On February 25, 2016, the Department of Labor (DOL) announced its proposed regulations to implement Executive Order (EO) 13706, establishing paid sick leave for federal contractors.  The proposed regulations describe the categories of contracts and employees covered by the EO, the rules and restrictions regarding the accrual and use of such paid sick leave, the obligations of contracting agencies, and the remedies and enforcement procedures available. The DOL has asked that any public comments about the proposed rule be submitted by April 12, 2016, in order to be reviewed prior to issuance of the final regulation.

What is Executive Order 13706?

On September 7, 2015, President Barack Obama signed EO 13706 requiring federal contractors and subcontractors to provide up to seven (7) days of paid sick leave for employees. In addition, each covered contract must incorporate a clause, which the contractor and any subcontractors shall incorporate into lower-tier subcontracts, specifying, as a condition of payment, that all employees falling under the purview of EO 13706 accrue not less than one (1) hour of paid sick leave for every 30 hours worked on or in connection with a covered contract. The EO directed the secretary of labor to issue regulations to implement its requirements.

Paid Sick Leave Procedures Under the Proposed Regulations and EO

A. Accruals

Under the proposed rule, employees accrue no less than one (1) hour of paid sick leave for every 30 hours worked on or in connection with a covered contract, to be calculated at the end of each workweek. A contractor is deemed to have complied with the proposed rule by providing an employee with at least 56 hours of paid sick leave at the beginning of the year. Employees are entitled to monthly notices in writing of the amount of paid sick leave they have accrued.

Contractors may cap accrual at 56 hours, although an employee must be permitted to carry over accrued, unused paid sick leave from one year to the next. Contractors are required to reinstate an employee’s accrued, unused paid sick leave if the employee is rehired by the same contractor or a successor contractor within 12 months after a job separation. Contractors are not required to pay out a departing employee for accrued, unused paid sick leave.

B. Use

A covered employee may use paid sick leave for an absence resulting from:

• Physical or mental illness, injury, or medical condition;

• Obtaining diagnosis, care, or preventive care from a health care provider;

• Caring for a child, a parent, a spouse, a domestic partner, or any other individual related by blood of affinity  in need of care; or

• Domestic violence, sexual assault, or stalking, if the time absent from work is for the purposes described above or to obtain additional counseling, to seek relocation, to seek assistance from a victim services organization, to take related legal action, or to assist an individual related to the employee engaging in any of those activities

Paid sick leave shall be provided upon the oral or written request of an employee that is made at least seven (7) calendar days in advance where the need for leave is foreseeable, and in other cases as soon as is practicable. Contractors must account for the use of paid sick leave in increments of no greater than one hour and must provide employees using paid sick leave with the same pay and benefits they would have received if they had not used the leave. A contractor may only require certification for absences of three or more consecutive days.

If certain conditions are met, contractors’ existing PTO policies can fulfill the paid sick leave requirements.

Which Contracts Are Covered?

The new sick leave rules apply to “new” contracts with the federal government performed within the United States and entered into on or after January 1, 2017. A “new” contract is one that results from solicitations issued on or after January 1, 2017, or that is awarded outside the solicitation process on or after January 1, 2017. A contract entered into before January 1, 2017, however, may constitute a new contract if on or after January 1, 2017:

• The contract is renewed;

• The contract is extended, unless the extension is made pursuant to a term in the contract as of December 31, 2016, providing for a short-term limited extension; or

• The contract is amended pursuant to a modification outside the scope of the contract.

The paid sick leave requirements apply to a new contract that is:

• A procurement contract for construction covered by the Davis-Bacon Act (DBA);

• – The EO does not apply, however, to contracts that are subject only to the Davis-Bacon Related Acts, i.e., Acts under which federal agencies provide financial and other assistance to construction projects through grants, loans, guarantees, insurance and other methods, but do not directly procure construction services.

• A contract for services covered by the Service Contract Act (SCA);

• – Both procurement and non-procurement contracts that are subject to the SCA and its implementing regulations are subject to the EO’s requirements.

• A contract for concessions, including any concessions contract excluded from coverage under the SCA by DOL regulations at 29 CFR 4.133(b); or

• – Concessions contracts include, but are not limited to, contracts with the principal purpose of furnishing food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment, regardless of whether the services are of direct benefit to the government, its personnel, or the general public.

• A contract in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.

• – This category of covered contracts refers to leases of federal property, including space and facilities, and licenses to use such property entered into by the federal government for the purpose of offering services to federal employees, their dependents, or the general public.

Under the proposed regulations, the paid sick leave requirements apply to subcontracts of covered prime or upper-tier contracts if the subcontract is one of the four types of covered contracts referenced above.

The proposed regulations contains certain narrow exclusions from coverage for the following types of contractual agreements: (1) grants; (2) contracts and agreements with and grants to Indian tribes under Public Law 93-638; (3) any procurement contracts for construction that are not subject to the DBA (i.e., procurement contracts for construction under $2,000); and (4) any contracts for services, except for those otherwise expressly covered by the proposed rule, that are exempted from coverage under the SCA or its implementing regulations. The proposed regulation also provides that the EO does not apply to contracts subject to the Walsh-Healey Public Contracts Act.

Which Employees Are Covered?

Pursuant to the regulations, the paid sick leave requirements apply to employees performing work “on or in connection with” covered contracts and whose wages under those contracts are governed by the DBA, SCA, or FLSA, including employees qualifying for an exemption from the FLSA’s minimum wage and overtime provisions. Employees performing “in connection with” a covered contract include those performing work necessary to the performance of a covered contract, but who are not directly engaged in performing the special services called for in the contract. The accrual requirements do not apply to employees who perform work “in connection with” covered contracts and who spend less than 20 percent of their hours worked in a workweek performing in connection with such contracts.

What Does This Mean For Covered Employers?

The DOL estimates that about 828,200 employees will receive additional paid sick leave within five years of implementation of the proposed rule. The EO and proposed regulations may require covered employers to provide more sick leave than is required by laws that have been recently enacted in many states.

Among the remedies available for violations of the EO and the proposed regulations are monetary damages, liquidated damages, and equitable relief. To avoid any such damages, employers engaged in federal contracting should (1) review sick leave or PTO policies; (3) train Human Resources personnel, supervisors, and managers on the requirements, and (3) ensure that all covered contracts set forth the clauses required by the regulations.