Disruptive by Design: New Year Brings New Sick Leave Requirements for Federal Contractors

It is about time federal contractor employees received benefits equal to their in-house peers. 

In November, the long-awaited final rule issued by the U.S. Department of Labor mandated that federal contractors provide paid sick leave to certain employees. The regulation covers both new federal contracts and replacements to expired contracts.

Although some cities and states require that employers offer paid sick leave, no federal law mandates the employment benefit across the board. The United States is the only industrialized nation without paid leave. 

This change spells good news for the estimated 1.2 million workers employed by federal contractors who eventually will have access to paid sick leave, according to the Federal Register. The action arguably will improve the overall health and performance of the work force. Those who drag themselves to work coughing and sneezing—and infecting others—now can recuperate at home. The rule also brings the benefits packages of these workers in line with other companies, ensuring that federal contractors remain competitive employers.

The final rule applies to four major categories of contractual agreements:

• Procurement contracts for construction covered by the Davis-Bacon Act (DBA), or federally funded contractors and subcontractors taking in more than $2,000 per contract for their work. The rule does not apply to contractors that only provide financial assistance.

• Service contracts covered by the McNamara-O’Hara Service Contract Act (SCA). Here, the rule applies to employers included in procurement and nonprocurement contracts.

• Contracts for concessions where the government grants an entity the right to use federal land or facilities. The rule also applies to concessions contracts excluded from SCA coverage, such as government-operated souvenir shops or food and lodging at national parks.

• Contracts connected to federal property or lands and related to services for federal employees, their dependents or the general public.

As with many laws and regulations, the fine details are not always cut and dry. Some contractors might assume that the rule does not apply to them if they do not fall into the defined categories. They could be mistaken. Some might be affected because of business connections or dealings with other contractors that are affected by the change. The rule also covers individuals who are not directly engaged in contract work but necessary to complete a contract, such as a human resources specialist working for a cybersecurity contractor. Additionally, the rule does not apply to grants, contracts or agreements made with Native American tribes, or to contracts regarding manufacturing or furnishing of materials, supplies or equipment for the government.

There is more. The final rule does not apply to an employee if a collective bargaining agreement (CBA) was ratified before September 30 or if the contractor provides employees with at least 56 hours of paid sick leave yearly. Where such CBAs exist, the new mandate will not apply until 2020 or until the agreement terminates, whichever is first. Also, if the CBA provides less than 56 hours of leave, then the contractor must make up the difference.

Generally, federal employees earn one hour of paid sick leave for every 30 hours worked. However, there are some factors that complicate this calculation. The government actually differentiates between contractor employees who are “engaged in,” “working on” and “in connection with” a project. For example, those “in connection with” can estimate hours worked as long as the estimate is reasonable and based on verifiable information. 

Employers can provide employees annual paid sick leave at the beginning of each accrual year before the hours worked have accumulated and must allow employees to build up at least 56 hours a year. They must let staff use sick leave in increments as small as one hour, but they can limit the amount of paid leave used to what has actually been accrued. Employers are not required to pay employees for unused sick leave upon separation, but they may opt to do so in what is called a “cash out.”  

The onus of ensuring that employers follow the rule and that the paid sick leave clause is included in all contracts and solicitations falls to contracting federal agencies. Violations mean that agencies must withhold payment to the contractor and report the potential breach for investigation, adjudication and possible sanction.

President-elect Donald Trump has not commented about whether he intends to overturn the executive order signed by President Barack Obama that led to this final rule.

Farisa Dastvar is the chief legal officer at Varyst, a legal and contracts management services firm concentrating on small and medium-size companies. She is a member of the Northern Virginia Chapter of AFCEA. The views expressed here are hers alone.