Thanks to a pilot program from the Department of Labor’s Wage and Hour Division (WHD), eligible employers may now be able to conduct a self-audit of certain wage practices. This program — called Payroll Audit Independent Determination (PAID) — was launched recently to enable employers to uncover payroll errors on their own. Employers who use the PAID program and find out that they’ve underpaid some employees can correct their errors and coordinate with WHD to avoid penalties.
As a reminder, the Labor Department can pursue administrative solutions or, if required, court action to recover back wages when employees have been underpaid. “Violations may result in civil or criminal action, and employers may be assessed civil money penalties of up to $1,100 for each willful or repeated violation of the minimum wage or overtime pay provisions of the law,” according to the Labor Department. Being able to avoid such penalties should encourage employers to seek answers and fix their own errors.
In order to be eligible to use the PAID program, all of the following must be true:
- Neither WHD nor a court of law has found that your company has violated the minimum wage or overtime requirements under the Fair Labor Standards Act (FLSA) within the last five years by engaging in the same compensation practices addressed in this proposed self-audit.
- Your company is not currently a party to any litigation (private or with WHD) declaring that the compensation practices at issue in the proposed self-audit violate FLSA minimum wage or overtime requirements.
- WHD is not currently investigating the compensation practices at issue in the proposed self-audit.
- You have no specific knowledge of recent complaints by your employees or their representatives made to you, your representatives, WHD or a state wage enforcement agency regarding the compensation practices at issue in the proposed self-audit which violate FLSA minimum wage or overtime requirements.
Important note: This is only a partial list.
To become certified to participate in this program, you will first have to read through information about the FLSA (called a “compliance assistance review”) and PAID on the WHD website (https://www.dol.gov/whd/paid/). This information includes videos and links to WHD webpages that detail overtime pay requirements and who is exempt from overtime eligibility. There is also an explanation of exemptions for executives, administrative employees, highly compensated employees, computer employees, and outside salespeople.
The PAID program provides a list of FLSA recordkeeping requirements to correctly document your payroll. This resource details which records you must keep and for how long.
Once the “compliance assistance review” has been completed, gather the following elements to begin your self-audit:
- Potential violations that may have happened in the last two years,
- Employees that may have been affected in the same time period, and
- Specific timeframes during that period in which each employee was affected.
Once you’ve identified this information, calculate the amount of back wages owed to each employee.
If a self-audit reveals that your company does owe back wages to some employees, just paying the amounts due before reporting the issue to the WHD does not mean that those employees have forfeited their rights to take you to court. Why? In this scenario, WHD did not supervise how the amounts owed were determined, so the agency might still weigh in.
Upon completion of your self-audit, supply the following data to the nearest WHD office:
- The names, addresses, and phone numbers of all affected employees,
- The back-wage estimates along with supporting evidence and methodology used to make those calculations,
- Payroll records and any other pertinent evidence,
- Records demonstrating hours of work for each affected employee during the relevant time frame,
- Records that show you’ve corrected the compensation practices to conform with the FLSA,
- A brief explanation of the scope of the potential violations for possible inclusion in a release of liability,
- A certification that you’ve reviewed the PAID program’s information, terms and compliance assistance materials, and
- A certification that your company meets all eligibility criteria of the PAID program.
The Waiting Game
What happens once you’ve submitted all the required paperwork? You’re not cleared until WHD says so. But, according to the PAID program’s description, “If WHD accepts you into PAID, WHD will provide you with the proposed scope of the release of liability for the potential violations presented.”
Specifically, WHD will let you know how much it thinks you owe employees who were underpaid (which may be exactly what you already determined), and provide “settlement terms for each employee, which employees may sign to receive payment.” Once you’ve paid all back wages due by the end of the next full pay period and delivered proof to the WHD that you did so expeditiously, then you’re done.
Before deciding to participate in the PAID program, consult with a labor attorney to ensure that you aren’t overlooking any potential legal hazards in doing so.