On September 29, 2016, the Department of Labor’s Wage and Hour Division (WHD) released its long-anticipated Final Rule requiring certain government contractors to provide paid sick leave to employees. The final regulations, published in the Federal Register on September 30, 2016, were issued in accordance with President Obama’s Executive Order 13706, which requires covered government contractors and subcontractors to implement a system of mandatory paid sick leave for all employees working on a covered contract.

The Final Rule and paid sick leave requirements apply to all new government contracts entered into on or after January 1, 2017 that fall into one of three categories:

  1. contracts covered by the Davis-Bacon Act or Service Contract Act;
  2. concessions contracts with the federal government; or
  3. service contracts in connection with federal property or lands.

The paid sick leave requirements may also apply to subcontracts which fulfill all or a portion of a covered government contract. The Final Rules provide, however, that a subcontract must independently fall within one of the three categories of covered contracts in order to be subject to the paid sick leave requirements.

A covered government contractor or subcontractor must provide paid sick leave to all employees who are working on the covered contract or subcontract. Employees are eligible to accrue one hour of paid sick leave for every 30 hours worked, up to a maximum of 56 hours or seven days in a year. The paid sick leave may be used for three purposes:

  1. for an employee’s own illness or other health care needs;
  2. to care for a family member or intimate partner who is ill or needs health care; or
  3. for certain purposes if an employee, family member or intimate partner is the victim of domestic violence, sexual assault, or stalking.

Any unused paid sick leave may be carried over by an employee from year to year while they work for the same government contractor on covered contracts. In addition, an employee who stops working on a covered contract is eligible to recover any unused sick leave if they return to work on a covered contract within one year.

The Final Rule also implements the Executive Order’s notice and anti-retaliation protections for eligible employees. Covered government contractors and subcontractors are prohibited from interfering with an employee’s paid sick leave rights or retaliating against an employee for exercising those rights. Contractors and subcontractors must also notify employees of accrued but unused leave on at least a monthly basis, as well as post a formal notice of employee rights provided by the WHD. Additionally, covered contractors and subcontractors are required to track and maintain records of an individual employee’s use of paid sick leave for at least three years.

For contractors or subcontractors with existing paid leave policies, the Final Rule provides a safe harbor where no additional paid leave is required if the existing policy provides employees with at least the same rights, benefits and protections as required by the Executive Order. To qualify for this exemption, a contractor’s existing policy must, at a minimum, provide seven days of paid leave per calendar year, allow unused leave to roll over to the next calendar year, and permit employees to use the leave for the same purposes outlined in the Final Rule. Any existing policy must also protect employees from interference or retaliation for taking paid leave under the policy.

With the Final Rule now in place and its effective date of January 1, 2017 fast approaching, government contractors and subcontractors should take immediate steps to identify any existing contracts that are up for extension, renewal or modification in the near future. For any such agreements, a contractor or subcontractor should determine whether that contract falls within any of the categories subject to the paid sick leave requirements of Executive Order 13706. If covered, a contractor or subcontractor should closely review its existing PTO policies and leave tracking systems to identify any modifications or changes that need to be made prior to January 1, 2017.