HR Management & Compliance

Do You Have Federal Contracts? You’ll Want to Catch Up on this Proposed Rule

In February 2016, the U.S. Department of Labor (DOL) published its notice of proposed rulemaking (NPRM) to implement Executive Order (EO) 13706, Establishing Paid Sick Leave for Federal Contractors.

EO 13706 requires parties that enter into covered contracts with the federal government to provide covered employees with up to 7 days of paid sick leave annually, including paid leave allowing for family care.

The NPRM was published on February 25, 2016, in the Federal Register, with a comment period that was extended twice, to end on April 26, 2016. Publication of a final rule is expected by September 30, 2016.

According to the DOL, the rule will allow an estimated 828,200 employees to receive additional paid sick leave within 5 years of implementation. This estimate is split about evenly between employees who currently receive no paid sick leave and employees who receive some paid sick leave but would be entitled to receive additional paid sick leave as a result of the new rule.

The DOL estimates that when the new rule takes effect, a total of 681,700 additional days of paid sick leave would be available to workers in 2017.

Because the proposed rule only applies to new contracts, coverage will be phased in over multiple years. The DOL estimated that the majority of the universe of covered contracts will be covered within 5 years of implementation.

Which contractors will be affected?

EO 13706 applies to new contracts and replacements for expiring contracts with the federal government that result from solicitations issued on or after January 1, 2017, or that are awarded outside the solicitation process on or after January 1, 2017.

Coverage of contracts and employees under the proposal is nearly identical to coverage under the regulations implementing the Minimum Wage EO except that this proposal also covers employees who qualify for an exemption from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime provisions.

Under the proposal, EO 13706 applies to four major categories of contractual agreements:

  1. Procurement contracts for construction covered by the Davis-Bacon Act (DBA);
  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 DOL’s regulations at 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.

Exclusions. Contracts would not be covered if they are subject only to the DBA-Related Acts, are grants, are with Indian tribes, or are subject to the Walsh-Healey Public Contracts Act (i.e., contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the government). In addition, the requirements would apply only to those contracts or portions of contracts that are performed in the United States.

Monetary thresholds. The dollar thresholds in the DBA ($2,500) and SCA ($2,000) must be satisfied before a prime contractor would be covered. For all other procurement contracts, the threshold for coverage is $3,000. Nonprocurement contracts for concessions or for subcontracts to covered contracts have no monetary threshold for coverage.

Which employees are eligible?

The NPRM states that the EO applies to any person “engaged in performing work on or in connection with” a contract covered by the EO whose wages under such a contract are governed by the SCA, DBA, or FLSA, including employees who qualify for an exemption from FLSA’s minimum wage and overtime provisions.

The DOL proposes to include a narrow exemption from coverage 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.

Use of paid sick leave

The EO explains that an employee may use paid sick leave for an absence resulting from:

  1. Physical or mental illness, injury, or medical condition of the employee;
  2. Obtaining diagnosis, care, or preventive care from a healthcare provider by the employee;
  3. 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 (1) or (2); or
  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, or assist an individual related to the employee as described in (3) in engaging in any of these activities.

Accrual, front-loading, and carryover

Under the proposal, employees would accrue not less than 1 hour of paid sick leave for every 30 hours worked on or in connection with a covered contract, to be calculated at the end of each workweek.

The proposal also creates an option for contractors to provide an employee with at least 56 hours of paid sick leave at the beginning of each accrual year rather than allowing the employee to accrue the leave based on hours worked.

All covered contractors would be required to inform employees in writing of the amount of paid sick leave they have accrued no less than monthly and at other times.

Proposed definitions would bring expansive coverage

The DOL proposes expansive definitions of key terms in the EO and proposed rule. Notably:

A “physical or mental illness, injury, or medical condition” would be defined as “any disease, sickness, disorder, or impairment of, or any trauma to, the body or mind.” Treatment by a healthcare provider would not be required. Examples of covered conditions stated in the NPRM include “a common cold, ear infection, upset stomach, ulcer, flu, headache, migraine, sprained ankle, broken arm, or depressive episode.”

The DOL would define an “individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship” as any person with whom the employee has a “significant personal bond that is or is like a family relationship, regardless of biological or legal relationship.”

According to the DOL, the intention is that covered individuals will be broadly interpreted to include such relationships as “grandparent and grandchild, brother- and sister-in-law, fiancé and fiancée, cousin, aunt and uncle, as well as a close friend, to the extent that the connection between the employee and the individual was significant enough to be regarded as having the closeness of a family relationship even though the individuals might not be related by blood or formally in law.”

Other examples of covered individuals include, for example:

  • An individual who was a foster child in the same home in which the employee was a foster child for several years and with whom the employee has maintained a sibling-like relationship,
  • A friend of the family in whose home the employee lived while she was in high school and whom the employee therefore considers to be like a mother or aunt to her, or
  • An elderly neighbor with whom the employee has regularly shared meals and to whom the employee has provided unpaid caregiving assistance for the past 5 years and whom the employee therefore considers to be like a grandparent to him or her.

Tomorrow we’ll hear more about the proposed rules, including maximum accrual, carryover, reinstatement, and payment for unused leave as well as existing leave policies and more!

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