Labor Dept. Rolls Out Voluntary Payments To Avoid Overtime Suits

You have just heard that one of your departments has a practice of making employees work “off the clock” if they have not finished all of their work, and another department may be offering comp time instead of paying overtime.

How do you address these problems, how much should you pay and how do you avoid opening up a larger can of worms?  The Department of Labor (DOL) may just have answered these questions through a new pilot project known as the Payroll Audit Independent Determination (PAID) program.

What Is the PAID Program and Why Would Employers Use It?

The PAID program is intended to help employers sort out and resolve what the DOL describes as “inadvertent” overtime and minimum wage violations.  It will allow employers to proactively correct wage and hour violations without the fear of litigation from employees or the DOL.  It also will get back wages into the hands of the identified employees more quickly.

The full parameters of the program are unclear, but the basic idea is that the employer starts the process by conducting a self-audit. If problem areas are discovered, the employer can elect to “self-report” to the DOL and work out a resolution to the self-identified problem. The DOL then conducts its own review and if it agrees with the employer’s assessment, and if the employer pays the employee 100% of what it owed and agrees to future compliance, the DOL will waive the payment of liquidated damages and other penalties.

How Does This Help the Employer?

For one thing, the DOL would essentially be acknowledging that you are paying the full amount that is owed to the employee(s) which would create a disincentive for those employees to continue pursuing the matter.  In fact, the DOL would even help you craft a form for the affected employees to sign waiving future claims regarding the issue in question.  Employees would not be required to sign but many probably would.  Moreover, if an employee does go ahead with a lawsuit seeking additional payment and/or statutory penalties, the fact that the employer tried to “make it right” will help influence a judge not to award those penalties.

Not surprisingly, the PAID program excludes employers with past violations, those who are currently under investigation and those under threat of investigation.

What’s the Down Side?

While getting the DOL to supervise these small voluntary settlements can be helpful, the employer is essentially admitting to the DOL – and potentially other governmental agencies – that the law has not been followed. This could be an invitation for review of other pay practices or other personnel practices in general.  There is also talk that the audit forms completed by the employer could be discoverable by employees and their lawyers through a Freedom of Information Act request.

In addition, the PAID program would not result in the release of violations under state law, which often offer parallel protections.  Therefore, the Minnesota Department of Labor and Industry could initiate a claim, or the affected employees could decide to sue.  Still, if the employees have already received the back pay they are owed through a voluntary program like PAID, a judge in a state law claim may very well conclude that the employer acted in good faith and that no additional payments or penalties are owed.

Bottom Line

This is a new program and the details still have to be worked out.  Nevertheless, it offers an interesting option for employers to correct noncompliance in an efficient manner and to head off the possibility of penalties being assessed.  We will update this when the program’s details become clearer.