Department of Labor Wants You to Audit Your Payroll Records and Avoid Penalties

The Department of Labor’s Wage and Hour Division (WHD) launched a new pilot program to facilitate resolution overtime and minimum wage violations under the Fair Labor Standards Act (FLSA) and without litigation. Referred to as the Payroll Audit Independent Determination (PAID) program, it is a six-month pilot initiative that allows employers to conduct self-audits of their payroll practices and voluntarily report underpayments to WHD, who would supervise the back payments. At the end of the pilot period, around October 2, 2018, WHD will evaluate the effectiveness of the pilot program, potential modifications to the program, and whether to make the program permanent.

Under the PAID program, employers must identify any wage and overtime violations and calculate the back wages due for each impacted employee. The employer can then request to participate in the PAID program and have the WHD supervise the payment of the back wages due. WHD will review the employer’s wage computations, issue a summary of the amount of unpaid wages due, and issue claim forms to employees. The acceptance by the employee of this WHD supervised settlement amount waives that employee of his or her right to file an action to recover any alleged unpaid wages, liquidated damages, and attorneys’ fees.

The primary benefits of the program to the employer is that they will not incur legal fees to resolve the issue and will not have to pay any civil penalties or liquidated damages. An employer’s financial exposure will be the back wages. The risk is the attempt to resolve any issue will raise claims for back pay if the parties do not agree on the amount due the WHD settlement. After violations are disclosed, the DOL does not have to accept the employer into the program. If individual employees decline a settlement payment, the workers may sue and the audit is essentially an admission that the employer has underpaid the worker.

An employer should not wait until a dispute arises to participate in the PAID program. An employer cannot participate if they are currently under investigation for the wages at issue, currently in litigation for the wages, or is acting in “bad faith.”

WHD has expects the PAID program will “facilitate[] resolution of potential violations, without litigation, and ensure[] employees promptly receive the wages they are owed.” More information on the program, including a program overview and details on how the program will work is available at the PAID webpage at

The rules governing wages and hours are complicated and mistakes can be made. For example, are your managers entitled to overtime; is overtime due if I pay an employee a piece rate or a fixed salary and how do I calculate it; do bonuses impact calculating overtime? Make a mistake on one of these issues, and an employer could be liable for back wages, interest, attorney fees, and penalties. Using a payroll company does not necessarily avoid an employer’s liability.

Given the potential liability and the various additional state requirements, it is recommended that competent legal counsel be consulted before deciding to participate in the PAID program. It is also wise to have competent counsel review your payroll to ensure your company is in compliance with all wage and hour laws.

For a more information on wage and hour issues, please see Piece-Rate Compensation:  Get Ready for the Changing Rules, in WFCA’s Premier Flooring Retailer (November/December 2015), which explains how to calculate overtime for piece rate employees, including new California rules; Do You Pay Your Managers Overtime? You May Need to Under New Federal Regulation Premier Flooring Retailer (July/August 2016), which explains the rules on overtime exemption for managers and administrators; Are You Prepared for the Scheduled Increases in Many State Minimum Wage? The Law, The Floor, and You (March 2, 2017) at ( which provides an update on state minimum wages; Remember, Your Managers Must Manage—If Not, They Get Paid Overtime, The Law, The Floor, and You (April 4, 2018) at (—if-not-they-get-paid-overtime); and Have You Updated Your Federal Employee Posters? The Law, The Floor, and You (September 7, 2017) at ( for an update on what posters you are required to post.

Notice: The information contained in this article is abridged from legislation, court decisions, and administrative rulings, and should not be construed as legal advice or opinion and is not a substitute for the advice of counsel.

Monday, April 16, 2018