The U.S. Department of Labor (DOL) ended its Payroll Audit Independent Determination (PAID) program on January 29, 2021. And if you participated in the program, you may have a lot of questions. So, what does the end of the PAID program mean for you and your business?
What is the PAID program?
The DOL created the PAID program in 2018 under the Fair Labor and Standards Act (FLSA). The program allowed employers to conduct their own payroll audits and self-report any violations. As part of the Wage and Hour Division (WHD), the PAID program was designed to let employers resolve overtime and minimum wage issues. Employers could self-report to avoid legal problems and be compliant with FLSA law.
Self-reporting let employers come forward with their own findings, preventing official audits and legal proceedings.
How did the PAID program work?
With the PAID program, employers would use the DOL website to find the resources for internal audits. Employers used the internal audits to find overtime and minimum wage violations. If a violation was found, employers would determine affected employees, time frames, and amounts owed. The WHD would then review the employer’s self-report and determine a course of action.
What were potential hour and wage violations?
Under the FLSA, potential hour and wage violations include:
- Misclassifying an employee (e.g., classifying employees as exempt instead of nonexempt)
- Calculating overtime incorrectly
- Paying less than the minimum wage
Under the DOL PAID program, employers could audit their own records and report these violations.
Who could participate in the PAID program?
Employers who were not already facing investigation or legal action for overtime or minimum wage violations could participate in the PAID program.
What did the PAID program do for employers?
The DOL designed the PAID program to reduce the cost of and potentially prevent legal action. With the program, employers could become compliant with FLSA laws and not face litigation to resolve compliance issues.
The end of the PAID program
The end of the PAID program means that employers can no longer self-report their hour and wage violations to the DOL. Instead, employers must comply with the FLSA laws and be subject to official audits from the WHD. Employers should be conducting reviews of their records to remain compliant with FLSA.
So, what are an employer’s obligations under the FLSA?
Employer obligations without the PAID program
Under the PAID program, employers had to continually audit their records to ensure they were complying with FLSA rules and regulations. You must continue to review your payroll records to make sure you’re compliant with the Fair Labor Standards Act.
Employers previously under the PAID program must:
- Maintain records
- Review FLSA wage and hour requirements
- Conduct payroll audits
Maintain records
The FLSA requires that you maintain accurate records of the wages you pay to your employees. You must keep payroll records for at least three years.
The FLSA requires employers to keep other records, including:
- Employee benefit plan information, such as pension or insurance plans
- Written seniority or merit systems for the full period of the plan, plus one year after it ends
The FLSA also requires employers to keep records for two years that explain the basis for paying different wages to different genders, including:
- Wage rate records
- Job evaluations
- Collective bargaining agreements
Consider using online software to store your records in case of an audit from the WHD. Software can let you access and organize all of the records and information you need. l
Review FLSA wage and hour requirements
Regularly review all FLSA requirements, including laws regarding overtime calculations. The hour and wage requirements include:
- Pay at least the federal minimum wage
- Calculate overtime wages for nonexempt employees at 1.5 times the rate of pay for hours worked over 40 per workweek
- Pay wages to employees on the regular payday for the covered pay period
You must also know how to correctly classify your employees. Employees can either be exempt or nonexempt. And, the FLSA laws differ depending on the employee’s classification.
The biggest difference between nonexempt and exempt employees is overtime pay. Nonexempt employees must be paid overtime for all hours worked over 40 hours per week. Exempt employees are not protected by the FLSA and are not eligible for overtime pay.
An employee must meet all three of the following requirements for exemption:
- Receives a salary
- Earns at least $35,568 annually or $684 per week
- Has executive, administrative, or professional job duties that qualify as exempt
Nonexempt employees meet at least one of the following:
- Receive hourly wages
- Earn below the exempt threshold of $35,568 annually (or $684 per week)
- Do not have executive, administrative, or professional job duties
The FLSA updates the laws and regulations from time to time. So, be sure to stay up-to-date on the latest rules.
Conduct payroll audits
Conduct regular payroll audits to ensure you are paying at least the minimum wage and do not miss overtime wages. The FLSA does not set how often you should conduct payroll audits. But, you may want to regularly review your payroll records (e.g., monthly, quarterly, etc.). Frequent audits let you find and correct any violations to prevent a WHD investigation.
What does the FLSA not cover?
Again, FLSA covers overtime and minimum wage laws. The FLSA does not require:
- Paid leave for vacations, holidays, or sick leave
- Severance pay
- Premium pay for weekend or holiday work
- Fringe benefits or pay raises
- Discharge notices, reasons for termination, or the immediate payment of final wages to terminated employees
The FLSA is a federal law, but some states may require that you pay sick leave to your employees or offer paid time off under their paid leave laws (e.g., Maine). You must abide by both federal and state laws.
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This is not intended as legal advice; for more information, please click here.
