On March 6, 2018, the U.S Department of Labor's Wage and Hour Division (WHD) announced a new nationwide pilot program, the Payroll Audit Independent Determination (PAID) program. The PAID program is intended to provide a process for proactively resolving potential violations of the FLSA's overtime and minimum wage requirements, including alleged "off-the-clock" work, failure to pay overtime at one-and-one-half times the regular rate of pay, or misclassification of employees as exempt from the FLSA's minimum wage and overtime requirements. The program's primary objectives are to resolve minimum wage and overtime claims under the FLSA expeditiously and without litigation, to improve employers' compliance with overtime and minimum wage obligations, and to ensure that employees more quickly receive the back wages they are owed.

All FLSA-covered employers are eligible to participate in the pilot. However, an employer may not use the process to resolve any issues for which WHD is already investigating the employer; which the employer is already litigating in court, arbitration, or otherwise; or for which an employee's representative or counsel has already communicated an interest in litigating or settling the issue, such as through a demand letter. Also, because the program is intended to identify and correct potentially non-compliant practices, employers cannot use the program repeatedly to resolve the same potential violations.

To participate in the program, employers must first review the requisite information about the program and compliance assistance materials, all of which are available on the WHD website. Employers must then conduct a self-audit of their wage and hour practices. If as a result of that audit an employer discovers any non-compliant practices or wants to proactively resolve any potential claims even though no non-compliant practices were found during the audit, an employer must take all of the following steps: (1) specifically identify the potential violations, (2) identify which employees were affected, (3) identify the timeframes in which each employee was affected, and (4) calculate the amount of back wages the employer believes are owed to each employee.

An employer must then contact the WHD to discuss resolution of any issues found during the audit. The WHD will then inform the employer what information is required to submit to the WHD and in what form it may be submitted, unless WHD denies the employer's request to participate in the program at the outset (the circumstances for which WHD has not identified, other than those listed above such as repeat violations or pending wage claims). The information that WHD may request includes evidence regarding the potential violations and back wage calculations, an explanation of the scope of the potential violations for possible inclusion in a release of liability, and certifications that the employer has reviewed the WHD compliance materials, that the employer is not litigating the subject compensation practices and has not received any demand letter regarding the practices from an employee, and that the employer will remedy its practices to comply with all applicable laws.

WHD will then evaluate the information and, after assessing the back wages due, will issue a summary of unpaid wages. WHD will also issue forms describing the settlement terms for each employee, which employees may sign to receive payment.

Under the program, employers must agree to pay employees 100 percent of the back wages owed, as determined by the WHD. However, the Division will not impose penalties or liquidated damages to finalize a settlement for employers who choose to participate in the PAID program. In theory, expenses of litigation such as attorneys' fees and costs can be avoided. Employers must pay all back wages due under the terms of the settlement by the end of the next full pay period after receiving the summary of unpaid wages, and provide proof of payment to WHD expeditiously.

Although the employer will have to pay all back wages owed to each employee who participates in the settlement, a potential benefit of participation is that it can decrease the likelihood of exposure to a large class action if a significant number of employees agree to the proposed settlement.

To that end, employees are not required to accept any settlement offered under the program. If an employee chooses to not accept the payment, the employee will not release any private right of action and may still pursue an action privately. Additionally, all settlements will be limited in scope to only release the potential violations at issue, so employees cannot be required to grant a broad release of all potential claims under the FLSA. Also, employers are specifically prohibited from retaliating against an employee for choosing not to participate in the proposed settlement. Moreover, participation in the program does not exempt an employer from future investigations or audits by the WHD.

WHD will implement this self-audit pilot program nationwide for approximately six months. At the end of the pilot period, WHD will evaluate the effectiveness of the pilot program, potential modifications to the program, and whether to make the program permanent. We will continue to monitor this program and advise on any changes that the WHD makes to PAID.

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