Federal Grant and Contract News for Nonprofits - May 2016

7 min

May has been a disconcerting month for nonprofits and other organizations doing business with the federal government, as we were introduced to the new, eye-popping federal False Claims Act (FCA) penalty range. All employers also received notice of new notable changes to the federal Fair Labor Standards Act (FLSA), doubling the minimum salary threshold for the executive, administrative, and professional exemptions to the FLSA's overtime pay requirements. The U.S. State Department also released an important and useful template aimed at assisting compliance with the relatively new human trafficking requirements for federal contractors.

Federal Agencies Begin Inflating FCA Penalties

An underappreciated section of the federal Bipartisan Budget Act of 2015 garnered renewed attention this month when federal agencies began issuing rulemakings to increase civil penalties, including those under the FCA. Section 701 of the Bipartisan Budget Act of 2015, titled the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the Act) (amending the Federal Civil Penalties Inflation Adjustment Act of 1990), requires federal agencies to increase the level of civil monetary penalties through an interim final rulemaking by August 1, 2016. Federal agencies are further required to make annual adjustments by January 15 every year thereafter.

In particular, the "catch-up" provision of the Act provides that a cost-of-living adjustment percentage is based on the amount by which the Consumer Price Index (CPI) in October 2015 exceeds the CPI for the month of October of the calendar year during which the adjustment of such civil monetary penalty was established or adjusted under a provision of law other than the Act. For subsequent adjustments, the cost-of-living adjustment will be based on the percentage for each civil monetary penalty by which the CPI for the month of October preceding the date of the adjustment exceeds the CPI for the month of October one year prior.

Against this backdrop and with August 1, 2016 approaching, on May 2, 2016, the federal Railroad Retirement Board (RRB) took the first step in updating its FCA penalties by issuing an interim rulemaking, which nearly doubles the per-claim penalties, which have been set since 1999 within the range of $5,500 to $11,000, to a range of $10,781 to $21,563. The U.S. Small Business Administration followed suit on May 19, 2016, as did the U.S. Department of Defense on May 26, 2016. While federal agencies appear to be taking varied approaches in their rulemakings (some calculating and setting out the penalties in the rule; others capturing the formula to be applied on a case-by-case basis), since the formula and CPI are the same, the increase should be the same across all federal agencies and should be made effective August 1, 2016. Although federal agencies may seek an exemption to the initial catch-up adjustment, subject to U.S. Office of Management and Budget approval, we have not heard of any federal agencies applying for such an exemption, nor do we expect any.

Obviously, with the virtual doubling of penalties, effective in a few short months, nonprofit grantees and contractors must be ever vigilant to avoid fraudulent misconduct and address such allegations seriously and comprehensively in order to stave off the imposition of these show-stopping penalties.

DOL Increases Minimum Salary Threshold for White-Collar Exemptions

On May 18, 2016, the U.S. Department of Labor (DOL) released final revisions to the FLSA's overtime exemption regulations, which were published on May 23, 2016. These new regulations are applicable to all employers, including federal nonprofit grant and cooperative agreement recipients, contractors, and subcontractors. Specifically, the new regulations doubled the minimum salary threshold for the executive, administrative, and professional exemptions (the "white-collar" exemptions) from $23,660 annually ($455 per week) to $47,476 annually ($913 per week). Ten percent of this new salary threshold may be earned and paid through nondiscretionary bonuses, incentive pay, and commissions, as long as such payments are made on at least a quarterly basis. Moreover, beginning on January 1, 2020, the salary threshold will automatically update every three years and will be tied to the 40th percentile of weekly earnings of full-time salaried workers in the region of the country with the lowest wages. No changes were made to the "standard duties" test for the white-collar exemptions.

In addition, the new regulations increased the minimum salary threshold for the FLSA's "highly compensated" exemption from $100,000 to $134,004 per year. This new salary threshold also will increase every three years and will be tied to the 90th percentile of earnings of full-time salaried workers nationally. DOL estimates that this threshold will increase to $147,524 during the first automatic update in 2020.

Beginning August 1, 2019, DOL will provide notifications of the new salary thresholds 150 days prior to their effective date. Federal nonprofit grant and cooperative agreement recipients, contractors, and subcontractors have until December 1, 2016 to comply with the new regulations.

As such, federal nonprofit grant and cooperative agreement recipients, contractors, and subcontractors should review their current FLSA employment classifications to determine whether the classifications are compliant with the new regulations. If non-compliant classifications are identified, nonprofits may raise the salaries for those positions that fall below the new threshold or reclassify these positions as non-exempt. In making this determination, nonprofits should take into account the automatic increases in the salary thresholds. It should be noted that to be classified as exempt, the position must meet both the new salary threshold and the standard duties test associated with the exemption. Nonprofits also should review their wage and hour policies and time-keeping policies to ensure compliance with the new regulations. Finally, nonprofit employers may consider realigning now-non-exempt employees' workloads and responsibilities, and otherwise managing their hours worked, to avoid paying overtime.

Federal nonprofit grant and cooperative agreement recipients, contractors, and subcontractors whose overall budgets may be impacted by the increase (more likely will be affected than not) should reach out to their grants and/or contracting officer as soon as possible to determine how the nonprofit can formally modify the grant and/or contract budget to account for these new costs. Regardless of the method prescribed, any increase should be reflected in a formal modification to ensure that the federal government acknowledges the increase, or corresponding limitation in scope, and does not result in an adverse response by the government.

For more details about the new DOL rule changes and their impact on nonprofit organizations, click here. And for a recent article of ours on what constitutes compensable time for non-exempt employees of nonprofits, click here.

Human Trafficking Best Practices Update

As part of our continued monitoring of the new human trafficking requirements, new guidance for a successful compliance plan, including a compliance plan template, was issued by a collaboration between the U.S. Department of State's Office to Monitor and Combat Trafficking in Persons and three partners (Verité, Made in a Free World, and the Aspen Institute). The sample compliance plan that the U.S. State Department and its partners created, known as the Responsible Sourcing Tool, sets forth a model "Company Human Trafficking Policy," which:

  • Lists the prohibited activities covered by the Federal Acquisition Regulation (FAR) policy;
  • Discusses an "Employee Awareness Program," training that all employees should receive;
  • Provides an "Employee Reporting/Grievance Process," which is the procedure for reporting prohibited activities;
  • Sets out a "Recruitment and Wage Plan" that includes which recruitment firms are used, the company's monitoring/audit process, and the details that should be included in all employment contracts;
  • Provides a sample "Housing Plan";
  • Lays out a "Violation Monitoring, Reporting, and Remediation Program" to identify and address violations of the policy against trafficking in persons; and
  • Provides a model "Annual Compliance Plan Certification," as required by FAR 52.222-50(h)(5).

Considering the role that the U.S. State Department played in the formation of this compliance plan template, nonprofits receiving federal funds, whether in the form of grants, cooperative agreements, or contracts, would be wise to consider using, or at least reviewing, the template plan for best practices to prevent trafficking throughout their supply chains.