Paid Sick Leave Final Rule

In 2015, President Obama signed Executive Order 13706 (EO 13706), granting federal contractor employees 7 days (56 hours) of annual paid sick leave, which includes paid leave for family care. The EO directed the Secretary of the US Department of Labor (DOL) to prepare regulations for its implementation, which it did on February 25, 2016.

On September 29, 2016, after considering over 35,000 public comments, the DOL issued its Final Rule implementing EO 13706. Published in the Federal Register on September 30, 2016 (81 FR 67598) under new regulation 29 CFR Part 13 (Part 13), the new rule goes into effect on November 29, 2016 (60 days after publication) and applies to federal contracts issued on or after January 1, 2017. The DOL estimates it will provide paid sick leave to about 1.15 million workers.

As explained below, federal contractors holding certain government contracts will need to ensure compliance with Part 13. This means affected government contractors should immediately review, if they have not done so already, their sick leave and/or paid time off (PTO) policies and related processes in order to implement any changes needed to ensure compliance with the new regulation on day one.

Below is a brief summary of the contracts and employees covered under the new regulation, the rules for how sick leave is to accrue, when it can be used and how the DOL will ensure compliance.


Which contracts are covered?

The Final Rule makes clear that EO 13706 and its new implementing regulation at Part 13 apply to four major categories of contractual agreements:

  • Procurement contracts for construction covered by the Davis-Bacon Act (DBA)
  • Service contracts covered by the McNamara-O’Hara Service Contract Act (SCA)
  • Concessions contracts, including any concessions contracts excluded from the SCA by the DOL’s regulations at 29 CFR §4.133(b)
  • Contracts in connection with federal property or lands

Any subcontract of a covered contract is also subject to the paid sick leave requirements.

Part 13 contains exclusions for: (i) grants; (ii) contracts and agreements with and grants to Indian Tribes; (iii) any procurement contracts for construction not subject to the DBA; and (iv) contracts for services that are exempted from coverage under the SCA.

Part 13 applies to any person performing work on or in connection with a covered contract whose wages are governed by the SCA, DBA or FLSA, including employees who qualify for an exemption from the FLSA’s overtime provisions.

Paid sick leave requirements

  • Accrual Rate - Eligible employees will accrue 1 hour of paid sick leave for every 30 hours worked on or in connection with a covered contract.
  • Front-Loading - Contractors may provide an employee with at least 56 hours of paid sick leave at the beginning of each accrual year instead of requiring the employee to accrue leave based on hours worked.

Accrual cap / reinstatement / payment for unused leave

  • Accrual Cap - Contractors may limit to 56 hours the amount of paid sick leave employees accrue each year.
  • Cash Pay Out / Reinstatement - Contractors are required to reinstate employees’ accrued-but-unused paid sick leave if the employees are rehired by the same contractor within 12 months after a job separation, unless the contractor pays employees for accrued, unused paid sick leave upon separation (which they are not required to do).

Use limitations

Part 13 establishes that employees may use accrued paid sick leave for the following reasons:

  • Physical or mental illness, injury or medical condition of the employee
  • Obtaining diagnosis, care or preventive care from a heath care provider by the employee
  • 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
  • Obtaining counseling, relocating one's residence, seeking assistance from a victim organization or seeking legal redress relating to domestic violence, sexual assault or stalking

New Part 13 also sets out that, where the need for leave is foreseeable, a leave request must be made at least seven calendar days in advance, and in other cases as soon as practicable. A contractor is required to communicate any denial of a request in writing, with an explanation. A contractor may require certification only for absences of three or more consecutive full days, and the employee must receive notice of the requirement to provide certification before he or she returns to work.

Interaction with other paid-time-off policies and laws

Covered contractors may not use paid sick leave required by the EO (and now Part 13) to fulfill obligations under the SCA or DBA, and complying with the new rule will not have an effect on existing obligations under the FMLA. Part 13 also makes clear that contractors must comply with state and local paid sick leave laws as well as the EO and Part 13 (to the extent they conflict). In other words, where the requirements of an applicable state or local law and new Part 13 differ, satisfying both will require a contractor to comply with the requirement that is more generous to employees. This is of particular importance to contractors that operate within California, which has a number of municipalities setting sick leave law requirements that differ from those of Part 13 and the EO.

A contractor’s existing PTO policy can fulfill the new paid sick leave requirements so long as it provides employees with at least the same rights and benefits as Part 13 requires.

Complaints under the new regulation may be filed with the Wage and Hour Division (WHD) of the DOL, and there is a mechanism for WHD investigations and informal complaint resolution. The new regulation also specifies remedies and sanctions for violations of the EO and its implementing regulations, including the payment of damages and debarment.

Minimum Wage Increase

On September 20, 2016, approximately one week prior to issuance of the Final Rule on paid sick leave, the DOL announced that, effective January 1, 2017, the minimum wage for federal contractors and subcontractors will increase to $10.20 per hour from the 2016 wage of $10.15 per hour. Tipped workers will receive a $0.95 increase over the current minimum wage of $5.85 per hour. These annual increases are required by EO 13658, issued in February 2014, which requires that the DOL raise the hourly minimum wage paid by certain federal contractors every calendar year based on inflation. The EO also requires that the minimum cash wage for tipped workers must continue to increase by $0.95 per year until it reaches 70% of the minimum wage paid to other hourly workers under EO 13658. These increases apply to the same subset of covered contracts described above.

Contractors should conduct a review of wages paid to ensure that by January 1, all wages meet the minimum requirements.