Beginning January 1, 2017, federal contractors and subcontractors may have to start providing up to 56 hours - the equivalent of seven working days - of paid sick leave per year to their employees who are working on federal contracts throughout the United States. 

The U.S. Department of Labor (DOL) recently published a Final Rule (81 Fed. Reg. 67598) implementing Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors. The Final Rule takes effect on November 29, 2016, and establishes new rights regarding the accrual and use of paid sick leave by employees of contractors and subcontractors working on federal contracts, as well as requiring detailed recordkeeping by the contractors and subcontractors.

How and when does paid sick leave accrue and who is entitled to it?

The amount of paid sick leave an employee is actually entitled to varies from employee to employee and is earned, rather than granted, on a periodic basis. That is, contractors and subcontractors must now "permit an employee to accrue not less than one hour of paid sick leave for every 30 hours worked on or in connection with a covered contract" (29 C.F.R. § 13.5(a)) to a maximum of 56 hours per accrual year. Accrual year has been defined as "a 12-month period beginning on the date an employee's work on or in connection with a covered contract began or any other fixed date chosen by the contractor, such as the date a covered contract began, the date the contractor's fiscal year begins, a date relevant under State law, or the date a contractor uses for determining employees' leave entitlements under the FMLA." 29 C.F.R. § 13.5(b)(1).

The employee is entitled to have paid sick leave roll over from one accrual year to the next, but the same limitation on paid sick leave - 56 hours per year - applies. An employee may carry his/her paid sick leave to the next year, but will not be entitled to accrue additional time until leave is used and the accrued time falls below the 56-hour cap. 29 C.F.R. § 13.5(b)(2) and (3). 

As referenced above, the Final Rule applies to all employees working on certain federal contracts but also applies to all employees "performing in connection with such contracts." 29 C.F.R. § 13.4(e). "In connection with," in this context, has been defined by the Final Rule to include all employees' work that is necessary to perform the contract, but are not the specific services called for by the contract. 29 C.F.R. § 13.2. Subject to a requirement that 20% or more of an employee's time in a given workweek be spent working on a covered contract, this means that not only is the labor force entitled to accrue paid sick leave, but also those performing office work including clerical, administrative and secretarial functions. 

What notice must be provided by the contractor or subcontractor?

All covered contractors and subcontractors are now required to provide notice of the amount of paid sick leave an employee has accrued but not used, no less than once each pay period or each month, whichever interval is shorter, as well as upon a separation from employment and upon reinstatement of paid sick leave. 29 C.F.R. § 13.5(a)(2). Unless an employee is paid in monthly (or longer) intervals, the employer must inform the employee of his/her total accrued paid sick leave each pay period. Contractors and subcontractors are also required to display a poster advising employees of their rights under the Final Rule. 29 C.F.R. § 13.27.

Unless the employer has maintained detailed time records to the contrary, all hours worked by an employee "on or in connection with a covered contract" are to be counted toward the calculation of the employee's paid sick leave. 29 C.F.R. § 13.5(a)(1). Also, the contractors and subcontractors are given the option "to provide an employee with at least 56 hours of paid sick leave at the beginning of each accrual year" (29 C.F.R. § 13.5(a)(3)), rather than keep track of accrued time as contemplated by the Final Rule.

What must an employee do, if anything, to take paid sick leave?

Under the Final Rule, contractors must allow employees to use paid sick leave in increments as small as one hour (with a narrow exception for employees whose work makes it physically impossible to leave or return to the job during a shift). Contractors may only limit the amount of paid sick leave an employee uses at once or per year on the basis of how much paid sick leave the employee has available. When employees use paid sick leave, contractors must provide them with the same regular pay and benefits they would have received if they had not used the leave, except that they need not earn additional paid sick leave during that time. An employee's request to use paid sick leave may be made orally or in writing. A leave request must be made at least seven calendar days in advance where the need for the leave is foreseeable, and in other cases as soon as is practicable. A contractor is required to communicate any denial of a request to use paid sick leave in writing, with an explanation for the denial - which cannot be based on whether the employee has found a replacement worker or on the contractor's operational needs.

Paid sick leave may be used for a wide range of needs including: (i) physical or mental illness, injury, or medical condition of the employee; (ii) obtaining diagnosis, care, or preventive care from a health care provider by the employee; (iii) 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 who has any of the conditions or need for diagnosis, care, or preventive care described in (i) or (ii); or (iv) domestic violence, sexual assault, or stalking, if the time absent from work is for the purposes described in (i) or (ii) or to obtain additional counseling, seek relocation, seek assistance from a victim services organization, take related legal action, or assist an individual related to the employee as described in (iii) in engaging in any of these activities. Although not described here, the Final Rule provides specific definitions for each of these terms.

What contracts are (and are not) actually covered by the Final Rule?

Under the Final Rule, four major categories of contractual agreements (29 C.F.R. § 13.3(a)) are covered:

1. Procurement contracts for construction covered by the Davis-Bacon Act (DBA);
2. Service contracts covered by the McNamara-O'Hara Service Contract Act (SCA);
3. Concessions contracts, including any concessions contracts excluded from the SCA by the Department of Labor's regulations at 29 C.F.R. § 4.133(b); and
4. Contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

Also, any subcontract of a covered contract that (like the upper-tier contract) falls into one of these four categories is subject to the paid sick leave requirements.

Conversely, the Final Rule does not apply to a number of contracts including:

1. Contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the Federal Government (29 C.F.R. § 13.3(d));
2. Grants (29 C.F.R. § 13.4(a));
3. Contracts and agreements with and grants to Indian Tribes (29 C.F.R. § 13.4(b));
4. Construction contracts excluded from DBA coverage (29 C.F.R. § 13.4(c));
5. Service contracts exempted from SCA coverage (29 C.F.R. § 13.4(d)); or
6. Work performed outside of the United States (29 C.F.R. § 13.3(c)).

What happens if a contractor fails to comply with the Final Rule?

Contracting officers may terminate federal contracts for failure to comply with the Final Rule. 29 C.F.R. § 13.11(c). Contractors and subcontractors found to have disregarded their obligations under the Final Rule shall be subject to debarment proceedings (29 C.F.R. § 13.44(d)) and civil and criminal actions may be commenced as necessary. 29 C.F.R. § 13.1(c). Also, compliance with the Final Rule is an express "condition of payment" by the federal government and higher-tier contractors, and noncompliance constitutes grounds for the government to withhold payment. 29 C.F.R. § 13.21(a) and (b).