Last week, the U.S. Wage and Hour Division (“WHD”) announced that it will soon offer employers the chance to self-report to the WHD and potentially resolve minimum wage and overtime violations. This opportunity will be offered under the new WHD Payroll Audit Independent Determination (“PAID”) program.

The employment law community is buzzing with the question: when would it make sense for an employer to subject themselves to a WHD audit?

Any employer trying to tackle this question should first engage counsel to discuss the pros and cons of self-reporting, and consider engaging counsel to perform a wage and hour audit. (Using employment counsel will keep the audit confidential under the attorney/client privilege.) Then, the employer will need to assess its circumstances in light of the logistics of the program.

The main selling point of the PAID program is the ability to “expeditiously resolve inadvertent minimum wage and overtime violations without litigation.” However, the WHD noted that “[i]t is purely the employee’s choice whether to accept the payment of back wages due. . .[i]f the employee chooses not to accept the payment, the employee will not release any private right of action.” So, even if the employer wants to participate in the PAID program, the employees do not have to. The employees can take the information that they are owed back pay, hire a lawyer and sue the employer. Additionally, if an employee does accept the settlement and signs a release through the WHD, it is not clear if the release will cover state wage and hour claims.

Additionally, the “WHD does not waive its right to conduct any future investigations of the employer.” An employer may perform a thorough self-audit, report any discovered violations, and then still become the target of an expanded WHD audit.

While the program sounds like an opportunity for a proactive employer, employers should understand that self-reporting may lead to individual or possible class action litigation, or a WHD expanded audit. However, there are upsides for employers if the process does run smoothly – employers will only owe employees back pay and they will not be required to pay any liquidated damages or civil monetary penalties.

Employers may want to be on the lookout for situations where the audit program may be more valuable. One commentator suggested that employers may find the audit program particularly useful “in mergers and acquisitions when employment audits often uncover payroll practice issues.”

The PAID program is not yet in effect. However, once it begins, employers should discuss with their employment counsel the pros and cons of the PAID program. In the right circumstances, they may want to participate.

Don’t forget to register for our 28th Annual Labor & Employment Law Seminar in Miami on April 27th or our Annual Labor & Employment Law Seminar in Tampa on May 18th!