End of WHD’s Self-Audit Program Bodes Ill for Employers

By: Joseph U. Leonoro

Published: March 19, 2021

This article originally appeared in HR Hero, a publication of HRLaws.com.  

In March 2018, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) announced a new pilot program, the Payroll Audit Independent Determination (PAID) program. The employer-friendly program was intended to expedite the resolution of inadvertent overtime and minimum wage violations under the Fair Labor Standards Act (FLSA) by encouraging employers to audit their payroll practices and self-report unintended payroll errors. After the initial pilot period ended, it became a permanent feature of the WHD until January 29, 2021, when the division announced its immediate termination. The Biden administration explained its rationale by stating the program “deprived workers of their rights and put employers that play by the rules at a disadvantage.”

PAID program encouraged audits and self-reporting

It’s unclear how many employers actually took advantage of the PAID program during the last three years, but employers that did enjoyed two primary benefits in exchange for self-reporting FLSA violations. First, if violations were uncovered, then employers could work with the WHD to resolve payroll mistakes without costly and time-consuming investigation and litigation.

Second, the PAID program limited the damages an employee could recover for an FLSA violation. In most FLSA claims for minimum wage and overtime violations, employees are allowed to recover the unpaid wages plus an equal amount in liquidated damages, essentially doubling their recovery. They couldn’t recover liquidated damages, however, under the PAID program. Thus, if an employer used the PAID program to resolve potential issues, then it could save a significant amount of money in liquidated damages and litigation costs.

The PAID program couldn’t be used by employers to address issues that were already being investigated by the WHD or to resolve claims that were in litigation.

More wage and hour changes to come

The end of the PAID program isn’t surprising. Employee-friendly organizations opposed it from the start. Moving forward, employers will likely see an uptick in wage and hour litigation and administrative actions. The Biden administration will likely be much more aggressive in pursuing wage and hour violations than the Trump administration. For that reason, even though the PAID program is ending, you should continue to audit your payroll practices because you now face a hostile environment in Washington.

The end of the PAID program is just the start to changes in federal wage and hour law. The Biden administration and Democrats in Congress are pushing to increase the federal minimum wage of $7.25, perhaps as high as to $15 per hour. Although most states have a higher minimum wage, an increase to $15 per hour would have a huge impact on both employers and employees.

Worker misclassification is another issue that has received significant attention from the WHD in recent years. About a decade ago, the Obama administration began to focus enforcement activities on the misclassification of workers as independent contractors instead of employees. Independent contractors, unlike employees, aren’t entitled to overtime and other protections offered by the FLSA.

The courts and the DOL have long used a variety of different tests to determine whether a worker is an employee. Near the end of the Trump administration, the WHD finalized new regulations that would have made it more difficult for workers to show they were “employees” entitled to overtime under the FLSA. The new regulations were to take effect on March 8, 2021, but the Biden administration has issued a blanket freeze on all agency regulations that had been issued but not yet become effective.

The Biden administration will now likely issue its own test that is more worker friendly, meaning more workers will be considered employees. Thus, there will probably be a significant increase in litigation over these misclassification issues, which are common in a number of industries, especially in the new gig economy.

Bottom line

The end of the PAID program is just the start of new employee-friendly regulations and enforcement actions to come from the WHD.

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