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Federal Contractors and Close Friends

By: Carol Emge

October 25, 2016

While the overtime changes have been stealing the headlines lately, there is another significant change on the horizon for federal contractors. The Department of Labor (DOL) issued the Paid Sick Leave Rule  (Executive Order 13658) for federal contractors and it takes effect on January 1, 2017. The ruling requires all employers with federal contracts (new or replacement of expired contracts) on or after January 1, 2017, to offer their employees at least 56 hours of paid sick leave per year.

A federal contractor is a person or entity that contracts with the federal government to provide services, supplies, or other work. While that may seem like a general definition the DOL has clarified that the Paid Sick Leave Rule applies to four major categories of contractual agreements:

  • Procurement contracts for construction that are not subject to the Davis-Bacon Act (i.e., procurement contracts for construction under $2,000);
  • Service contracts;
  • Concessions contracts, including any concessions contracts excluded from the Service Contract Act; and
  • Contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

Furthermore, any subcontract of a covered contract that falls into one of these four categories is subject to the Paid Sick Leave Rule.

If you are not an applicable federal contractor or subcontractor the rule does not apply to you. The federal contract employer can either grant (frontload) 56 hours of paid sick leave at the beginning of each accrual year, or use the accrual method, employees accrue one hour of paid sick leave for every 30 hours worked on a federal contract.  The choice on how to provide the benefit will be completely based on the operation of the organization.  While frontloading may be easiest to administer it could incentivize more absences.  On the other hand, if you have more exempt employees, frontloading may be preferred.  Employers may also use both methods: non-exempt use the accrual and exempt use the frontloading.  The particulars would really depend on the situation.

The Paid Sick Leave Rule requires physician certification, as most leave policies do, and it covers the employee own illnesses and family members illnesses. Interestingly, it also covers “an individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship”. This is where the ruling gets interesting and challenging.  The definition of “affinity of close association” includes: an individual who was a foster child in the same home in which the employee was a foster child for several years and with whom the employee has maintained a sibling-like relationship; a friend of the family in whose home the employee lived while she was in high school and whom the employee therefore considers to be like a mother or aunt to her; or an elderly neighbor who is like a grandfather to the employee, and, a close friend “to the extent that the connection between the employee and the individual was significant enough to be regarded as having the closeness of a family relationship, even though the individuals might not be related by blood or formally in law.” So in this respect, the Paid Sick Leave Rule is broader than existing law and most employer policies.

Employers who frequently work on federal contracts should consider updating their employee handbook and/or paid sick leave policies to conform to the new rule.

This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting or legal matters are based solely on our experience as consultants and are not to be relied upon as actuarial, accounting, tax or legal advice, for which you should consult your own professional advisors. Any modeling analytics or projections are subject to inherent uncertainty and the analysis could be materially affective if any underlying assumptions, conditions, information or factors are inaccurate or incomplete or should change.