Are You Covered by the DOL's New Final Rule Regarding Paid Sick Leave for the Employees of Federal Contractors?

Miller & Martin PLLC Alerts | October 03, 2016

by Stacie Caraway

The DOL issued the Final Rule this week regarding President Obama's Executive Order 13706, which requires some federal contractors to provide up to 7 days of paid sick leave to all of their employees starting January 1, 2017.

So, what employers are covered by the Final Rule?

Under the Final Rule, Executive Order 13706 applies to four (4) major categories of contractual agreements which are entered into or renewed on or after January 1, 2017:

  1. procurement contracts for construction covered by the Davis-Bacon Act (DBA); (The Executive Order does not apply, however, to contracts that are subject only to the Davis-Bacon Related Acts, i.e., Acts under which federal agencies provide financial and other assistance to construction projects through grants, loans, guarantees, insurance and other methods, but do not directly procure construction services.)
  2. service contracts covered by the McNamara-O'Hara Service Contract Act (SCA)
  3. concessions contracts, including any concessions contracts excluded from the SCA by the Department of Labor's regulations at 29 CFR 4.133(b); (The Final Rule defines the term "concessions contract" to mean a contract under which the federal government grants a right to use federal property, including land or facilities, for furnishing services. The term "concessions contract" includes, but is not limited to, a contract whose principal purpose is to furnish food, lodging, automobile fuel, souvenirs, newspaper stands and/or recreational equipment, regardless of whether the services are of direct benefit to the Government, its personnel, or the general public. The Final Rule thus extends coverage of the Executive Order to all concessions contracts with the federal government, including those excluded from SCA coverage by regulations, such as concessions contracts with the federal government to operate souvenir shops or to provide food or lodging in national parks.) and
  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 (like the upper-tier contract) falls into one of these four (4) categories is subject to the paid sick leave requirements. So, if you have a subcontract with a federal contractor which falls into one of the above categories, you are covered by Executive Order 13706 as well.

The Final Rule contains certain narrow exclusions from coverage for the following types of contractual agreements: (1) grants; (2) contracts and agreements with and grants to Indian Tribes under Public Law 93-638, as amended; (3) any procurement contracts for construction projects that are not subject to the Davis-Bacon Act (i.e., procurement contracts for construction projects under $2,000); and (4) any contracts for services, except for those otherwise expressly covered by the Final Rule, that are exempted from coverage under the McNamara-O'Hara Service Contract Act or its implementing regulations. The Final Rule also provides that the Executive Order does not apply to 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.

Basically, if you are covered by Executive Order 13658, which requires the payment of a $10.10 minimum wage to employees of federal contractors, you are covered by this Executive Order as well.

What employees are covered?

Nearly all employees (both exempt and non-exempt) of covered employers (as described above) are covered by Executive Order 13706 under the Final Rule. There is a narrow exemption from the Rule's accrual requirements for employees who perform work duties necessary to the performance of a covered contract (but who are not directly engaged in performing the specific work called for by the contract) and who spend less than 20 percent of their hours worked in a particular workweek performing work in connection with such contracts.

What does the Final Rule provide as far as the accrual of paid sick leave for covered employees?

Under the Final Rule, employees accrue 1 hour of paid sick leave for every 30 hours worked on or in connection with a covered contract. Realizing most employers do not track the number of hours worked by exempt employees (who are entitled to paid sick leave under the Final Rule as noted above), federal contractors are permitted to assume that exempt employees are working on or in connection with covered contracts for 40 hours each week. Contractors also are permitted to use an estimate of time all employees work in connection with (rather than on) a covered contract, as long as the estimate is reasonable and based on verifiable information.

The Final Rule also creates an option for contractors to provide employees with at least 56 hours of paid sick leave at the beginning of each accrual year rather than allowing employees to accrue leave based on hours worked such that they do not have to worry about tracking employee hours.

Otherwise, accrual must be calculated as described above, and employees are to be notified in writing of the amount of paid sick leave they have available, at the end of each pay period or each month, whichever interval is shorter.

The Final Rule also provides that contractors may limit the amount of paid sick leave employees may accrue to 56 hours each year but must permit employees to carry over accrued, unused paid sick leave from one year to the next.

The Final Rule also allows contractors to limit the amount of paid sick leave employees have accrued to a maximum of 56 hours at any point in time. Furthermore, contractors are required to reinstate employees' accrued, unused paid sick leave if the employees are rehired by the same contractor within 12 months after a job separation, unless the employees are paid for their accrued, unused paid sick leave upon separation.

Contractors are not required to pay employees for accrued, unused paid sick leave at the time of a job separation, however.

The Final Rule also explains that a contractor's existing PTO policy can fulfill the paid sick leave requirements of the Executive Order as long as it provides employees with at least the same rights and benefits as the Final Rule requires. In other words, if a contractor provides 56 hours of PTO that meets the requirements described in the Executive Order and the Final Rule and employees can use the PTO for any purpose, the contractor does not have to provide additional paid sick leave, even if an employee uses all of the PTO for vacation. The Final Rule also addresses PTO policies that provide more than 56 hours of leave: a contractor may choose to either (1) provide all PTO used for the purposes described in the Final Rule in compliance with all of the Rule's requirements, or (2) track, and make and maintain records reflecting, the amount of paid time off an employee uses for the purposes described in the Rule, in which case the contractor need only provide, for each accrual year, up to 56 hours of PTO the employee requests to use for such purposes that complies with the Rule's requirements, such as for certification, documentation and recordkeeping.

What does the Final Rule provide regarding the use of paid sick leave?

The underlying Executive Order provides that an employee may use paid sick leave for an absence resulting from: (i) physical or mental illness, injury, or medical condition of the employee; (ii) obtaining diagnosis, care, or preventive care from a health care provider by the employee; (iii) caring for the employee's 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 need for diagnosis, care or preventive care described in (i) or (ii); or (iv) domestic violence, sexual assault or stalking, if the time absent from work is for the purposes described in (i) or (ii) or to obtain additional counseling, seek relocation, seek assistance from a victim services organization, take related legal action, or assist an individual related to the employee as described in (iii) in engaging in any of these activities.

Under the Final Rule, contractors must allow employees to use paid sick leave in increments as small as one hour (with a narrow exception for employees whose work makes it physically impossible to leave or return to the job during a shift). Contractors may only limit the amount of paid sick leave an employee uses at once or per year on the basis of how much paid sick leave the employee has available. When employees use paid sick leave, contractors must provide them with the same regular pay and benefits they would have received if they had not used the leave, except that they need not earn additional paid sick leave during this time.

What do employees have to do in order to use paid sick leave?

Under the Final Rule, an employee's request to use paid sick leave may be made orally or in writing. A leave request must be made at least 7 calendar days in advance where the need for the leave is foreseeable, and in other cases as soon as is practicable. A contractor is required to communicate any denial of a request to use paid sick leave in writing, with an explanation for the denial -- which cannot be based on whether the employee has found a replacement worker or on the contractor's operational needs.

A contractor may require certification only for absences of three (3) or more full consecutive days, and the employee must have received notice of the requirement to provide certification or documentation before he or she returns to work. If paid sick leave is used for the physical or mental illness, injury or medical condition of the employee; obtaining diagnosis, care or preventive care from a health care provider by the employee; or caring for the employee's child, parent, spouse, domestic partner or any other individual related by blood or affinity, certification must be issued by a health care provider. If the paid sick leave is used for an absence resulting from domestic violence, sexual assault or stalking, supporting documentation could be from a health care provider, counselor, representative of a victim services organization, attorney, clergy member, family member or close friend; self-certification is also permitted.

Records relating to medical histories shall be maintained as confidential records, and contractors are prohibited from disclosing any verification information and are required to maintain confidentiality about domestic abuse, sexual assault, or stalking, unless the employee consents or disclosure is required by law.

How does this new paid sick leave Final Rule intersect with other types of leave?

A contractor's obligations under Executive Order 13706 and the Final Rule have no effect on its obligations to comply with the Family and Medical Leave Act (FMLA). That said, paid sick leave may be substituted for (that is, may run concurrently with) unpaid FMLA leave, and all notices and certifications that satisfy FMLA requirements will satisfy the request for leave and certification requirements of the Final Rule.

With respect to state or local paid sick time laws, the Final Rule explains that contractors must comply with both any such law that applies to them as well as the Executive Order and the Final Rule, but contractors may satisfy their new paid sick leave obligations by providing paid sick time that also fulfills the requirements of a state or local law, provided that the paid sick time is accrued and may be used in a manner that meets or exceeds all of the requirements of the Executive Order and the Final Rule. Where the requirements of an applicable state or local law and the Final Rule differ, satisfying both will require a contractor to comply with the requirement that is more generous to employees.

As always, should you have additional questions regarding the new Final Rule or Executive Order 13706 generally, please feel free to contact Stacie Caraway or any other member of our Labor & Employment Law Practice Group.

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