On Thursday, February 25, 2016, the U.S. Department of Labor proposed new rules to implement Executive Order 13706, which requires certain federal contractors to provide qualifying employees with at least seven days of paid sick leave each year, including paid leave for family care. These new rules are scheduled to go into effect by September 30, 2016, and employers who contract with the federal government should prepare for their implementation now.  Noncompliance could result in suspension of federal payments or even termination of a federal contract.

The new rules generally apply to any employer who contracts with the federal government, whether pursuant to a prime contract or a subcontract, provided that the contract is either: (1) covered by the Davis-Bacon Act (DBA); (2) covered by the Service Contract Act (SCA); or (3) a contract in connection with federal property or lands and related to offering services for federal employees, their dependents or the general public. A contract is covered by the DBA if the contract is in excess of $2,000 and the principal purpose of the contract is for the construction, alteration and/or repair of public buildings or public works.  A contract is covered by the SCA if the contract is in excess of $2,500, and the principal purpose of the contract is to provide services in the United States through the use of service employees.

For employers covered by a qualifying contract, the new rules require that employers permit all employees, both non-exempt and exempt, to accrue paid sick leave. Paid sick leave shall accrue at a rate of not less than one hour for every 30 hours worked on or in connection with a covered contract.  For exempt employees, employers may base accrual on the employee’s actual hours worked (if tracked) or by using the assumption that the employee works 40 hours on or in connection with a covered contract in each workweek.  Work that is performed “on a covered contract” refers to performance of the work for which the contractor was engaged, e.g., performance of laundry services requested under a service contract.  Work that is performed “in connection with a covered contract” refers to the other work that is not necessarily requested by the contract but is essential to completion of its primary purpose, e.g., performance by a billing clerk of billing work with respect to items laundered.

Employers must allow employees to accrue no less than 56 hours in each accrual year, and any accrued but unused hours must carry over to the next year. As an alternative, an employer may choose to provide an employee with the full 56 hours of paid sick leave at the beginning of each accrual year rather than have the hours accrue based on hours worked over time.  In either case, the employer must allow any unused paid sick leave to carry over to the next year.  In addition, if any hours are carried over to the next year under either method, the carried over hours must not count against the minimum accrual requirements.  In other words, if an employee carries over 56 hours of unused paid sick leave from year one to year two, the employee must accrue another 56 hours in year two, and the employee must be permitted to use the entire 112 hours in year two.  An employer may not limit the amount of paid sick leave that an employee may use per year or at any given time, and employers must notify employees in writing at least monthly of the amount of paid sick leave that the employee has available.

If an employee is absent for three or more consecutive workdays, an employer may require certification or documentation to verify an illness, injury or condition, provided that the employee is given 30 days from the first day of absence to provide such documentation. Note, however, that if an employer requires certification or documentation, the contractor may only contact the healthcare provider or other creator of the document for the purpose of authenticating it or clarifying its contents.  The employer may not request additional details about the medical or other condition referenced, seek a second opinion or otherwise question the substance of the certification, and only a human resources professional, leave administrator or a management official may make such contact.  The employee’s direct supervisor may not do so.  If the employee fails to provide certification, or provides certification that is inconsistent with the request for leave, the employer may retroactively deny the employee’s request for paid sick leave and recover the value of any pay and benefits the employee received but to which the employee was not entitled.  The employer must communicate any such denial in writing with an explanation for the denial.  The denial should be retained by the employer in its records.

In fact, the rules require that the employer make and maintain during the course of the covered contract and for a three year period thereafter several records, including copies of “balance” notifications sent to employees (at least monthly); copies of employees’ requests to use paid sick leave, if in writing, or other documents reflecting such a request; dates and amounts of paid sick leave used by employees (unless the employer has a PTO policy that satisfies the rules’ requirements); any records relating to required certification and documentation; or any other records showing any tracking of or calculations related to an employee’s accrual and/or use of paid sick leave.

Notwithstanding the above rules, an employer will not be required to provide paid sick leave to any employee who performs no work “on the contract” or who only performs less than 20 percent of his/her hours worked in a particular workweek engaged in performing work “in connection with the contract,” provided that the employer accurately identify in its records the employee’s covered and non-covered hours worked.  In addition, employers are also not required to grant an employee’s request for paid sick leave, even if the employee has such time available, if the employee requests for time off on a day when he/she is scheduled to perform no work on or in connection with the contract.  Of course, an employer may not evade its responsibilities under the new rules by shifting or otherwise manipulating an employee’s work schedule.  Indeed, if an employer is found liable for attempting to interfere with an employee’s rights under the executive order, the employer’s federal payments can be suspended, and the employer can be disbarred from future federal contracts for a period of three years.  These penalties may also apply for any other failure to comply with the rules’ requirements, including for failure to maintain and present sufficient sick leave records.

Employers should therefore take steps now to ensure compliance for when the new rules go into effect later this year. Employers are not immune from the new regulations simply by having a currently existing PTO policy.  All existing policies must comply with the accrual, carry over, usage and other requirements.  A failure to ensure compliance could be met with harsh consequences, particularly for any employer who is deliberately ignorant.