The U.S. Department of Labor recently launched the nationwide Payroll Audit Independent Determination (PAID) program. The PAID Program encourages employers to conduct self-audits of their minimum wage and overtime payment practices. Employers who discover violations and self-report them may avoid penalties under the Fair Labor Standards Act (FLSA).

But . . . New York Attorney General Eric Schneiderman isn’t a fan of this federal program. In response to the launch of the U.S. DOL’s PAID Program, Schneiderman proclaimed:

“The Trump Labor Department’s ‘PAID Program’ is nothing more than a Get Out of Jail Free card for predatory employers.”

Is the Attorney General right? Let’s take a look at what the PAID Program offers, focusing on what all this means for employers in New York.

How the PAID Program Works

This “pilot” program is available to employers across the country. It has three basic components.

Self-Audit

To begin the process, an employer would conduct a self-audit of its compensation practices. If the employer finds compliance concerns it wants to resolve through the U.S. DOL, it must then (according to the DOL):

• Specifically identify the potential violations;
• Identify which employees were affected;
• Identify the timeframes in which each employee was affected; and
• Calculate the amount of back wages the employer believes are owed to each employee.

Self-Report

With this information ready, the employer would then contact the U.S. DOL’s Wage and Hour Division (WHD). The WHD will advise the employer what information must be submitted. This apparently will include:

• The back wage calculations described above, along with supporting evidence and methodology;
• A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;
• A certification that the employer reviewed all of the PAID Program’s information, terms and compliance assistance materials; and
• A certification that the employer meets all eligibility criteria of the PAID Program.

Payment

The WHD will then follow up with the employer to determine resolution. This will likely include payment of back wages due to employees.

Eligibility Restrictions

Most employers subject to the FLSA are eligible to participate in the PAID Program.

However, an employer cannot participate if the:

• WHD or a court has found within the last 5 years that the employer violated FLSA minimum wage or overtime requirements by engaging in the same compensation practices addressed by the self-audit;
• Employer is a party to any litigation asserting that the compensation practices in the self-audit violate FLSA minimum wage or overtime requirements.
• WHD is investigating the compensation practices at issue in the self-audit;
• Employer is specifically aware of any recent complaints by its employees or their representatives asserting that the compensation practices in the self-audit violate FLSA minimum wage or overtime requirements; or
• Employer has previously participated in the PAID Program to resolve potential FLSA minimum wage or overtime violations resulting from the compensation practices in the self-audit.

The WHD may otherwise decline to accept any employer into the PAID Program at its discretion.

New York’s Opposition

New York has its own minimum wage and overtime requirements for most private-sector employers. Like the FLSA, these laws include liquidated damages penalties where an employer failed to pay minimum wage or overtime properly. This means that employers found guilty of these wage violations may have to repay twice the amount originally owed. Employees can also recover their attorneys’ fees for these claims. Under New York law, employers may be found liable for unpaid wages going back as far as 6 years from the date of the claim. This is longer than the 2- (sometimes 3-) year statute of limitations under the FLSA.

New York’s Attorney General’s statement against the PAID Program demonstrates that he feels it is not enough that employees will receive the wages they should have been paid in the first place:

Employers have a responsibility under state and federal laws to pay back stolen wages, as well as damages intended to deter them from breaking the law again. The PAID Program allows employers to avoid any consequences for committing wage theft, while blocking lawsuits intended to vindicate employees’ rights.

I want to send a clear message to employers doing business in New York: my office will continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID Program.

The most straightforward counterargument to Schneiderman’s position is that discouraging employers from self-auditing and self-reporting may mean that employees never recover the wages they should have earned. The state/federal DOLs and private claimants are highly unlikely to uncover every instance of failure to compensate employees properly for minimum wage or overtime.

What This Means in New York

First, it was not a given that the PAID Program would be a great deal for all employers anyway. There are various downsides to self-reporting minimum wage and overtime violations. Beyond having to pay back wages, this may negatively affect employee morale, public image, etc. But the program may benefit some employers depending on their specific circumstances.

Now, however, Attorney General Schneiderman’s announcement raises a major red flag for companies with employees in New York. By raising their hand to participate in the federal PAID Program, these employers would put a target on their backs for state enforcement. FLSA violations would most likely correspond to violations of New York minimum wage/overtime laws. And even if paying back wages arguably precluded further litigation for the same payments, New York’s longer statute of limitations may at least leave employers open to up to 4 more years of liability, including liquidated damages and attorneys’ fees.

Any employer contemplating participation in the PAID Program should definitely consult with an attorney with experience dealing with both the U.S. DOL and New York State DOLs before self-reporting any possible violations. Even if the attorney agrees there has been an underpayment, they may offer better options than the PAID Program. Or, if you go forward with the program, they can assist you in navigating the process appropriately.

If nothing else comes from the PAID Program, employers should use these developments as motivation to review their compensation practices. Misclassification of workers for minimum wage and overtime purposes is one of the most common and costly mistakes employers make.