The Department of Labor (DOL) published a 127 page Final Rule for Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors, on September 29, 2016.

This means that, effective January 1, 2017, contractors entering into “new contracts” for services, construction, or concessions (with limited exceptions) will be required to provide covered employees the ability to earn, accrue and use up to 56 hours, or 7 days, of paid sick leave per year.

Contractors include both prime contractors and subcontractors (on any tier of a contract), and lessors and lessees that are awarded a Federal Government contract or a subcontract under a Federal Government contract. A summary of the key provisions of the Executive Order is provided below.

Key Provisions

New Contracts. As summarized by the DOL FAQs, “new contracts” are contracts with the federal government “that result from solicitations issued on or after January 1, 2017, or that are awarded outside the solicitation process on or after January 1, 2017.” They may also be contracts that were awarded before January 1, 2017 but that were renewed, extended (with limited exceptions), or amended pursuant to a modification that is outside the scope of the contract.

Covered Employees. The Executive Order applies to any person engaged in performing work on or in connection with a contract covered by the Executive Order whose wages are governed by the Fair Labor Standards Act, the McNamara-O’Hara Service Contract Act or the Davis Beacon Act.

Paid Sick Leave Accrual and Notice. Covered employees must earn and accrue one hour of paid sick leave for every 30 hours worked on or in connection with a covered contract. Accrual must occur at least each pay period or each month, whichever is shorter. Employee time spent on non-contract work is not counted towards accrual. For exempt employees, employers may assume that they are working 40 hours per week.

Under the Final Rule, employers may choose to grant covered employees with a bank of 56 hours at the beginning of each accrual year. While this may result in employees having access to and using sick leave in excess of what they would have earned, it relieves the employer of the administrative burdens of tracking employee accruals.

At the end of each pay period or each month (whichever is shorter), employers must provide employees with a written notification of the amount of sick leave they have available. Employers must also provide this information to employees upon separation of employment and reinstatement or rehire. This requirement can be accomplished by including the employee’s paid sick leave accrual on the employee’s paycheck stub or making it available to each covered employee through an online self-service portal.

Caps and Carry-over. Employers may cap sick leave accrual at 56 hours per accrual year. Sick leave must carry over from one year to the next; however, employers may cap accrual at 56 hours.

Sick Leave Use. Sick leave may be used:

For an employee’s own physical or mental illness, injury or medical condition, or to obtain the diagnosis, care or preventive care from a healthcare provider;

To care for a family member, including a child, parent, spouse, domestic partner or other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship for any of the conditions or reasons for which the employee could take leave; and

For the employee or to assist the employee’s family member to seek medical attention, obtain counseling, seek relocation assistance from a victim services organization or to take legal action if the need for such services or leave relates to domestic violence, sexual assault or stalking.

Paid Time Off (PTO) Policies. Employers that provide PTO benefits that meet or exceed the requirements under the Final Rule may rely on their PTO policies to satisfy their obligations to provide sick leave. Notably, the employer is not required to provide an employee with additional leave if the employee exhausts all of his or her PTO for vacation related purposes.

Reinstatement. If an employee is rehired by the same federal contractor employer within 12 months of job separation, the employer must reinstate the employee’s sick leave bank, unless the employer paid the employee for earned and accrued sick leave at termination. Employers are not required to pay employees for accrued and unused sick leave at termination.

The Final Rule provides employers with additional guidance regarding an employer’s ability to request (i) advance notice of an employee’s sick leave request and (ii) certification or documentation from the employee for use of sick leave. Special rules also apply to the interaction of the paid sick leave requirements and employer’s obligations under other laws. Employers must follow recordkeeping requirements and post a notice where it can be readily seen.

Penalties for failure to comply can include disbarment from contracts for up to 3 years, as well as the payment of damages. Employers who are entering into or have a covered contract should begin taking steps to comply with the law. Employers can work with their payroll providers and staff to implement processes to track sick leave accrual and use. They should also familiarize themselves with the nuances of the interaction between the new requirements and state and federal laws governing sick and other types of leave, including leave under the Family and Medical Leave Act.