Would You Report Your Company for Tax and Wage Violations?


Most of us probably have memories of doing something wrong only to be told by our parents that if we just told the truth we wouldn’t be punished. More often than not, mom and dad really meant that we would be punished less severely. One wonders if a new Labor Department plan that allows companies to self-report wage and hour violations is the same kind of thing.

According to Bloomberg’s Christine Pulfrey, the Labor Department unveiled its Payroll Audit Independent Determination (PAID) program back in March. The goal of the program is to encourage companies to come clean with tax and wage violations by running their own audits and then reporting any discovered violations to the government.

The government hopes to resolve wage and hour claims more quickly while simultaneously avoiding lawsuits, Pulfrey explained. But honestly, are companies going to self-report in hopes of not having to face punishment? Perhaps that depends on what happens with the first few that actually try it.

No Civil Penalties Here

The PAID program dangles the promise of no civil penalties as the proverbial carrot intended to encourage companies to self-report. Comments from Labor Secretary Alexander Acosta would lead companies to believe that self-reporting will result in no punitive action as long as discovered violations were corrected. Of course, guilty parties would still be responsible for any back wages.

Here’s the million-dollar question though: what if a company’s willingness to self-report is the direct result of a lawsuit already being instigated? Somebody still has to pay attorney’s fees and court costs. If the employer is forced to pick up those costs, then self-reporting is really not without penalty. Yes, the penalty is less inasmuch as the Labor Department doesn’t assess any fines. But companies could still be hit with substantial legal fees.

None of this even speaks to the amount of money a company might invest in the process of discovering and reporting potential violations. Suffice it to say that the process is not as simple as checking some timecards and making a phone call. Participating in the PAID program is complicated.

How the PAID Program Works

Pulfrey explains that companies wishing to participate in PAID are not necessarily guaranteed the opportunity. The first thing they must do is conduct an internal audit to uncover potential violations. The audit must identify specific violations, all affected employees, and the time frame during which the violations occurred. Next, the company would have to calculate back wages due to affected employees. Only then are they ready to contact the Labor Department to ask about PAID participation.

The Labor Department’s Wage and Hour Division would then explain to the employer what information is necessary to participate in the program. A government representative would work with the employer to determine eligibility, verify the information uncovered by the audit, establish corrective measures, etc.

Payroll processing firm BenefitMall says things could get extremely complicated if potential violations stretched back to years in the past. Ironically, that is often the case. Companies then have to go over multiple years of payroll records including hours worked, regular pay rates, overtime pay, and so forth.

BenefitMall says that just the thought of being found guilty of wage and hour violations is strong incentive to work with a third-party payroll provider. Outsourcing payroll does not necessarily guarantee there will be no violations, but payroll companies are in the business of knowing the law and encouraging clients to follow it.

Would you self-report your company to the IRS? Your punishment might be less should you choose to do so.