Department of Labor PAID Program: Amnesty Provision or Wolf in Sheep’s Clothing?

By James E. Fagan, Offit Kurman

In March, the Wage and Hour Division of the U.S. Department of Labor announced a new pilot program, the Payroll Audit Independent Determination program. PAID took effect in April. Should your school participate?

DOL promotes the PAID program as an opportunity for employers to self-report wage-and-hour violations. Upon receiving such a report, DOL will conduct an independent review of the situation to see if the employer owes back wages. The promise is to expedite resolution of employers’ inadvertent overtime and minimum wage violations under the Fair Labor Standards Act without litigation.

According to DOL, its Wage and Hour division will "oversee resolution of the potential violations by assessing the amount of wages due and supervising their payment to employees.” If an employer chooses to participate in PAID and to “proactively work with the Division to fix and resolve their potential compensation errors," DOL will not impose penalties or liquidated damages to finalize a settlement. If the employer also agrees with DOL’s assessment of liability, the employer then pays its employees, who sign a release of any FLSA claims against it. Participating employers are not subject to civil monetary penalties and are not required to pay liquidated damages to employees.

While the PAID program is touted as beneficial to both employers and employees, an employer’s participation may do more harm than good. There are simply too many unanswered questions surrounding PAID. We encourage considering these questions before deciding to invite DOL into your workplace by participating in the program:

• What happens if the employee does not agree with the DOL assessment and refuses to participate in the program or sign the release? Does the employer get an advantage in litigation because it attempted to participate in PAID but is then sued? For example, can it use a positive audit from DOL as evidence?
• Will all employees be willing to give up the potential for liquidated damages and attorneys’ fees?
• Is the scope of the investigation limited to the information the employer reports, or is DOL free to launch an investigation into any area of interest once invited in?

Other important considerations:

• The PAID program release only covers claims under the FLSA; it does not deal with potential state and local law violations. Therefore, a settlement agreement that an employer signs could become evidence in a state proceeding for back wages.
• PAID is not available to address issues already reported and/or already being investigated by DOL. There is a chance that a self-reported case could “relate back” to an existing matter and only add to an employer’s potential exposure.
• PAID does not appear to encompass resolution of claims under other federal wage-and-hour laws applicable to federal contractors.

In lieu of participation in the PAID program, what should schools do?

Even though teachers are exempt from overtime provisions, many other employees are nonexempt, and it is always best practice to self-audit wage-and-hour programs. But schools do not need to invite the DOL into the workplace to operate within the law. Any successful self-audit focuses on the major compliance provisions of the FLSA:

• Maintain proper wage-and-hour policies and practices:
  • School handbooks and policies should clearly describe how payroll works, how time is maintained and how employees should immediately report discrepancies.
  • These materials must account for state and local laws, as well as those under the purview of DOL.
• Classify employees properly:
  • W-2 vs. independent contractor
    • There are important tests and case-verified indicators of independent contractor status that are fact-specific to each individual situation.
  • Exempt vs. nonexempt
    • Appropriate exemptions under FLSA (professional [including teachers], administrative, outside sales, executive, computer professional and salary basis test).
  • Require written permission to perform overtime.
  • Properly track all nonexempt time.
  • Do not suffer unauthorized overtime.
  • Perform a self-audit in cases that cause concern or immediately following an internal complaint.
  • Maintain consistent and accurate time records.

James (Jef) E. Fagan, III, is a principal attorney at Offit Kurman Attorneys at Law. jfagan@offitkurman.com.

This information is provided for general educational purposes only. It should not be relied upon as, or in place of, legal advice. The author and reader do not have an attorney/client relationship. Readers are encouraged to work with their legal counsel when addressing specific issues.