The U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) has been busy. In March of this year, the WHD announced a new nationwide initiative—the Payroll Audit Independent Determination (PAID) program—under which employers can conduct self-audits to assess Fair Labor Standards Act (FLSA) compliance and voluntarily report violations to the WHD. In April, the WHD issued guidance through several opinion letters. These letters tackle issues regarding travel time and rest breaks in addition to clearing up confusion about whether employer payments made in response to garnishment orders are protected by deduction caps. Below we provide an update on two significant DOL developments: the PAID program and the opinion letter regarding garnishments.

PAID Program Allows Employers to Voluntarily Report Wage and Hour Violations

On March 6, 2018, the DOL/WHD announced a new nationwide program to resolve minimum wage and overtime violations under the FLSA. Referred to as the PAID program, it is expected to be a six-month pilot initiative that allows employers to conduct self-audits of their payroll practices and voluntarily report underpayments to the DOL/WHD which, in turn, will supervise the back wage payments.

To participate in the PAID program, an employer first must identify the violations, the impacted employees, and the time periods of the violations. The employer must also compute the back wages due each impacted employee. Then the employer can request to participate in the program and have the DOL/ WHD supervise the payment of the back wages due. The FLSA expressly authorizes the Secretary of Labor to supervise the payment of unpaid minimum wages and/or unpaid overtime compensation owed employees, in addition to providing for a private right of action to remedy FLSA violations. The statute further provides that the acceptance by any employee of this DOL/WHD supervised settlement amount acts as a waiver by that employee of his or her right to file an action to recover any alleged unpaid wages, liquidated damages, and attorneys' fees.

The PAID program website includes information for an employer to determine the criteria for participating in the program, a brief description of compliance assistance materials, and the required elements of a self-audit. The WHD is anxious to implement this initiative as a means to bring more employers in compliance with the FLSA and to recover additional back wages due to employees. Employers that are not confident about their compliance with the FLSA should consider evaluating whether to conduct a self-audit and, depending on the results of an audit, should consider discussing with their counsel whether to participate in this initiative.

WHD Opinion Letter Resolves Question surrounding Lump-sum Payments and Garnishments

Most employers receive a garnishment from time to time, and some employers receive a lot of them. It is the employer's legal obligation to administer garnishments exactly, and employer liability arises to the employee for over-deducting or to the judgment creditor for under-deducting.

There has been an ongoing question for decades about the interpretation of the deduction caps contained in the Consumer Credit Protection Act (CCPA). The big question was whether payments from employers made in a lump sum were protected earnings. Under the CCPA, if the employer payment is "earnings," then it is protected from over- garnishment. Some case law supported the approach that such payments were not earnings and were not protected by the CCPA, and thus they were subject to 100 percent deduction if the state law provided as such. Some states routinely ordered employers to deduct 100 percent of lump- sum payments when the employee had an arrears in child support payments. Other times, creditors attempted to hold employers directly liable for not deducting 100 percent of lump-sum payments.

The new opinion letter, which may have some force of law if courts find it persuasive, brings clarity to garnishment practices. Early in 2017, the WHD issued a fact sheet on this topic, but it is less specific and does not have any force of law. The new opinion letter presents a general rule for when an employer payment is "earnings" and when it is not. It also applies this general rule to 18 different types of payments and opines on whether those types of payments are earnings— for instance, "severance pay" is earnings.

According to the WHD, "the central inquiry is whether the amounts are paid by the employer in exchange for personal services. If the lump-sum payment is made in exchange for personal services rendered, then like payments received periodically, it will be subject to the CCPA's garnishment limitations...Conversely, lump-sum payments that are unrelated to personal services rendered are not earnings."

One area employers may want to note is how the WHD treats payments for settlement of employment claims. Specifically, any part of a settlement payment that is to replace lost wages (both back and front pay) is protected by the caps provided in the CCPA. Conversely, payments for compensatory or punitive damages are not earnings and are not protected by the CCPA caps. Thus, in states that provide that their garnishment orders cover payments beyond just earnings, any part of a settlement payment that is characterized and paid on an Internal Revenue Service Form 1099 may be subject to full garnishment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.