On September 30, 2016, the U.S. Department of Labor (DOL) published its Final Rule implementing Executive Order 13706 (EO), Establishing Paid Sick Leave for Federal Contractors (Final Rule). Executive Order 13706 requires parties, including nonprofits, that enter into covered contracts with the federal government to provide covered employees with up to seven (7) days of paid sick leave on an annual basis. Note that new requirement does not apply to federal grants or cooperative agreements.
To fall within the purview of the Final Rule, both contract coverage and employee coverage must be present. The difference is explained below.
The Final Rule applies to covered contracts with the federal government that (1) result from solicitations issued on or after January 1, 2017; and (2) are awarded outside the solicitation process on or after January 1, 2017. Nonprofit contractors, however, should be aware that contracts that are entered into prior to January 1, 2017 also are covered if: (1) the contract is renewed; (2) the contract is extended, unless the extension is made pursuant to a term in the contract as of December 31, 2016 that provides for a short-term limited extension; or (3) the contract is amended pursuant to a modification that is outside the scope of the contract. Contracts that result from the unilateral exercise of a pre-negotiated option to renew an existing contract by the federal government are not covered.
The following types of federal contracts are covered by the Final Rule: (1) procurement contracts for construction covered by the federal Davis-Bacon Act (DBA); (2) service contracts covered by the federal Service Contract Act (SCA); (3) concession contracts (including any concession contracts excluded from the SCA under 29 CFR §4.133(b)); and (4) contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public. Moreover, the Rule also applies to federal subcontracts that fall under one of the above four types of covered contracts, regardless of the value of subcontract. Specifically excluded from coverage are: (1) grants; (2) contracts and agreements with and grants to Indian Tribes; (3) procurement contracts that are excluded from DBA coverage; (4) contracts for services that are exempt from SCA coverage; and (5) contracts for the manufacture or furnishing of materials, supplies, articles, or equipment to the federal government, including those subject to the federal Walsh-Healey Public Contracts Act.
Employees covered by the Final Rule include all employees (1) who perform work "on or in connection with" covered contracts; and (2) whose wages under covered contracts are governed by the DBA, SCA, or the federal Fair Labor Standards Act (FLSA), including those employees who are exempt under the FLSA. An employee performs "on" a contract if the employee directly performs the specific services called for by the contract. An employee works "in connection with" a covered contract if he or she performs work duties necessary to satisfy the terms of the contract, but is not directly engaged in performing the specific work called for by the contract. It should be noted that the Final Rule does not apply to employees who spend less than 20% of their work hours in a work week performing work "in connection" with covered contracts or to employees who are covered by a collective bargaining agreement that already provides 56 hours of paid sick leave.
Use of Paid Sick Leave
A covered employee may use sick leave for an absence (1) because of his or her physical or mental illness, injury, or medical condition; (2) to obtain diagnosis, care, or preventive care from a healthcare provider; (3) to care for his or her family member (or the equivalent thereof) who is sick or in need of healthcare; or (4) because of domestic violence, sexual assault, or stalking, including assisting his or her family member (or the equivalent thereof) who is a victim of the same.
Paid sick leave accrues at a rate of 1 hour per 30 hours worked on or in connection with a covered contract, up to 56 hours per year. A contractor may determine the 12-month "accrual year" period from any given date, such as the date the employee's work on the covered contract began, the date the covered contract began, or the date the contractor's fiscal year begins, as long as such date is consistently applied to all employees (or groups of similarly situated employees).
The Final Rule applies the FLSA's meaning of "hours worked." As such, in contrast to the February 25, 2016 Notice of Proposed Rulemaking (NPRM), hours worked does not include time an employee spends in paid time off status (e.g., sick or vacation leave).
For employees exempt from FLSA coverage, contractors may choose to continue not to keep records of such employees' hours worked, but instead may allow the employees to accrue paid sick leave as though the employees were working on or in connection with a covered contract for 40 hours per week, or, if an employee is part-time, the employee may be allowed to accrue leave based on the typical number of hours worked per week. A contractor is not required to accrue leave in increments smaller than 1 hour, but any fraction of hours must be count toward the next 30 hours worked.
Accrued but unused paid sick leave must be carried over from one year to the next, but a contractor may cap an employee's maximum leave accrual at 56 hours at any point in time. Said differently, an employee may be permitted to accrue additional paid sick leave only if the employee has less than 56 hours available for use. However, if a contractor chooses to provide, at the beginning of the accrual year, the entire amount of paid sick leave the employee would accrue over the course of the year – rather than allow leave to accrue on an hours-worked basis – the contractor may limit carryover to 56 hours from one year to the next, but may not cap the maximum leave accrual.
Reinstatement of Leave
Contractors will be required to reinstate employees' accrued unused paid sick leave only if the employees are rehired by the same contractor within 12 months after termination of employment. Note that, under the NPRM, the contractor was required to reinstate leave if the employee was rehired, not only by the same contractor, but also by a successor contractor. Reinstatement of leave is not required if the contractor paid the employee for accrued unused paid sick leave upon termination of employment.
No Payout of Sick Leave upon Separation
Contractors are not required to pay employees for accrued unused paid sick leave upon separation of employment.
Paid Time Off Policies
A contractor may use existing paid time off policies to satisfy its obligations under the EO and the Final Rule, but only if such policy complies with the requirements of the EO and Final Rule.
Interactions with Other Laws and CBAs
Contractors must continue to comply with applicable collective bargaining agreements and other laws that mandate paid sick leave or leave rights greater than those provided under the EO and Final Rule. Moreover, such laws and agreements do not excuse contractors from compliance with the EO and the Final Rule. For example, a contractor may satisfy its obligations under the EO and Final Rule by providing paid sick leave as required under state law, as long as the provision of such leave is accrued and is used in a manner that meets or exceeds the EO and Final Rule requirements.
Contractors must maintain records during the course of covered contracts and for three years thereafter. Records must include information such as hours worked, notifications of the employee's accrued amount of paid sick leave, requests to use paid sick leave, dates and amounts of paid sick leave used, written denials of employee's requests to use paid sick leave (with explanations) and records related to certification and documentation. Note that some of these recordkeeping requirements may be avoided if the contractor opts to provide at the beginning of the accrual year the entire amount of paid sick leave accruable over the course of the year, rather than accruing leave on an hours-worked basis.
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The impact of DOL's new paid sick leave rule may have a varying impact on nonprofits. First, it is important to note that the new requirement does not apply to grants or cooperative agreements, and thus it would not apply to any subcontracts thereunder. However, where nonprofits may have entered into covered federal contracts – some nonprofits are recipients of both federal grants/cooperative agreements and contracts – the rule would apply. Furthermore, in some cases, nonprofits already may have paid sick leave programs in place. Although the Final Rule permits nonprofits to use existing paid sick leave policies to comply with the requirements of the rule, it will be critical for such nonprofits to ensure that their program meets these new federal requirements. If it does not, nonprofits must take steps in the next few months to either modify their program to meet these minimum requirements or create an entirely new program.