Year-end Alerts to Employers — Part 3: Paid Sick Leave for Federal Contractors Effective January 1, 2017

This is the third installment of a series of year-end alerts to employers. This alert is of particular interest to federal government contractors.

Part 1: OSHA Reporting Rules Effective December 1, 2016

Part 2: Paycheck Transparency Rules Effective January 1, 2017

Part 4: Confidentiality Rules Under Fire – Be Warned!

The Department of Labor (DOL) on September 30, 2016 issued new final rules spelling out the requirement for covered federal contractors to provide employees with up to seven days (56 hours) of paid sick leave per year.[1]

Employees who are covered under this new Rule are “any person[s]” engaged in performing work “on” or “in connection with” a contract covered by the Executive Order and whose wages are governed by the Davis-Bacon Act, the McNamara-O’Hara Services Contract Act or the Fair Labor Standards Act. This paid sick leave requirement applies to employees who are “exempt” even if in a bona fide executive, administrator or professional capacity.[2]

The final Rule provides that the employer must allow for an employee to accrue not less than one hour of paid sick leave for every 30 hours worked on or in connection with the covered contract. Where an employee performs work “in connection with” the covered contract but also works elsewhere, the employer may make a reasonable estimate of the portion of that individual’s working hours spent “in connection with” the contract as long as it is based on some verified information.”

The Rule requires the contractor to calculate the employee’s paid sick leave accrual no less frequently than at the conclusion of each pay period or each month, whichever is shorter. The contractor is not required to allow accrual of paid sick leave in increments smaller than one hour. All paid sick leave will carry over from one accrual year to the next. If the employer uses an accrual method, it may limit the amount of paid sick leave an employee is permitted to accrue to 56 hours in each accrual year, but sick leave carried over from the previous year shall not count towards that annual cap. The Rules also allow a contractor to put in place two caps: an annual accrual cap of 56 hours and a maximum sick leave bank of 56 hours. In doing so, the contractor can effectively limit an employee’s carryover by setting a sick leave bank limit as permitted by the Rule so that the employee never carries over more than 56 hours in a year.

Not surprisingly, this rule also provides for written notifications regarding the amount of paid leave accrued but not used in three situations: (i) at least once each pay period or each month, whichever is shorter; (ii) upon separation from employment; and (iii) upon reinstatement of paid sick leave on rehire.

Under this new Rule, a contractor cannot limit the amount of paid sick leave an employee may use in a particular year. However, accrued but unused sick leave does not have to be paid out upon termination of employment. On the other hand, it has to be reinstated if the employee is later rehired within 12 months after a job separation.

Sick leave provided for under this Rule can be used in a number of ways. It is intentionally broader than FMLA leave. For example, it can be used in the following circumstances:

• the employee’s own physical or mental illness or injury;
• when an employee needs treatment, preventative care or diagnosis;
• to care for a child, parent, spouse, domestic partner or other related individual who has an illness, injury or who needs treatment, diagnosis or preventative car; and
• those affected by domestic violence, assault or stalking where there is either an illness or injury or the need to obtain counseling, to seek relocation or other assistance from a victim services organization.

To obtain sick leave, the employee does not need to specifically reference the Executive Order or use the words “paid sick leave,” nor can an employer require extensive and detailed information about the need to be absent. Instead, paid sick leave must be provided upon an employee’s oral or written request so long as information provided is sufficient to inform the employer that the employee is seeking paid sick leave. On the other hand, where the need for the leave is foreseeable, an employee must make a request at least seven calendar days in advance; otherwise, notice is to be given as soon as practicable.

The Rule does provide that employers may require a certification issued by a health care provider, but only if the sick leave lasts three or more consecutive full work days and only if the employee has notified of that requirement before the employee returns from leave. Employees must be given 30 days from the first day of the absence to obtain this certification, and the documentation need only contain facts that are the “minimum necessary to establish the need for the employee to be absent from work.” Notice of the requirement can be provided through a general policy that addresses sick leave, but simply including a generic explanation of this requirement in a handbook is not enough.

Notably this mandated paid sick leave requirement is in addition to the contractor’s other compensation obligations under the Davis-Bacon or the Services Contract Act. Therefore, a contractor may not receive or take credit towards prevailing wage or the benefit obligations by providing paid sick leave to satisfy this Executive Order. Paid sick leave, however, shall run concurrently with unpaid FMLA leave under the same conditions as other paid time off.

Finally, the new Rule contains a prohibition against interfering with a worker’s accrual or use of paid sick leave or discriminating against an individual for taking or attempting to take paid sick leave or otherwise asserting any rights under this Executive Order. DOL’s Wage and Hour Division is charged with investigating potential violations of payday compliance with the Executive Order.

Businesses that have questions regarding these new rules or other employment obligations of federal contractors or employers in general should contact a member of Gentry Locke’s Employment Law team.

[1]   Executive Order 13706. DOL Final Rules, 81.Fed. Reg. 67598, et. seq. (Sept. 29, 2016). The U.S. Department of Labor estimates the final Rule will provide paid sick leave to about 1.15 million workers.

[2]   The final Rule provides a temporary but limited exclusion for employees whose covered work is governed by a collective bargaining agreement.