Self-Audit Program May Help Employers Correct Wage Errors
Eligible employers may now be able to conduct a self-audit of certain wage practices, thanks to a pilot program from the Department of Labor's Wage and Hour Division (WHD). This program-called Payroll Audit Independent Determination (PAID) - was recently launched as a tool for employers to uncover payroll errors on their own. Employers who use the PAID program and discover that they've underpaid some employees can correct their payment errors and coordinate with WHD to avoid penalties.
As a reminder, the Labor Department can pursue administrative solutions or, if necessary, 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. The ability to avoid such penalties should prompt employers to seek answers and correct their own errors.
To be eligible to use the PAID program, the following must be true:
- Neither WHD nor a court of law has found within the last five years that your company has violated the minimum wage or overtime requirements under the Fair Labor Standards Act (FLSA) by engaging in the same compensation practices at issue in this proposed self-audit.
- Your company isn't currently a party to any litigation (private or with WHD) asserting that the compensation practices at issue in the proposed self-audit violate FLSA minimum wage or overtime requirements.
- WHD isn't 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.
This is only a partial list.
To become certified to participate in this program, you'll first need 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 explain overtime pay requirements and who's exempt from overtime eligibility. Also available is 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 properly document your payroll. This resource specifies which records you must keep and for how long.
Once you've completed the "compliance assistance review," gather the following information to conduct your self-audit:
- Potential violations that may have occurred in the last two years,
- Employees that may have been affected in the same period, and
- Specific timeframes during that period in which each employee was affected.
After you've identified these elements, calculate the amount of back wages owed to each employee.
If a self-audit reveals that your company owes back wages to some employees, simply paying the amounts due before reporting the issue to the WHD doesn't mean that those employees have forfeited their rights to take you to court. Why? In this scenario, WHD didn't supervise the process of the determining the amounts owed, so the agency might still weigh in.
When your self-audit is complete, supply the following data to the nearest WHD office:
- The names, addresses and phone numbers of all affected employees,
- Your back-wage estimates along with supporting evidence and methodology used to make those calculations,
- Payroll records and any other relevant evidence,
- Records demonstrating hours of work for each affected employee during the time frame at issue,
- Records to show that you have corrected the compensation practices to comply with the FLSA,
- Concise 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 after you've submitted all the required paperwork? You're not off the hook 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 tell you how much it thinks you owe employees who were underpaid (which might be exactly what you already determined), and supply "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 provided proof to the WHD that you have done so expeditiously, then you're done.
Consult with a labor attorney before deciding to participate in the PAID program to ensure that you aren't overlooking any potential legal hazards in doing so.