In this day and age, most employers have considered the possibility of wage-hour liability. Savvy employers understand that wage-hour liability comes in many different forms, and two of the most talked about have been “misclassification” and unpaid overtime. Misclassification can occur in one of two ways: either the employer classifies a worker as an independent contractor instead of an employee, or the employer classifies the worker as “exempt” and non-overtime eligible and pays that employee a salary with no overtime (or worse, the employee works so many hours that the effective rate of pay is lower than the minimum wage).

There are some common ways unpaid overtime can sneak up on employers: (1) through misclassification, and finding out that overtime should have been paid; (2) by failing to ensure employees take meal breaks (and, in certain states, rest breaks), and only paying them for an 8-hour shift when, without the break, they actually work 8.5 hours shifts 5 days per week; (3) allowing employees to perform work “off the clock”; or (4) simply not knowing the rule that overtime must be paid to eligible employees who work more than 40 hours in a week.

Wage-hour liability is daunting for employers as they may be responsible for as many as three years of back wages, and penalties can cause those wages to be doubled or, in some states, tripled. What’s more, company owners, officers and top-level managers can be held personally liable to pay misclassified wages, to the same extent their companies are liable.

On March 6, 2018, the U.S. Department of Labor (DOL) initiated a program that encourages employers to conduct an internal audit of wage-hour liability and report the findings to the department. This program, called the Payroll Audit Independent Determination (PAID) program, is a 6-month pilot program that, if handled correctly, will enable employers to correct the liability and pay the back wages, without facing double damages under federal law, or any civil monetary penalty. At the end of the 6 months, the DOL plans to examine the program, evaluate its effectiveness, and consider whether to modify it, or make it permanent.

Notably, the PAID program is only available to employers covered by the Fair Labor Standards Act. Thus, very small employers need to examine whether they even can participate. Further, employers already involved in an ongoing investigation or lawsuit cannot participate. Of course, participation in this federal program will not provide any assistance to employers in a state law case (though, if any back wages are paid through this program, these amounts will likely offset any further liability under state law).

Yet, the program offers employers the opportunity to obtain some peace of mind. Here’s how it would ideally work. First, an employer would conduct a self-audit pursuant to the DOL’s guidelines. Second, the employer would report the results of the audit to the DOL’s Wage-Hour Division for review. Third, if the Wage-Hour Division accepts the results of the audit, it will inform the employer how to proceed and be involved in notifying the employees impacted, assisting the employer in obtaining releases from those employees. Employees may elect not to sign the release, and they may take matters into their own hands with their own counsel, so employers should be aware of this risk. Finally, the employer must correct the violation going forward.

If all goes as planned and hoped, concerned employers will have an avenue to limit liability, and thereby rest easier going forward. More information about the PAID program can be found at the U.S. Department of Labor website.

Jeffrey Rosin is Managing Partner at O’Hagan Meyer, Attorneys & Advisors.