On Thursday, the US Department of Labor released the long-awaited final rule that requires federal contractors to provide up to 56 hours of paid sick leave per year to employees. The final rule implements President Obama’s 2015 executive order and is expected to impact more than 1.1 million workers.

Effective Date: The rule will apply to covered federal contracts and subcontracts issued on or after January 1, 2017, including not only new contracts but also replacement contracts for expiring contracts or contract modifications.

Covered Contracts: The following types of contracts and subcontracts are generally covered by the rule:

• Procurement contracts for construction covered by the Davis-Bacon Act (DBA);

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

• Concession contracts, including concessions contracts excluded from coverage under the SCA; and

• Contracts in connection with federal property or lands and related to services provided to federal employees or their dependents or to the general public.

Employees Covered: Under the rule, the fact that an employer has one or more covered contracts does not mean all of its employees are covered. Rather, an employer may be required to provide paid sick leave to some of its employees but not others.

Paid sick leave must be provided to employees who work “on” or “in connection with” a covered contract, including employees who are “exempt” under the FLSA. Employees who work “on” a covered contract are those who perform the services called for by the contract.  These employees are covered by the rule regardless of the numbers of hours they work in a year or whether they are considered full or part time employees of the contractor.

Employees who work “in connection” with a covered contract are those who perform work that is necessary to the performance of the contract but are not directly engaged in the services called for by the contract.  If an employee spends less than 20% of his or her time in a workweek working in connection with the covered contract, the employee is not covered by the rule.  The analysis of whether an employee who works in connection with a covered contract works at least 20% of the time on a covered contract must be performed each workweek.  Accordingly, if an employee spends most of her time for 2 weeks working on a covered contract, then spends 6 months performing other work (not a covered contract), the contractor would only have to permit the employee to accrue paid sick leave for the 2 weeks spent working in connection with the covered contract.

Reasons for Using Paid Sick Leave

Covered contractors must provide at least 1 hour of paid sick leave for every 30 hours of work, for a total of up to 56 hours (7 days) per calendar year.

• Physical or mental illness, injury, or medical condition of the employee;

• Obtaining diagnosis, care, or preventative care from a health care provider by the employee;

• Caring for the employee’s child, parent, spouse, domestic partner, or any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship;

• Domestic violence, sexual assault, or stalking, including among other things, time to obtain counseling, pursue legal action, or to seek relocation services.

The rule is intended to apply broadly. The rule permits an employee to take paid leave to care for anyone with whom the employee has a “significant personal bond” that is like a family relationship, regardless of a biological or legal relationship.

Employers are permitted to require a certification related to the leave only if the employee is absent for 3 or more consecutive full work days.

Additional Requirements

• Notably, the proposed rule would have required employers to count employees’ paid time off as part of the “hours worked” for purposes of accruing sick leave. The final rule, however, no longer includes paid time off.  Instead, “hours worked” has the same definition as it does under the FLSA.

• Employers are permitted to front-load sick leave or may track employees’ accrual. If an employer requires employees to accrue sick leave, it must be accrued at the end of each pay period or the end of each month, whichever interval is shorter.

• Paid sick leave hours will carry over from year to year. Accrual of paid sick leave, however, may be capped at 56 hours.  Therefore, if an employee accrues 56 hours of paid leave, the employee may not accrue additional leave until some of the paid leave has been used.

• Employers cannot limit the amount of paid sick leave used by employees if the employee has accrued leave available.

• Employees must only be permitted to use sick leave during the time the employee would otherwise be working on or in connection with a covered contract.

• Employers must allow employees to take paid sick leave in increments of no greater than 1 hour and may not reduce the employee’s paid sick leave by more than the actual amount of time the employee is absent from work.

• Leave requests may be made by the employee orally or in writing, at least seven days in advance where foreseeable, or as soon as practicable if not foreseeable.

• If an employee is rehired by the contractor within 12 months of the employee’s separation, the employer is required to reinstate the paid sick leave the employee had accrued as of the separation date. The final rule does not require employers to pay out any accrued, unused sick leave hours upon an employee’s separation from the company. If a company chooses, however, to pay out accrued, unused sick leave upon the employee’s separation, the contractor will not be required to reinstate that employee’s accrued, unused sick leave if the employee is rehired by the employer within 12 months.

• Employers may coordinate existing paid time off policies with the requirements of this rule if the policy meets all of the requirements of this rule.

Enforcement

The DOL has authority to investigate compliance with the rule, including interference with leave or discrimination for use of paid leave. Employers may face consequences for violations, including monetary damages, suspension of federal contracts for up to three years, or debarment from future federal contracts.

Impact on Covered Contractors and Subcontractors

January 1, 2017 does not leave contractors much time to prepare. And the rule will undoubtedly have a significant impact on covered contractors, including both financial and administrative burdens. Contractors and subcontractors, therefore, should immediately review their contracts in order to determine whether they are covered by the rule and, if so, how the rule will apply to their contracts and employees. The rule – including the coverage provisions and the regulations regarding use of paid leave – are very detailed. Contractors can review the rule or the DOL’s Frequently Asked Questions for additional details.