The United States Department of Labor (the “DOL”) has announced a Notice of Proposed Rulemaking (“NPRM”) to implement Executive Order 13706, which requires federal government contractors to provide employees with up to 7 days of paid sick leave annually. As a result, the DOL estimates that employers will be compelled to provide additional paid leave to 828,000 employees, including 437,000 employees who do not currently receive any paid sick leave.

Coverage

The proposal will apply to both new contracts and contracts that are renewed, extended, or changed on or after January 1, 2017. It covers four major contract categories: (1) procurement contracts for construction covered by the Davis-Bacon Act (“DBA”); (2) services contracts covered by the McNamara-O’Hara Service Contract Act (“SCA”); (3) concessions contracts; and (4) contracts in connection with federal property or lands and services, including leases. A subcontract of a covered contract is also covered if it falls into one of these categories. Notably, the proposal extends paid sick leave even to employees who qualify for exemption from minimum wage and overtime provisions under the Fair Labor Standards Act (“FLSA”).

There are several narrow exemptions carved out from the proposed rule. It does not apply to grants, to many agreements with Indian Tribes, to contracts performed wholly outside the United States, to contracts subject to the Walsh-Healey Public Contracts Act, or to most contracts excluded from coverage under the DBA or SCA.

Leave Required

Under the NPRM, employees will accrue 1 hour of paid sick leave for every 30 hours worked on, or in connection with, a covered contract. Contractors may limit the amount of accrued paid sick leave to 56 hours per year, but must let employees carry over any unused paid sick leave to the next year, up to a total of 56 hours. Contractors will not be required to pay employees for accrued, unused paid sick leave at the time of a job separation. It creates an option for contractors to provide an employee with at least 56 hours of paid sick leave at the beginning of the accrual year rather than allowing the employee to accrue leave based on hours worked. However, unused sick leave must be reinstated if the employee is rehired within 12 months.

Under the proposed rule, an employee may use paid sick leave for an absence resulting from:

  1. Physical or mental illness, injury, or medical conditions;
  2. Obtaining diagnosis, care, or preventive care from a health care provider;
  3. The care of a family member or person in an “equivalent” relationship who is ill or needs health care, including preventative care; or
  4. Domestic violence, sexual assault, or stalking. Employees may also take paid leave to assist a family member or “equivalent” who is such a victim.

Requires Notices

The employer must advise the employee of the amount of accrued sick leave at least monthly, as well as whenever a request is made to use the leave. Employees can also request such information up to weekly, and should be advised of the leave remaining upon separation, and of any reinstatement of paid leave.

When an employee seeks to use paid leave, she must notify her employer at least 7 days in advance, or as soon as practicable if leave is unforeseeable. A contractor that denies a request for leave must do so in writing with an explanation for the reason for the denial. Following absences of 3 or more days, contractors can require a certification issued by a health care provider. If the absence results from a condition caused by domestic violence, sexual assault, or stalking, the certification should be issued by the individual or organization with the minimum necessary information establishing the employee’s need for leave.

Impact for Employers

The proposed rule could mean higher costs for federal contractors, especially small and mid-size businesses that do not already offer paid leave to employees. Employers should consider this financial impact in prepping FY2017 budgets, as well as when bidding on, extending, or modifying federal contracts after January 1, 2017. Employers should also examine, and consider needed modifications to, existing leave policies. Some contractors may want to pass the costs back to the government, in the form of higher contract prices, but doing so could undermine their competitiveness in the bid process.

References

The DOL has posted the proposed rule at www.regulations.gov and at the DOL’s Wage and Hour Division website under the docket ID number 1235-AA13. Interested parties are invited to submit comments electronically. Comments can also be submitted by mail addressed to Robert Waterman, Compliance Specialist, Wage and Hour Division, U.S. Department of Labor, Room S-3510, 200 Constitution Avenue N.W., Washington, D.C. 20210. In order to be considered part of the rulemaking record, comments must be submitted on or before March 28, 2016.