Is your federal contracting business in compliance with new rules and regulations?  

A series of executive orders signed or implemented this year imposes substantial new obligations on employers contracting or subcontracting with the federal government.  These executive orders have established a minimum wage for employees of federal contractors, expanded protected classes, and set additional requirements for hiring veterans and individuals with disabilities.  Additionally, regulations are expected next year on mandatory reporting of labor and employment law violations.

And more changes are underway.  The minimum wage is set to increase at the start of next year.  Also, a new pay transparency rule will take effect Jan. 11, 2016, for covered federal contractors.  Furthermore, starting in 2017, federal contractor workers will be entitled to up to seven days of paid sick leave a year. 

Pair these new obligations with increased enforcement of labor and employment laws by the U.S. Department of Labor (DOL), and it is high time for employers that contract with the federal government to audit existing policies and procedures.  As part of the audit, employers should make sure that updates have been made to contracts and purchase orders, employee manuals and handbooks, and employee notices, application forms, and postings to reflect expanded protections.  Employers also should ensure that supervisors have been properly trained regarding new non-discrimination requirements.

The stakes are high.  Federal contractors and subcontractors that fail to comply with applicable rules are subject to a host of potential sanctions, including the possible suspension of federal work, financial penalties, and even possible criminal penalties, and the DOL does not limit its audits to large federal contractors only.

Below are summaries of new and updated rules for federal contractors and subcontractors.  

MINIMUM WAGE

Beginning Jan. 1, 2016, the minimum wage for work performed under covered federal contracts will increase to $10.15 an hour pursuant to Executive Order 13658.  Also, employees working under covered federal contracts who receive tips as part of their compensation must be paid a minimum cash wage of $5.85 an hour starting Jan. 1.

The wage requirement applies to new and replacement contracts arising out of solicitations issued on or after Jan. 1, 2015, that are (1) construction contracts covered by the Davis-Bacon Act (DBA); (2) service contracts covered by the Service Contract Act (SCA); (3) concessions contracts; or (4) contracts in connection with federal property or lands related to offering services for federal employees, their dependents, or the public.  The requirement flows down to subcontractors.

Workers performing on or in connection with covered federal contracts whose wages are governed by the Fair Labor Standards Act (FLSA), the SCA, or the DBA generally are entitled to the minimum wage.  Working “on” a contract means directly performing the specific tasks called for by a contract, while working “in connection with” a contract includes other duties necessary for the performance of the contract.  Among a few narrow exceptions, FLSA-covered workers who spend less than 20 percent of their work performing “in connection with” covered contracts are excluded from coverage.

Executive Order 13658 went into effect this year, establishing a minimum wage of $10.10 an hour for this year and authorizing the DOL to adjust that wage rate annually. 

PAY TRANSPARENCY

On Jan. 11, 2016, Executive Order 13665 on pay transparency goes into effect. It prohibits covered federal contractors and subcontractors from discharging or otherwise discriminating against employees who inquire about, discuss, or disclose their compensation or the compensation of another employee or applicant.  Under the rule, compensation is defined to include information about a variety of benefits, not just pay.

The pay transparency rule applies to employers with federal contracts or subcontracts totaling more than $10,000 that are entered into or modified after Jan. 11, 2016. 

The implementing rules contain two exceptions.  First, an employee still may not disclose compensation information obtained in the course of performing “essential job functions.”  That means an employer may take adverse action, for instance, if a human resources employee with access to compensation information discloses such information.  Second, an employer may take adverse action against an employee for violating a “workplace rule.” That means, for example, an employer may discipline employees for being late because they exceed a break time while discussing compensation, but not for discussing compensation.  

EXPANDING PROTECTED CLASSES

This past spring, new rules went into effect implementing an amended Executive Order 11246, which generally prohibits discrimination in the workplace of federal contractors.  Under these rules, covered federal contractors and subcontractors are prohibited from discriminating not only on the basis of race, color, religion, sex, or national origin, but also on the basis of sexual orientation and gender identity. Executive Order 11246 further requires federal contractors and subcontractors to take affirmative action to ensure that equal opportunity is provided in all aspects of employment.  

Contractors with a single federal contract or subcontract—or an aggregate of federal contracts or subcontracts in a 12-month period—in excess of $10,000 are subject to Executive Order 11246.  Additionally, contractors with a single federal contract or subcontract of $50,000 or more and 50 or more employees also must prepare an annual comprehensive affirmative action plan and conduct related analysis and oversight.  

VETERANS AND INDIVIDUALS WITH DISABILITIES

Last year, new DOL rules significantly modified federal contractors’ and subcontractors’ affirmative action obligations for veterans and individuals with disabilities.

The Vietnam Era Veterans’ Readjustment Assistance Act prohibits federal contractors and subcontractors from discriminating in employment against protected veterans, and requires these employers to take affirmative action to recruit, hire, promote, and retain veterans.  Section 503 of the Rehabilitation Act of 1973 prohibits employment discrimination against qualified individuals with a disability and also mandates affirmative action.

The implementing rules concerning veterans apply generally to federal contractors and subcontractors with a single contract of $150,000 or more.  The rules governing individuals with disabilities apply to federal contractors and subcontractors with aggregated contracts of more than $15,000, with increased obligations for those with 50 or more employees and contracts of $50,000 or more.  However, as to the new rules, they are similar for the two groups.

Among the most significant changes, covered federal contractors now must have a hiring benchmark for veterans either tracking the national percentage of veterans in the civilian workforce or their own benchmark in accordance with DOL guidelines. For individuals with disabilities, the new rules require employers to follow a national utilization goal of 7 percent, and it applies to each job group for contractors with more than 100 employees or to the workforce as a whole if the contractor has fewer than 100 employees.  Also, under the new rules, covered federal contractors must self-audit their affirmative action programs for veterans and disabled workers.  Among other things, that means they must evaluate their outreach and recruitment efforts of the previous 12 months for affirmative action plans renewed on or after March 24, 2014, and must prepare a detailed report, addressing more specific steps to compliance. 

FAIR PAY AND SAFE WORKPLACES

Making its way through the comment period is a proposed regulation regarding implementation of Executive Order 13673, titled Fair Pay and Safe Workplaces.  With the final rules expected next year, this executive order will require contractors seeking new federal procurement contracts valued at $500,000 or more to report any violations of federal labor and employment laws and equivalent state laws that occurred in the three years before bidding.  A reporting requirement will continue for any such violation every six months once a contractor has been awarded a contract.  When the Federal Acquisition Regulation Council issues a final rule to implement the executive order, it will apply to new solicitations.