California Labor &
Employment Law Blog

Oct. 26 2016

Federal Contractors Face New Paid Sick Leave Requirements

Topics: Employee Benefits, New Laws & Legislation, Wage & Hour Issues

Final rules implementing President Obama's Federal Contractor Paid Sick Leave Executive Order were recently issued, establishing new compliance burdens for many federal contractors.  The final rule implementing Executive Order 13706 (establishing paid sick leave for federal contractors) was published on September 30, 2016 and begins applying to covered contracts with the federal government on January 1, 2017.  Here are the key provisions:

Covered Contracts:

The paid sick leave requirements apply to a new contract that is: (1) a procurement contract for construction covered by the Davis-Bacon Act (DBA); (2) a contract for services covered by the Service Contract Act (SCA); (3) a contract for concessions, including any concessions contract excluded from coverage under the SCA by Department of Labor regulations at 29 CFR 4.133(b); or (4) a contract in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.  The requirements also apply to subcontracts falling under a prime contract that is covered by the one of these categories.  The paid sick leave requirements only apply to contracts performed within the United States.  The requirements do not apply to contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the federal government that are subject to the Walsh-Healey Public Contracts Act.  

The paid sick leave law applies to new contracts resulting from a solicitation issued on or after January 1, 2017, and to new contracts entered into outside the solicitation process on or after January 1, 2017.  It does not apply to a unilateral excericse of a pre-negotiated right to renew an existing contract by the federal government.  However, it does apply to contracts entered into BEFORE January 1, 2017 If, through bilateral negotiation, on or after January 1, 2017:  (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.

Covered Employees:

The new law applies to employees directly performing the services called for under the government contract, whose wages are governed by the Service Contract Act or the FLSA, including employees who are exempt from overtime under the FLSA.  It also applies to employees who do not directly perform the services called for under the contract, but who perform work in connection with the contract (i.e. their work is necessary to the performance of the contract) if and when they spend at least 20 percent of their work time in a particular workweek on such work.  The new law does not apply to employees covered by collective bargaining agreements ratified prior to September 30, 2016 if the CBA provides for at least 56 hours (or 7 days) of paid sick leave or PTO (that can be used for sick leave purposes).  If a governing CBA ratified prior to September 30, 2016 provides for paid sick leave or PTO of less than 56 hours (or 7 days) then the employer can make up the difference by providing covered employees each year with additional paid leave time to meet the minimum 56 hours (7 days) required by the new law.  In any event, the new law applies to employees covered by collective bargaining agreements on the earlier of (1) January 1, 2020, or (2) the date the CBA terminates.

Sick Leave Benefits:

The new law requires a covered employer to provide covered employees with at least one hour of paid sick leave for every 30 hours of work performed on a covered contract.  (Exempt employees may be presumed to work 40 hours per week.)  However, the employer can limit accrual to 56 hours per year.  Accrued, unused leave carries over year to year (subject to the employer's ability to limit the amount of accrued leave the employee has available for use to 56 hours).  

As an alternative to the accrual method, employers can frontload 56 hours of paid sick leave at the beginning of each accrual year.  Importantly, if the employer chooses this option, any unused leave carries over to the next year and is on top of the 56 new paid leave hours that must be frontloaded.  In this scenario, an employee could have more than 56 hours of paid leave available for use.

The employer can choose different accrual methods (accrual versus frontloading) for different groups of employees.

The accrual year is a 12-month period that can begin on the date an employee’s work on or in connection with a covered contract began or any other fixed date chosen by the contractor, such as the date a covered contract began, the date the contractor’s fiscal year begins, a date relevant under State law, or the date a contractor uses for determining employees’ leave entitlements under the FMLA. Under the Final Rule, a contractor may choose its accrual year but must use a consistent option for all similarly situated employees and may not select or change its accrual year in order to avoid the paid sick leave requirements.

An employer can satisfy the requirements of the new law through a general PTO policy that provides at least the amount of leave required by the new law and can be used for the same purposes.
 
Use of Sick Leave:

Employees may use paid sick leave for time they would otherwise be working on or in connection with covered contracts if they are absent because of:

  1. A physical or mental illness, injury, or medical condition.
  2. Obtaining diagnosis, care, or preventive care from a health care provider.
  3. Caring for a child, parent, spouse, domestic partner, or any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship who has any of the conditions or needs for diagnosis, care, or preventive care described in (1) or (2) or is otherwise in need of care.
  4. Domestic violence, sexual assault, or stalking, if the time absent from work is for the purposes described in (1) or (2) or to obtain additional counseling, seek relocation, seek assistance from a victim services organization, take related legal action, including preparation for or participation in any related civil or criminal legal proceeding, or assist an individual related to the employee as described in (3) in engaging in any of these activities.

The employer can require that sick leave be used in minimum increments of one hour.

If the need for leave is forseeable, the employee must provide 7 days' advance notice.  If unforseeable, the employee must provide notice as soon as practicable.

If the employee is absent 3 or more consecutive days, the employer may request documentation verifying the need for the leave.

Termination of Employment:

Employers are not required to pay out accrued, unused sick leave on termination of employment.  If an employee is rehired within 12 months, accrued, unused leave must be reinstated (unless it was paid out).

Notice to Employees of Accrued Leave:

Employers must provide employees with written notice of the amount of accrued leave they have available each pay period, as well as upon a separation from employment and upon reinstatement of paid sick leave on rehire.

A contractor’s existing procedure for informing employees of their available paid time off, such as notification accompanying each paycheck or an online system an employee can check at any time, can be used to satisfy or partially satisfy these requirements provided it is written (including electronically) and clearly indicates the amount of paid sick leave an employee has accrued separately from indicating amounts of other types of paid time off available. 

For more information regarding federal contractor paid sick leave requirements, see here.

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About the Editor

Robin Largent represents employers, including major food and retail companies, in all types of employment litigation: wrongful termination, retaliation, breach of contract, wage and hour (California Labor Code) and unfair competition. She also regularly counsels and advises California employers on issues of compliance with California and federal employment laws.
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