Department of Labor Issues Final Rule Requiring Federal Contractors to Provide Paid Sick Leave

The Final Rule clarifies the coverage of the regulations, the rules for the accrual, carry-over, and use of this required paid leave, and the interplay between the paid leave required under EO 13706 and other laws. Notably, the Final Rule makes clear that the benefits conferred by EO 13706 will be in addition to those benefits that employers are currently required to provide to employees covered by the Service Contract Act (SCA) and the Davis Bacon Act (DBA). The Final Rule applies to new contracts with the federal government that result from solicitations issued on or after January 1, 2017, contracts awarded outside of the solicitation process after January 1, 2017, or existing contracts that are extended or modified after January 1, 2017.

Coverage on Covered Contracts

The Executive Order’s paid leave requirements will apply to employees of government contractors and subcontractors working on covered federal contracts.

Coverage of contracts and employees under the Final Rule is nearly identical to coverage under the regulations implementing Executive Order 13658, which requires the payment of a minimum wage to employees of Federal contractors, except that EO 13706 also covers employees who are exempt from the FLSA’s minimum wage and overtime provisions and certain contracts with the U.S. Postal Service. Covered contracts are those solicited on or after January 1, 2017 and include:

• procurement and non-procurement services contracts covered by the SCA;
• procurement contracts for construction covered by the DBA;
• a contract or contract-like instrument for concessions, including any concessions contract excluded by DOL regulations at 29 CFR 4.133(b); and
• a contract or contract-like instrument entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

A subcontract on any covered contract that falls within these categories is also subject to the Executive Order’s paid leave requirements.

Covered contracts will not include:

• construction-related contracts where the federal government is not directly procuring construction services, such as where federal agencies provide financial and other assistance to construction projects through grants, loans, insurance or other methods rather than through a direct procurement contract;
• construction contracts not subject to DBA (i.e. those valued at less than $2000);
• grants;
• contracts and agreements with and grants to Indian tribes under Public Law 93-638 as amended;
• any contract for services that is exempted from coverage under the SCA, unless the contract falls within a category expressly covered by the Final Rule; and
• any contract for manufacturing or furnishing of materials, supplies, articles or equipment to the federal government, including those subject to the Walsh Healy Public Contracts Act.

Covered Employees

The paid leave requirement applies to all employees performing services on or in connection with the covered contract or any lower-tier subcontract that supports the covered prime contract, if the employee’s wages are governed by the DBA, the SCA, or the FLSA (with respect to either exempt or nonexempt employees). Work is “in connection with” a covered contract if the work activities are necessary to the performance of a covered contract, even if the employee is not directly engaged in performing the specific services called for by the contract itself (for example,, a security guard patrolling a construction worksite where DBA-covered work is being performed or a clerk who processes the payroll for SCA contracts). The Final Rule contains a narrow exemption from the paid leave accrual requirements for employees who are not directly engaged in performing the specific work called for by the contract, and who spend less than 20 percent of their time in a given work week performing work in connection with such contracts.

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