United States: DOL Issues Final Rule Mandating Paid Sick Leave For Employees Of Federal Contractors

Last Updated: October 12 2016
Article by Christina A. Stoneburner

On September 7, 2015, President Barack Obama signed Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors (EO). After months of comments on the proposed rules, on September 30, 2016, the U.S. Department of Labor (DOL) issued a Final Rule to implement Executive Order (EO) 13706. The Executive Order requires certain contractors that contract with the federal government to provide their employees with up to seven days of paid sick leave annually, including for family care and absences resulting from domestic violence, sexual assault and stalking.

The DOL's Wage and Hour Division has posted resources on the DOL website where contractors can view the final rule, fact sheets, the required poster and FAQs. The website can be accessed here: https://www.dol.gov/whd/govcontracts/eo13706/.

The Final Rule is 466 pages and largely reiterates the contents of the EO. However, the Final Rule provides more details not contained in the EO, including, but not limited to, expanded definitions of family members, making clear in what increments leave may be taken and imposing detailed contractor notice and record keeping requirements. 

Coverage

The EO applies to "new contracts" and replacements for expiring contracts with the federal government. 

"New contracts" are defined as those that result from solicitations issued on or after January 1, 2017. If the contract was awarded outside of the solicitations process, then it applies if the contract was awarded on or after January 1, 2017. It will also apply to any contract that was entered into prior to January 1, 2017, or if the contract is renewed, extended (with some limitations) or amended on or after that date.

The following four major categories of contractual agreements are "covered contracts" under the Final Rule:

  1. Procurement contracts for construction covered by the Davis-Bacon Act (DBA).
  2. Service contracts covered by the McNamara-O'Hara Service Contract Act (SCA).
  3. Concessions contracts, including any concessions contracts excluded from the SCA by the DOL's regulations at 29 CFR 4.133(b).
  4. Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents or the general public.

However, the EO does not apply to contracts that are subject only to the Davis-Bacon Related Acts, i.e., acts under which federal agencies provide financial and other assistance to construction projects through grants, loans, guarantees, insurance and other methods, but do not directly procure construction services.

The rule applies to subcontractors as well if the subcontract is one of the above four types of covered contracts. The requirements apply regardless of the value of the subcontract. Contractor obligations for ensuring compliance by subcontractors are consistent with obligations under DBA, SCA and the Final Rule implementing the Minimum Wage EO.

Exemptions From the Executive Order

The Final Rule makes clear that the EO does not apply to grants from the federal government; contracts and agreements with and grants to Indian Tribes under Public Law 93-638, as amended; any procurement contracts for construction that are not subject to the DBA (i.e., procurement contracts for construction under $2,000); and any contracts for services, except for those otherwise expressly covered by the Final Rule, that are exempted from coverage under the SCA or its implementing regulations. The Final Rule also provides that the EO does not apply to contracts for the manufacturing or furnishing of materials, supplies, articles or equipment to the federal government, including those subject to the Walsh-Healey Public Contracts Act.

Who Is an Eligible Employee?

Any employee of a federal contractor or subcontractor who performs work on or in connection with a covered contract whose wages under such contract are governed by the SCA, DBA or Fair Labor Standards Act (FLSA), including both exempt and nonexempt employees, are eligible to accrue and use paid sick leave.

Working "in connection" with a covered contract means performing work activities that are necessary to the performance of the contract but are not the specific services called for by the contract. Employees who work in connection with covered contracts for less than 20 percent of their work hours in a given workweek are not eligible to accrue or use sick leave.

What If Employees Are Subject to a Collective Bargaining Agreement (CBA)?

Employees whose covered work is governed by a CBA that already provides 56 hours of sick time are not eligible for leave under the order until the expiration of the CBA or January 1, 2020, whichever is earlier. However, the CBA must have been ratified before September 30, 2016. If the CBA provides for less than 56 hours of sick leave, the law doesn't apply as long as contractors make up the difference between 56 hours and the amount offered by the CBA.

Accrual of Paid Sick Leave

Employees accrue one hour of paid sick leave for every 30 hours worked on or in connection with a covered contract, up to a maximum of 56 hours per year. Contractors can assume that exempt employees work 40 hours per week for purposes of calculating accrual of paid sick leave. Contractors are also permitted to use an estimate of time their employees work in connection with (rather than on) a covered contract as long as the estimate is reasonable and based on verifiable information.

Contractors can choose to front load the full 56 hours of paid sick leave and not track accrual, but they still must allow for carryover of any accrued but unused sick leave at the end of the year up to 56 hours. However, employees can be limited to using 56 hours per year.

Furthermore, contractors are required to reinstate employees' accrued, unused paid sick leave if the employees are rehired by the same contractor within 12 months after a job separation unless contractors provide payment to employees for accrued, unused paid sick leave upon separation. Contractors are not required to pay employees for accrued, unused paid sick leave at the time of a job separation ("cash-out"); however, if they do provide cash-out, they will not be required to reinstate unused leave.

Use

The Executive Order provides that employees may use paid sick leave for an absence resulting from:

  • The physical or mental illness, injury or medical condition of the employee or for an employee to obtain diagnosis, care or preventive care from a health care provider;
  • Caring for the employee's family member who has any physical or mental illness, injury or medical condition or the need for diagnosis, care or preventive care; or
  • Domestic violence, sexual assault or stalking, if the time absent from work is due to medical injury or illness, to obtain medical care, to obtain additional counseling, seek relocation, seek assistance from a victim services organization, take related legal action or assist in engaging in any of these activities. The Final Rule provides definitions of these terms.

The Final Rule makes clear that contractors must allow employees to use paid sick leave in increments as small as one hour (with a narrow exception for employees whose work makes it physically impossible to leave or return to the job during a shift).

Required Notice by Employees for Use of Leave

Employees must provide either oral or written notice at least seven calendar days in advance where the need for the leave is foreseeable. If the need for leave is not foreseeable, then the employee must give notice as soon as is practicable.

Certification or Documentation of the Need To Use Leave

Under the Final Rule, a contractor may require certification only if the employee was notified before he or she returned to work that a certification would be required and only for absences of three or more consecutive full days. If the paid sick leave is used for an absence resulting from domestic violence, sexual assault or stalking, documentation could be from a health care provider, counselor, representative of a victim services organization, attorney, clergy member, family member or close friend; and self-certification is also permitted.

If documentation is required, then the employee must have at least 30 days to provide the requested documentation. If the documentation is insufficient, the Final Rule follows the procedure set forth in the Family Medical Leave Act (FMLA) and the contractor must notify the employee of the deficiency and give the employee five days to provide new or supplemental certification or documentation. If the documentation is not provided within 30 days or remains deficient after notice, then the contractor may retroactively deny leave; this must be done within 10 days of the deadline for providing initial or supplemental documentation. The contractor may contact the employee's health care provider to clarify or authenticate the health care provider certification, but cannot get additional medical details or seek a second opinion.

Interaction With Paid Time Off (PTO) Policies

If a contractor's existing PTO policy provides employees with at least 56 hours of PTO that meets the requirements described in the order and the Final Rule but employees can use the leave for any purpose, the contractor does not have to provide separate paid sick leave even if an employee uses all of the time for vacation.

Contractor Notification Requirements

Contractors must notify employees in writing of the amount of paid sick leave they have available at the end of each pay period or each month, whichever interval is shorter. 

If a contractor denies leave, the contractor is required to explain in writing the reason for the denial. 

Contractors must also post the DOL notice that explains to employees their rights.

Contractor Recordkeeping Requirements

Contractors must keep records for three years showing accrual and use of paid sick leave as well as the segregation between work spent on or in connection with covered contracts and other work. Specifically, the records must contain: name, address and SSN of employee; occupation or classification; rate of wages paid; the number of daily and weekly hours worked; any deductions made; the total wages paid; copy of notifications to employees of accrual of sick leave; copies of requests to use paid sick leave; dates and amounts of sick leave used by employee; copy of any written responses to requests to use sick leave; any records related to certification or documentation requested; any other records showing the tracking of or calculations related to an employee's accrual and/or use of paid sick leave; the relevant covered contract; the regular pay and benefits provided to each employee for use of sick leave; and any financial payment made for unused sick leave upon separation of employment.

Federal contractors and subcontractors are encouraged to review their sick leave policies to ensure compliance with the EO and the Final Rule. 

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.

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Authors
Christina A. Stoneburner
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