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"PAID" Program – Federal Program to Expedite Resolution of Potential Wage Claims Is a Double-Edged Sword for Employers

Publisher: Day Pitney Employment and Labor Quarterly Update
June 27, 2018

On April 3, the Wage and Hour Division (WHD) of the U.S. Department of Labor launched its "Payroll Audit Independent Determination" (PAID) program. This six-month pilot program is intended to facilitate quick resolution of employers' violations of the Fair Labor Standards Act (FLSA). Touted by the WHD as a win-win for employers and employees, the PAID program operates as a trade-off -- employees receive wages owed at a faster pace than could ever be had through a civil lawsuit, and employers are only liable for back pay owed – no more liquidated damages, civil penalties, or attorneys' fees, costs that significantly increase the exposure employers face when they are found to have violated the FLSA. Unfortunately, the PAID program does not cover claimed violations of state wage and hour law.

There are several important considerations for employers to take into account when considering entry into the PAID program.

How It Works

All employers covered by the FLSA are eligible to participate in the PAID program. To participate, employers must first review required information about the PAID program and its compliance assistance materials, available here. Employers cannot participate if the WHD is already investigating the employer's pay practices, the employer is already defending its practices in a legal proceeding, or the employer has received notification from an employee's attorney or representative of a potential violation.

Once an employer reviews the requisite materials, it must conduct a self-audit of its compensation practices to determine whether there are any FLSA violations. If violations are found – or the employer thinks its practices are legal but wants to proactively resolve any potential disputes – the employer must (1) identify all potential violations, (2) determine the employees affected – even former employees, (3) ascertain the time period of the violations, and (4) calculate the back pay owed to each employee.

Once the self-audit and calculations are complete, the employer must advise the WHD of the potential violations it seeks to resolve. If the WHD grants the employer's request to participate in the PAID program, it will oversee the employer's payment of back pay damages, and the employer must submit all of the following information:

  1. All back pay calculations – including backup documentation and an explanation of how the calculations were completed.
  2. A summary of the scope of potential violations to be included in the release of liability.
  3. A certification that the employer reviewed the compliance assistance materials.
  4. A certification that the employer's pay practices sought to be disposed of through the PAID program are not being disputed in any other forum, or that the employer does not have direct knowledge that the practices may be in dispute.
  5. A certification that the employer will remedy its pay practices to ensure compliance with the FLSA going forward.

If the WHD accepts the employer's information, it will provide the employer a summary of the wages owed, the settlement terms for each employee to execute to receive payment, and a form release of liability. The release is limited to the potential violations of the FLSA accepted into the PAID program by the WHD.

The WHD expects the whole process – from identifying potential violations to payment – to take 90 days. The WHD calls this a "win" for employers that participate in the PAID program because they can resolve potential FLSA minimum wage and overtime claims without litigation (i.e., no attorneys' fees for the employer or paid to plaintiff's counsel), and the WHD absolves the employer from the additional payments ordinarily required when there is a finding of an FLSA violation – liquidated (double) damages and civil penalties – when the employer voluntarily works to fix its bad practices and pays employees what is rightfully owed to them.

Participation in the Program May Not Cure All Wage Violation Ills

Even when an employer voluntarily conducts its self-audit, identifies potential violations, calculates the back pay owed, works with the WHD to pay all affected employees, and fixes its pay practices — meaning the employer has done everything right – the employer may still be liable for back pay under state law. According to the USDOL, the WHD "may not supervise payments or provide releases for state law violations."

For example, a New York City employer with 20 employees participates in the PAID program and remedies FLSA minimum wage violations by paying back pay to its employees to ensure they have all been paid $7.25 per hour (the current federal minimum wage) for the past two years (the FLSA limitations period). However, the current New York State minimum wage in New York City is $13.00 per hour, and the statute of limitations under the New York Labor Law (NYLL) is six years. In this case, the employee can still sue to recover the difference between the federal and state minimum wages, as well as full back pay damages for an additional four years. On top of that, the NYLL also imposes liquidated damages and attorneys' fees on the employer. Therefore, by participating in the PAID program, the employer will open itself up to additional damages, whereas if the employer brought its pay practices into compliance without government involvement, whether or not it seeks to determine past underpayments, its employees' claims and recourse to other damages will be extinguished as time passes and the statutes of limitations expire.

Moreover, there are no signs from the state level that prosecutions for state law wage violations will miss a beat. On April 11, Attorneys General (AGs) from California, Connecticut, Delaware, Illinois, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Washington, and the District of Columbia sent a letter to the USDOL raising their "serious concerns" about the PAID program. The AGs took issue with, among other things, the PAID program's release of liquidated damages and/or penalties, calling the requirement to pay only back wages an "unlawful, interest-free loan," and decried the PAID program for eliminating an essential deterrent to unlawful behavior. The AGs also expressed concern that there is "significant danger" that employers will require employees to sign separate state-law releases. Thus, the AGs vowed that they "will continue to prosecute labor violations to the fullest extent of our authority." New Jersey Labor Commissioner Robert Asaro-Angelo also stated that his department "is committed to holding employers accountable when they fall short of their obligations to their employees."

One final note – relating to something not necessarily in the employer's control. As previously mentioned, any employee who accepts payment under WHD's supervision in the PAID program waives his or her right to receive liquidated damages. For example, in an FLSA litigation, if an employee is owed $10,000 in back pay, the employee is also entitled to an additional $10,000 in liquidated damages. That is a lot of money for an employee to forego. Another consideration for employees is the benefit of receiving back pay within 90 days versus waiting through years of litigation for the opportunity for a bigger payoff through substantial amounts in liquidated damages. That all of an employer's employees will accept the payout through the PAID program and forego their chance at a larger recovery is not assured, yet, through participation in the PAID program, an employer must publicly admit to its past lack of compliance.

The PAID program is littered with pros and cons for employers and employees, and no one knows whether it will last longer than its six-month trial run. Employers must carefully review their compensation practices and weigh whether it makes sense to dispose of potential FLSA claims and reap the PAID program's benefits, while also being mindful of the risks that come with it.


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