On September 30, 2016, the DOL published its Final Rule implementing Executive Order 13706 (EO), Establishing Paid Sick Leave for Federal Contractors (Final Rule). Executive Order 13706 requires parties who enter into covered contracts with the Federal Government to provide covered employees with up to seven days of paid sick leave on an annual basis.
To fall within the purview of the Final Rule, both contract coverage and employee coverage must be present.
The Final Rule applies to covered contracts with the Federal Government that (1) result from solicitations issued on or after January 1, 2017; and (2) are awarded outside the solicitation process on or after January 1, 2017. Contractors, however, should be aware that contracts that are entered into prior to January 1, 2017 also are covered if: (1) the contract is renewed; (2) the contract is extended, unless the extension is made pursuant to a term in the contract as of December 31, 2016 providing for a short-term limited extension; or (3) the contract is amended pursuant to a modification that is outside the scope of the contract. Contracts that result from the unilateral exercise of a pre-negotiated option to renew an existing contract by the Federal Government are not covered.
The Final Rule covers the following types of contracts: (1) procurement contracts for construction covered by the Davis-Bacon Act (DBA); (2) service contracts covered by the Service Contract Act (SCA); (3) concessions contracts (including any concessions contracts excluded from the SCA under 29 CFR §4.133(b)); and (4) contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public. Moreover, the Final Rule also applies to federal subcontracts that fall under one of these four types of covered contracts, regardless of the value of subcontract. Specifically, excluded from coverage are: (1) grants; (2) contracts and agreements with and grants to Indian Tribes; (3) procurement contracts that are excluded from DBA coverage; (4) contracts for services that are exempt from SCA coverage; and (5) 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.
Employees covered by the Final Rule include all employees who (1) perform work "on or in connection with" covered contracts; and (2) whose wages under covered contracts are governed by the DBA, SCA, or Fair Labor Standards Act (FLSA), including those employees who are exempt under the FLSA. An employee performs "on" a contract if the employee directly performs the specific services called for by the contract. An employee works "in connection with" a covered contract if he or she performs work duties necessary to the performance of the contract, but is not directly engaged in performing the specific work called for by the contract. It should be noted that the Final Rule does not apply to employees who spent less than 20% of their work hours during a work week performing work "in connection" with covered contracts or to employees who are covered by a collective bargaining agreement that already provides 56 hours of paid sick leave.
Use of Paid Sick Leave
Covered employees may use sick leave for an absence because of (1) his or her physical or mental illness, injury, or medical condition; (2) obtaining diagnosis, care, or preventive care from a health care provider by the employee; (3) caring for his or her family member (or the equivalent thereof) who is sick or in need of health care; and (4) domestic violence, sexual assault, or stalking, including assisting his or her family member (or the equivalent thereof) who is victim of the same.
Paid sick leave accrues at a rate of 1 hour per 30 hours worked on or in connection with a covered contract, up to 56 hours per year. A contractor may determine the 12-month "accrual year" period from any given date, such as the date the employee's work on the covered contract began, the date the covered contract began, or the date the contractor's fiscal year begins as long as such date is consistently applied to all employees (or groups of similarly situated employees).
The Final Rule applies the FLSA's meaning of "hours worked." As such, in contrast to the February 25, 2016 Notice of Proposed Rulemaking (NPRM), hours worked does not include time an employee spends in paid time off status (e.g., sick or vacation leave).
For employees exempt from FLSA coverage, contractors may choose to continue not to keep records of such employees' hours worked, but instead may allow the employees to accrue paid sick leave as though the employees were working on or in connection with a covered contract for 40 hours per week, or if an employee is part-time, accrue leave based on the typical number of hours worked per week. A contractor is not required to accrue leave in increments smaller than 1 hour, but any fraction of hours must be counted towards the next 30 hours worked.
Accrued but unused paid sick leave must be carried over from one year to the next, but the contractor may cap an employee's maximum leave accrual to 56 hours at any point in time. Said differently, an employee may be permitted to accrue additional paid sick leave only if the employee has less than 56 hours available for use. However, if a contractor chooses to provide at the beginning of the accrual year the entire amount of paid sick leave the employee would accrue over the course of the year, rather allow leave to accrue on an hours worked basis, the contractor may limit carryover to 56 hours from one year to the next, but may not cap the maximum leave accrual.
Reinstatement of Leave
Contractors will be required to reinstate employees' accrued, unused paid sick leave only if the employees are rehired by the same contractor within 12 months after termination of employment. Note, under the NPRM, the contractor was required to reinstate leave if the employee was rehired, not only by the same contractor, but also by a successor contractor. Reinstatement of leave is not required if the contractor paid the employee for accrued, unused paid sick leave upon termination of employment.
No Payout of Sick Leave upon Separation
Contractors are not required to pay employees for accrued, unused paid sick leave upon separation of employment.
Paid Time Off Policies
Contractor may use existing paid time off policies to satisfy its obligations under the EO and the Final Rule, but only if such policy complies with the requirements of the EO and Final Rule.
Interactions with Other Laws and CBAs
Contractors must continue to comply with applicable collective bargaining agreements and other laws that mandate greater paid sick leave or leave rights than those under the EO and Final Rule. Moreover, such laws and agreements do not excuse contractors from compliance with the EO and the Final Rule. For example, a contractor may satisfy its obligations under the EO and Final Rule by providing paid sick leave as required under state law, as long as the provision of such leave is accrued and is used in a manner that meets or exceeds the EO and Final Rule requirements.
Contractors must maintain records during the course of covered contracts and for three years thereafter. Records must include information such as hours worked, notifications of the employee's accrued amount of paid sick leave, requests to use paid sick leave, dates and amounts of paid sick leave used, written denials of employee's requests to use paid sick leave (with explanations), and records related to certification and documentation. Note, some of these recordkeeping requirements may be avoided if the contractor opts to provide at the beginning of the accrual year the entire amount of paid sick leave accruable over the course of the year, rather than accruing leave on an hours worked basis.