To Pay or Not to Pay Furloughed Federal Contractors


Many federal contractors are feeling the financial pinch of the shutdown. While Congress is wondering whether or not it should pay its employees for their furloughed time, private businesses who contract with the federal government for work (federal contractors) don’t have the luxury of either the government’s bank account or legal exclusions from certain wage and hour laws. The wage and hour laws applying to private industry differ than those applying to the government, and federal contractors should be aware of the distinctions or possibly run afoul of the wage and hour laws.

Federal contractors may have many workers in their workforce designated as “exempt” employees.  Exempt employees must meet certain statutory guidelines, including being paid a salary  – a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. Of particular importance is the requirement that the salary may not be reduced because of variations in either the time, quality or quantity of work performed by the employee.   Except for seven statutory exceptions, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.   Employers who make unlawful deductions may convert the employee to non-exempt status and suffer financial consequences.

While the federal government may dock exempt workers because of a furlough and not lose the salaried exemption, private employers may not.

If you are a federal contractor, keep in mind the following wage and hour rules as you prepare payroll for the past and upcoming weeks:

1.   For employees who are non-exempt, i.e. are paid based upon the time, quality or quantity of work performed, employers may furlough such employees without pay. (But be sure to pay for all time actually worked.)

2.     If the employees are exempt from overtime, i.e. are professionals, executive, administrative or computer exempt, then private employers  need to know the following in order not to endanger the exempt status of their employees:

  • If the exempt employee worked any day during the week of September 29, 2013, and was out the remainder of the work-week due to the furlough, the private employer must pay the employee for the full workweek.
  • Exempt employees need not be paid for any workweek in which they perform no work.
  • The employer may require exempt employees to use accrued vacation time during a furlough of less than a workweek without violating the salary basis test.
  • The employer may also require employees to use paid time off to accommodate staffing levels needed during a period of reduced workload.

3.   A frequent question has been, “Do the private employees on furlough due to the shutdown accrue sick leave, vacation or PTO during the furlough? ”

  • The answer is: It depends.  The federal wage and hour laws do not require employers to provide any vacation or leave time to employees.  It is a matter of state law, policy and practice. First look to your state payroll/benefit laws.  In Virginia, leave time is handled similarly to federal law. It is not required, and it does not have to be paid out upon termination.  Rather, it is a matter of private agreement or practice. Other states have different, often more stringent, requirements.  Next, look to your written policies, and finally to your general practices.  If when employees are out on accrued leave and the company’s practice is to accrue leave benefits, then they need to accrue.

Absent controlling state laws, policy or previous practice, consistency in application is key.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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