United States

Executive Order 13706

Establishing Paid Sick Leave for Federal Contractors

ARTICLE  | 

Subsequent to President Barack Obama’s September 2015 Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors (EO). The Department of Labor issued a final rule on Sept. 29, 2016, requiring paid sick leave for employees working on federal contracts. The rule will apply to solicitations and contract awards issued on or after Jan. 1, 2017, and is applicable to contractor employees engaged in performing work on or in connection with any contract covered by the EO whose wages are governed by the Service Contract Act (SCA), Davis-Bacon Act (DBA) or Fair Labor Standards Act (FLSA), including employees who qualify for an exemption from the FLSA’s minimum wage, and overtime provisions. The rule specifies that employees must receive at least 56 hours (7days) of paid leave a year for personal illness or to take care of immediate family members. The final rule defines the specific purposes of personal illness and family care for which an employee may use paid sick leave to compensate for a resulting work absence.

Coverage

The regulation is estimated to affect 1.15 million workers and applies to four major categories of contractual agreements:

  1. Procurement contracts for construction covered by the DBA
  2. Service contracts covered by the McNamara-O’Hara SCA
  3. Concessions contracts, including concessions contracts excluded from the SCA by the Department of Labor’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

Furthermore, any subcontract of a covered contract that falls into one of these four categories is subject to the paid sick leave requirements.

The rule will not apply to grants, contracts or agreements with Indian Tribes under Public Law 93-638; procurement contracts for construction not subject to DBA; contracts that are exempt from coverage of SCA (unless the other major categories listed above apply).

Accrual and PTO

The rule requires that contractors allow covered employees to carry over accrued, unpaid sick leave from the prior year. However, it does allow for contractors to limit the accruals of sick leave for a covered employee to a maximum of 56 hours at any point in time, and it does not require contractors to pay covered employees for unused accrued sick time should they separate from the company prior to using the accrued sick leave.

In addition, companies that already have paid time off (PTO) policies in place that satisfy the paid sick time requirements stipulated per this regulation (e.g. 56 hours and other rights and benefits) are not required to provide separate sick leave time, even if the employees do not use any of the PTO for sick leave.

Collective bargaining agreements

The final rule allows some leniency for contractors with collective bargaining agreements (CBA) that already require at least 56 hours of paid leave per year. If the union contract was signed before Sept. 30, 2016, then the executive order won't apply to that company until the CBA expires or Jan. 1, 2020—whichever date is earlier. In addition, the department is not requiring successor contractors to reinstate paid leave to workers on a predecessor contract.

Impact

The rule implements the latest in a series of Obama administration executive orders that target the federal contracting community on labor and other policy areas, including the Fair Pay and Safe Workplaces EO, which requires federal contractors to disclose their recent history of labor and employment law violations.

Provided that there is no small business exemption for this rule, there could be a high cost of compliance associated with it for many small businesses that may not already have leave policies in place. For contractors who already provide seven days of paid sick leave, they will need to ensure that they are in compliance with all aspects of the new rule and therefore, will be required to determine what additional requirements they will need to implement, in addition to developing policies and procedures to monitor compliance as well as to identify and correct any deviances that may occur in relation to this rule. Contractors will also need to maintain any additional documentation and recordkeeping requirements to support compliance with this rule. In addition, prime contractors will need to monitor subcontractor compliance with the paid sick leave requirements.

Companies operating in multiple jurisdictions throughout the United States will need to reconcile the new requirements for employees on federal contracts with varying state and municipal leave policies. Although the rule instructs contractors to provide the more generous benefits policy in scenarios where local or state mandates exist, additional complexities may exist in situations where companies may provide differing benefits policies to employees

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