform the employer how to submit additional required information, evidence and certifications. After assessing the information, the WHD will notify affected employees and issue a summary of unpaid wages, as well as forms describing the settlement terms for each employee. Employee releases will be limited to the potential violations being paid, and employers will be required to pay the back wages by the end of the next pay period after receiving the summary of unpaid wages.

The WHD plans to implement the PAID program for approximately six months before evaluating whether to continue or modify it.

Risks of Participation in the PAID Program

Although the WHD has not fully disclosed the contents of the program, some potential advantages and disadvantages are already apparent. The potential advantages are obvious: the avoidance of liquidated damages, civil monetary penalties and attorneys' fees and costs. But, an employer only obtains those advantages if the affected employees accept the back wages. That means the potential disadvantages of the program include the risk that an employer alerts the WHD and its employees to violations, and the employees choose not to accept the back wages but instead file suit to seek all available remedies under the FLSA. In other words, an employer may actually increase its risk of litigation by participating in the program.

Additionally, even if the affected employees accept the back wages owed, an employer will not receive a broad release from the employees; the releases will be limited to the FLSA violations identified and paid under the program. Moreover, the WHD will not waive its right to investigate an employer in the future, and the WHD can deny an employer's request to participate in the program. Finally, the PAID program will (presumably) not resolve any wage claims under state law, which will leave employers who settle FLSA violations with employees under the PAID program vulnerable to lawsuits (perhaps from those same employees) for violations of state law.

The degree to which these risks may be realized cannot be fully determined until the DOL issues specific and final guidelines and documents for the PAID program.

Guidance for Employers

As noted, once the WHD implements the PAID program and provides additional materials relating thereto, more potential advantages and disadvantages may become apparent. Given the risks associated with FLSA violations and the PAID program, employers should consult employment counsel to assess any potential FLSA violations prior to participating in the PAID program.

Alicia H. Koepke is a shareholder with Trenam in Tampa. She focuses her practice on employment and business law and related litigation. Contact her at [email protected].