Executive Summary: On September 29, 2016, the U.S. Department of Labor (DOL) acted on President Obama’s Executive Order 13706 (EO) and released a final rule implementing the requirements for federal contractors and subcontractors to provide employees with paid sick leave (Final Rule). Specifically, contractors must provide one hour of paid sick leave for every 30 hours worked on or in connection with a covered contract, for at least 56 hours per year, and subject to certain limitations. The requirements will take effect for covered contracts entered into on or after January 1, 2017.

An employee may use the leave for his or her own physical or mental illness, injury, medical condition, treatment or diagnosis as well as that of 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. This includes such relationships as grandparent and grandchild, brother- and sister-in-law, fiancé and fiancée, cousin, aunt, and uncle. It could also include others with whom the employee has a family like relationship such as a foster child or foster parent, a friend of a family, or even an elderly neighbor in certain circumstances.

An employee may also use the leave for absences from work resulting from domestic violence, sexual assault, or stalking, if the leave is for the reasons described above or to obtain additional counseling, seek relocation, seek assistance from a victim services organization or to take related legal action. The leave for domestic violence, sexual assault or stalking is available for the employee and for the employee to assist a related individual as described above.

Covered Contracts: The EO and Final Rule apply to contracts and contract-like instruments (which will be defined in DOL regulations) if the contract is:

  • a procurement contract for services or construction;
  • a contract for services covered by the Service Contract Act (SCA);
  • a contract for concessions, including any concessions contract excluded by DOL regulations at 29 CFR 4.133(b); or
  • a contract or contract-like instrument entered into with the federal government in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public; and

the wages of employees under these contracts are covered by the Davis Bacon Act (DBA), the SCA or the Fair Labor Standards Act (FLSA), including employees who are exempt from the FLSA's minimum wage and overtime provisions.

For contracts covered by the SCA or DBA, the EO and Final Rule apply only to contracts at the thresholds specified by those statutes. For procurement contracts in which employees' wages are covered by the FLSA, the EO and Final Rule apply only to contracts that exceed the micro-purchase threshold as defined in 41 U.S.C. 1902(a), unless expressly made subject to this order pursuant to DOL regulations.

Highlights of the Final Rule Requirements Include:

  • Accrued sick leave must be carried over from year to year;
  • Contractors must reinstate accrued sick leave for employees rehired by a covered contractor within 12 months after job separation;
  • Contractors are not required to pay a separating employee for unused sick leave upon separation;
  • Contractors must inform an employee, in writing, of the amount of paid sick leave accrued but not used no less than once each pay period or each month, whichever is shorter;
  • Contractors cannot require the employee to find a replacement worker as a condition for using the paid sick leave;
  • Contractors covered by the SCA or DBA will not receive credit toward their prevailing wage or fringe benefit obligations under these acts by providing the paid sick leave required by the EO;
  • A contractor's existing paid sick leave policy provided in addition to the fulfillment of the SCA or DBA requirements, which is made available to all employees, fulfills the requirements of the EO and Final Rule if it permits employees to take at least the same amount of leave as provided by the EO for the same reasons;
  • Employees must provide written or verbal notice of the need for leave at least seven days in advance if the leave is foreseeable and as soon as practicable when the need for the leave is not foreseeable;
  • A contractor may only require certification of the need for the leave for absences of three or more consecutive days, but only if the employee received notice of the requirement to provide certification or documentation before returning to work;
  • A contractor’s existing PTO policy can fulfill the paid sick leave requirements of the EO as long as it provides employees with at least the same rights and benefits that the Final Rule requires if the employee chooses to use that PTO for the purposes covered by the EO;
  • Contractors may not interfere with or retaliate against employees taking or attempting to take leave or otherwise asserting rights under the EO;
  • Contractors must still comply with federal, state or local laws or collective bargaining agreement provisions that require greater paid sick leave than required by the EO.

SCA Health and Welfare Benefit Rate to be Adjusted: The DOL’s Wage and Hour Division (WHD) will be announcing an SCA health and welfare benefit rate specifically for federal contractors whose employees receive paid leave pursuant to the EO and Final Rule. This rate is expected to be lower than it would be without consideration of the provision of this paid sick leave.

Recordkeeping Requirements: Contractors will be required to make and maintain records for purposes of the EO and Final Rule, including:

  • Copies of notifications to employees of the amount of paid sick leave accrued;
  • Denials of employees’ requests to use paid sick leave;
  • Dates and amounts of paid sick leave employees use; and
  • Other records showing the tracking of employees’ accrual and use of paid sick leave.

As with other leave laws, federal contractors must also keep employees’ medical records, as well as records relating to domestic violence, sexual assault, and stalking, separate from other records and confidential.

Employers’ Bottom Line

Federal contractors who anticipate entering into contracts that will be subject to Executive Order 13706 should:

  1. Review any current PTO/sick leave policy to determine if any revisions may be needed to bring it into compliance with the EO and Final Rule.
  2. Review the current payroll system to ensure that it has the capabilities to track the amount of paid time off accrued and taken, and timely advise employees.
  3. Become familiar with the specific and detailed requirements contained in the Final Rule to ensure compliance upon entry into the first covered contract (FordHarrison will be offering a webinar in December to address these requirements).

If you have any questions regarding the EO or other labor or employment issues affecting government contractors, please feel free to contact Leanne Mehrman, LMehrman@fordharrison.com, who is a partner in our Atlanta office. You may also contact the FordHarrison attorney with whom you usually work.