by Ross A. Boden, Sandberg, Phoenix & von Gontard, P.C.

Effective Jan. 1, 2017, the U.S. Department of Labor issued its final rule on Executive Order 13706, which established paid sick leave requirements for federal contractors and subcontractors. The final rule is consistent with the growing trend among state and local governments implementing paid sick leave requirements. After fully implemented, the Department of Labor estimates that the rule will provide paid sick leave to 1.15 million employees. Non-complying subcontractors may face civil actions for lost pay and benefits, liquidated damages, other monetary damages, equitable relief, and could be barred from future work on federal contracts, so compliance is important. There are many limitations and exceptions to the new requirements, and this article examines common compliance questions.

Are All Federal Subcontractors Covered?

No, but the final rule applies to all subcontractors of any tier under a wide range of federal contracts including:

• Procurement contracts for construction or services under the Davis-Bacon Act;
• Service contracts under the Service Contract Act;
• Concession contracts, including concession contracts excluded from the Service Contract Act under Department of Labor Regulations 29 CFR 4.133(b);
• Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents or the general public.

The final rule applies to new contracts in any of the above categories that are entered into on or after Jan. 1, 2017. The final rule does not apply to existing contracts, but it does apply, with some limitations, to existing contracts that are modified or renewed after Jan. 1, 2017.

There are narrow exclusions for grants, contracts with Native American tribes, procurement contracts for construction under $2,000, and service contracts under $2,500.

Which Employees Are Entitled to Paid Sick Leave?

Any persons performing work on or in connection with a covered contract and whose wages are governed by the Davis-Bacon Act, Service Contract Act or the Fair Labor Standards Act, including any employees who are exempt from the minimum wage and overtime exemptions under the Fair Labor Standards Act (i.e. executive, administrative, professional and outside sales employees may be covered), are entitled to paid sick leave.

The final rule distinguishes between employees working “on” covered contracts and employees working “in connection with” covered contracts. Employees performing services specifically called for under the contract (i.e. crane operator or welder) are working “on” the contract and must be given paid sick leave; whereas employees performing other work related to the contract (i.e. security or payroll) are working merely “in connection with” the contract and are not automatically entitled to paid sick leave. For employees working “in connection with” a covered contract, the employees are not entitled to paid sick if less than 20 percent of their hours are spent working in connection with covered contracts.

There is also an exclusion for workers subject to a collective bargaining agreement, but the exclusion applies only if the collective bargaining agreement already provides at least as many hours of paid sick leave afforded to employees under the final rule. Otherwise, the employer must make up the difference.

How Many Hours of Paid Sick Leave Are Required?

56 hours annually.

Do Employers Have to Carry Over Unused Paid Sick Leave into Future Years?

Yes. Employers must carry over any unused paid sick leave time from year to year. But even though the time carries over, employees are not entitled to use more than 56 paid sick leave hours in any given year.

Are Employees Entitled to All 56 Hours Upfront?

No. Employers have the option of providing employees all 56 hours upfront or requiring employees to accrue the hours over time.

How Do Employers Calculate the Accrued Time?

If the accrual option is selected, employees are entitled to one hour of paid sick leave for every 30 hours of work performed on or in connection with a covered contract. Hours worked on non-covered contracts do not count toward the 30 hours, but an employer may utilize this exception only if the employer tracks its employees’ time spent on covered versus non-covered contracts or has a verifiable system in place for estimating the time spent on covered versus non-covered contracts. If no such tracking or estimating system is in place, all the employees’ hours must be counted toward the employees’ paid sick leave accrual.

For example, as of Aug. 1, 2017, the final rule will have been in effect for approximately 31 weeks. Assuming all employees have been working 40 hours per week on or in connection with covered contracts, every employee is currently entitled to 41 hours of paid sick leave. On the other hand, if the employees have spent only half of their time working on or in connection with covered contracts and the employer has a system in place to track or estimate which hours are covered, then the employees have accrued only 20 hours of paid sick leave.

Employees are not entitled to fractions of an hour for increments of less than 30 qualifying hours. For example, an employee working 89 hours has accumulated only two hours of paid sick leave. The remaining 29 hours would be added to the employee’s qualifying hours during the next pay period.

Are Employers Required to Notify Employees About These New Rights?

Yes. Employers must calculate and notify their employees in writing of the amount of accrued paid sick leave: (1) at the end of each month or pay period, whichever is shorter; (2) when the employment relationship ends; and (3) when a former employee is rehired.

What Is a Permissible Use of Paid Sick Leave?

The final rule provides employees with broad areas of permissible uses. These include:

For an employee’s own physical or mental illness, injury or medical condition;
For obtaining any medical diagnosis, treatment, or preventive care;
For seeking relief, care, legal action or relocation due to domestic violence, assault, or stalking.
For assisting an employee’s child, spouse, parent, domestic partner, blood relative, or any other individual with whom the employee has the equivalent of a familial relationship with any of the first three conditions.

In What Increments May the Employee Use Paid Sick Leave?

Generally, employees must be allowed to use paid sick leave in one hour increments. Employers may permit increments of less than one hour, but are not required to do so. For example, if the employee must be 30 minutes late to take a child to the doctor, then the employer may require the employee to use a full hour of leave, but has the option of allowing the employee to use only a half hour of leave.

An exception to this rule is permitted when employees are physically unable to access the job site after the start of a shift and no equivalent position is available in the meantime. In those cases, the employer may require the employee to use leave time for as long as the access restrictions exists.

Are Employees Required to Give Advance Notice of Their Leave?

It depends. If the need for leave was not foreseeable (i.e. the employee’s child woke up with the flu), then no. But if the employee had a routine doctor’s appointment scheduled weeks in advance, then yes, the employee must give notice seven days in advance.

Regardless of whether advance notice is required under the circumstances, employees must provide oral or written information sufficient to inform the employer that the employee is requesting paid sick leave.

Employers may not under any circumstances require employees to find a substitute worker before permitting employees to utilize accrued leave.

What Happens When the Job Ends or an Employee Quits with Unused Paid Sick Leave?

Cashing out the employee for unused time is not required. The employer has the option of either cashing-out the employee for the unused time or tracking the time and reinstating the time if the employee is rehired within 12 months.

Ross A. Boden of Sandberg, Phoenix & von Gontard, P.C., Kansas City, Mo., is an attorney who represents construction professionals in a wide range of legal matters across Kansas and Missouri. He can be reached at rboden@sandbergphoenix.com or at (816) 627-5536. Visit http://www.sandbergphoenix.com/attorneys-ross-boden/ for more information.