US DOL Announces Self-Audit Program to Correct FLSA Violations
On Tuesday, the United States Department of Labor (“DOL”) announced a six-month pilot program (to be rolled out in the near future) whereby employers can conduct self-audits of their pay practices to determine whether they are violating the FLSA and then report any violations and calculations of back wages owed to the DOL. Why in the world would any employer do this, you ask? The benefit is that, by voluntarily agreeing to pay the affected employees the back wages they are owed, the employer will have a safe harbor (from the DOL anyway) from liability for liquidated damages and penalties that might otherwise flow from the violation.
Under the program, dubbed the “PAID” (Payroll Audit Independent Determination) program, an employer must review the program’s compliance assistance materials (to be published on the DOL website) and obtain a certificate of review. To then participate in the program, the employer must self-audit its overtime, minimum wage, and classification (exempt/non-exempt) practices to identify any areas of non-compliance. The employer may then report to the DOL the suspected violation(s), identify the affected employees and the timeframes, and include a calculation of the back wages believed to be owed to the employees for each violation. The employer also must certify that any non-compliant practices will be changed to avoid ongoing violations.
The DOL will review the information provided by the employer and determine, potentially through supplemental information requests to the employer, whether violations occurred and whether back wages are owed (and in what amount). The DOL will then issue Claims Releases (not general releases, but releases narrowly tailored to the specific violations) to the affected employees. The employees must sign the release in order to obtain payment. The employer is required to issue payment to the affected employees who sign the releases by the end of the next full pay period (and provide proof of payment to the DOL).
As explained above, the benefit of participation in the program is that the self-reporting employer gets a safe harbor from liquidated damages and penalties as to the employees who sign the claim releases. The problem, however, is that the employees are not required to sign the claim releases. They can choose to seek out a lawyer instead and file a lawsuit (potentially on a class basis), with the benefit of the employer essentially having acknowledged a violation already. Additionally, it does not appear that a claim release would bar or prevent an employee from pursuing relief (i.e. penalties) for the same violations under state law. Finally, there is also the risk that self-reporting to the DOL may lead to the DOL expanding the audit into other areas and finding other violations. These are all significant risks that any employer must consider in assessing whether to participate in the DOL program and self-report FLSA violations.
Employers who may wish to participate in the DOL program should know that the program is not available to employers who are already facing litigation or threatened litigation over the specific violations. Employers also may not use the program in a repeat manner for the same violations.
More information on the DOL program is available on the DOL website here.