Federal Contractors Need to Be Ready for New Rules

By Christopher A. Gray, Esq.

On January 1, 2017, a new Department of Labor (DOL) Rule will go into effect requiring many federal contractors to provide their employees with up to 56 hours of paid sick leave per year. Employers who contract with the Federal Government should take steps to ensure that their current leave plans meet the new Rule’s requirements or be prepared to issue new plans compliant with the rule.

The Rule allows for contractors to use existing sick time, vacation time, or other paid-time off policies to satisfy the Rule’s requirements. However, there are some requirements which will be at odds with many current employer policies.  One such requirement is that employees must be able to carry over any unused paid sick time into the following year, subject to a few exceptions.  Another such requirement is that contractor may only require certification of an employee’s illness or injury if the employee’s sick leave lasts three or more consecutive full workdays.  Further, contractors must allow employees 30 days from the first full workday missed to obtain certification of the illness or injury.  Finally, the Rule mandates that employees be allowed to use paid sick leave in increments of one hour, rather than half or whole workdays.

Under the Rule, contractors have two options for providing the paid sick leave. First, contractors can allow employees to accrue one hour of sick leave for every thirty hours worked on federal projects.  Under this method, contractors may put in an annual accrual cap of 56 hours.  In addition, contractors who use the accrual method can put in a sick leave bank maximum of 56 hours which would limit the amount of hours employees can carry over from year to year.  However, employers must still afford employees the ability to earn up to 56 additional hours.  For example, if an employee accrues 56 paid sick hours during her first year on the job and does not use any during the year, she can carry over all of the hours to the next year.  In the second year, however, the employee cannot accrue additional hours until she uses some of the 56 hours she has banked.  Once she uses some of her sick hours, she will begin accruing hours until she reaches the maximum bank amount again.

The second option is to “frontload” the hours, and provide that employees start the year with a lump sum of 56 hours of paid sick leave. Employees who began later in the year would receive a pro-rated amount of hours depending on how much time in the calendar year remains.  One drawback to this approach is that although contractors can limit the carryover of unused sick leave hours to 56, contractors must still provide new frontloaded hours the following year and cannot utilize a maximum bank.  For example, if a contractor frontloads 56 hours to an employee in the first year and she does not use any, she carries all of the hours over to year two.  At the beginning of the second year, the employee would then have a bank of 112 paid hours of sick leave.

Another issue for employers will be how to handle the distribution of accrued leave for employees who are laid off.   Under the Rule, the contractor is not required to pay out accrued, unused sick leave to employees upon termination of employment.  However, contractors must reinstate unused sick time for employees rehired within 12 months after separation from employment.  The Rule does offer contractors the option to instead pay out accrued sick leave upon separation from employment; if a contractor does so, it does not have to reinstate the accrued time upon rehiring.  Contractors engaged in industries with seasonal fluctuations in employment should consider the costs and benefits associated with each approach before making a decision.

Contractors with employees subject to CBAs are on a slightly different schedule for implementation. If a contractor’s CBA does not fully comply with the new Rule, the CBA must be re-drafted to comply either before the CBA expires or January 1, 2020, whichever is earlier.

Contractors should be aware of the penalties for non-compliance. Depending on the nature of the violation, the DOL’s Wage and Hour Division may seek a wide array of relief, including, but not limited to: compensation for unpaid leave, restoration of leave, other monetary relief, suspension of contracts and withholding of payment on contracts.

Employers who do business with the federal government should be sure review their current policies. A failure to do so could result in harsh penalties and impact their ability to do business in years to come.