PAID for 2018

The Department of Labor's Payroll Audit Independent Determination (PAID) program was a self-audit initiative launched by the Wage and Hour Division in 2018 that allowed employers to proactively identify and correct potential FLSA overtime and minimum wage violations without the full penalty exposure of a government investigation. Under the program, employers who discovered underpayments through their own review could come forward voluntarily, correct the violations, and pay 100% of back wages owed to affected employees — without owing the equal amount in liquidated damages that would normally accompany a DOL investigation finding. The program was designed to incentivize proactive compliance by making self-correction economically preferable to waiting for a complaint or audit. Participation required employers to identify the specific employees and time periods affected, calculate back wages with DOL approval, and pay the full amount directly to employees. While the program was met with mixed reactions from labor advocates — who noted it eliminated the liquidated damages remedy workers would normally receive — it provided HR and payroll professionals a structured pathway for addressing FLSA compliance gaps discovered through internal review.

Employers using the DOL's PAID program followed a structured process for correcting FLSA violations discovered through self-audit. The first step was conducting a thorough internal payroll audit to identify specific employees who may have been underpaid, the time periods involved, and the nature of the violation — whether overtime miscalculation, minimum wage shortfalls, or misclassification as exempt. After identifying violations, employers contacted the DOL's Wage and Hour Division to obtain approval to participate in the program for the specific issue identified. With DOL guidance, employers calculated the back wages owed using approved methodologies, ensuring the amount was accurate and complete for all affected workers. Once the calculations were approved, employers paid the back wages directly to employees and obtained releases acknowledging the settlement of the specific claims covered. This approach provided finality for the covered violations, reducing ongoing legal exposure. The PAID program was particularly valuable for employers who had discovered systematic payroll errors — such as incorrect overtime calculations for complex shift differentials — that affected a large number of employees and would have resulted in substantial liquidated damages exposure under a traditional DOL investigation.

The DOL's PAID program offered meaningful benefits for employers willing to engage in proactive self-auditing while also carrying notable limitations that HR teams needed to weigh carefully. The primary benefit was the elimination of liquidated damages — the equal doubling of back wages that applies under normal FLSA enforcement — which could cut the total financial exposure from a violation in half compared to a government-initiated investigation. Participation also demonstrated good faith compliance efforts that could influence how regulators viewed the employer in future interactions. The structured DOL oversight of back wage calculations provided a degree of certainty that the settlement would fully resolve covered violations. However, the program had significant limitations: it did not cover violations that were already under investigation or litigation, it required employees to accept a settlement without the possibility of recovering liquidated damages they would otherwise be entitled to, and it did not protect against state law claims for the same violations. Labor advocates raised concerns that the program benefited employers at employees' expense. Employers considering the PAID program benefited from consulting with employment counsel to evaluate whether the program's structure was the most advantageous path for their specific situation relative to other remediation options.

The DOL's PAID program was available for a range of FLSA minimum wage and overtime violations that employers discovered through self-audit, provided those violations were not already under investigation by the Wage and Hour Division or subject to private litigation. Eligible violations included overtime calculation errors — such as failing to include all required pay components in the regular rate, misapplying the fluctuating workweek method, or making arithmetic errors in overtime calculations — that resulted in underpayments to non-exempt employees. Minimum wage violations, including situations where deductions or pay arrangements caused an employee's effective wage to fall below the applicable minimum, were also covered. Misclassification cases — where employees had been treated as exempt but didn't satisfy the FLSA's duties test or salary test — fell within the program's scope if the employer was willing to reclassify and pay back the overtime owed. The program was not available for violations involving retaliation against workers who reported wage concerns, child labor violations, or violations already known to the WHD through complaints or prior investigations. Employers needed to conduct a good-faith assessment of the full scope of the violation, as the program required disclosure of all known affected employees and time periods rather than selective disclosure.

A proactive FLSA self-audit is one of the highest-value compliance activities HR and payroll teams can undertake, given the substantial back wage and liquidated damages exposure that wage and hour violations can create. A thorough audit covers three core areas: classification, pay practices, and recordkeeping. On classification, review all employees currently treated as exempt from overtime and verify that each satisfies both the salary threshold and the duties test for the specific exemption claimed — not just the one that seems most applicable. For pay practices, examine how the regular rate of pay is calculated for overtime-eligible employees, ensuring that non-discretionary bonuses, shift differentials, and other required inclusions are captured correctly. Review timekeeping practices for accuracy and completeness, paying particular attention to whether employees are working off the clock, whether meal breaks are being properly administered, and whether rounding policies comply with WHD guidance. Check minimum wage compliance across all locations, especially for tipped employees or workers in jurisdictions with rates above the federal floor. Recordkeeping audits verify that required payroll records are being maintained for the full retention period. Document the audit process and findings, and engage employment counsel before acting on significant violations discovered to ensure the remediation approach is legally sound.