Strong Reactions to Requiring Contractors to Give Paid Leave

Workers to accrue 7 paid sick days annually, carried over year to year; private sector next?

Stephen Miller, CEBS By Stephen Miller, CEBS September 10, 2015

Last revised September 2016

Update: Final Rule on Paid Sick Leave for Federal Contractors Due by Sept. 30, 2016

The Department of Labor has until the end of September 2016 to issue a final rule to implement the 2015 executive order, described below, that requires federal contractors to provide their employees with at least seven paid sick days. President Barack Obama announced the executive in September 2015 and gave the Labor Secretary until Sept. 30, 2016 to issue a final rule. The Labor Department sent the rule to the Office of Management and Budget in July.

President Barack Obama bestowed a Labor Day gift for workers on federal contracts and subcontracts, but some are calling it another burdensome benefits mandate on employers—and one that’s particularly likely to disadvantage small firms.

The executive order, Establishing Paid Sick Leave for Federal Contractors, was signed by the president on Sept. 7, 2015. The order, which is effective for new contracts starting in 2017, will:

  • Give approximately 300,000 people working on federal contracts the ability to earn up to seven days of paid sick leave each year. Workers will earn a minimum of one hour of paid sick leave for every 30 hours worked, although contractors may offer more-generous amounts at their discretion. A contractor may not set a limit on the total accrual of paid sick leave per year at less than 56 hours (seven days x eight-hour workdays).

  • Allow workers to use paid sick leave to care for themselves or for a family member, such as a child, parent, spouse or domestic partner,as well as for absences resulting from domestic violence, sexual assault or stalking.

The executive order states that the Secretary of Labor must issue implementing regulations by Sept. 30, 2016.

In addition to issuing the executive order, the president is renewing his call for Congress to pass the Healthy Families Act, which would require all businesses with 15 or more employees to offer up to seven paid sick days each year, according to a White House fact sheet. He also called for Congress to pass legislation guaranteeing every working American paid family and medical leave to care for a new child, a seriously ill family member or their own serious illness.

Currently, the federal Family and Medical Leave Act (FMLA) requires businesses with 50 or more employees to provide eligible workers with up to 12 workweeks of unpaid leave a year for specified family and medical reasons. Netflix, Microsoft, Hilton Hotels and other private companies have made news recently by significantly expanding paid parental leave.

Steps to Take

“The executive order will add to the myriad of paid and unpaid leave laws and regulations promulgated by the federal, state and local governments,” Terri L. Rhodes, CEO of the San Diego-based Disability Management Employer Coalition, told SHRM Online.

“I think this is just a precursor of things to come; we should be looking on the horizon to a mandated paid family leave,” she noted.

Paid-sick-leave mandates “add expense to small and midsize employers that are already having difficulty providing health insurance under the Affordable Care Act,” Rhodes said. “Most large employers already provide paid-sick-leave benefits, so this policy may not impact them as greatly. However, the 56-hours mandate may mean some large employers will have to increase sick leave accruals.”

Rhodes recommended that federal contractors:

  •  Determine whether they are a federal contractor or subcontractor subject to the new order. “The definition of a federal contractor or subcontractor is pretty broad,” she said.

  •  Review the federal FMLA as well as state and local mandated sick leave laws, and determine whether they have employees in localities where these laws exist. “The new order does not supersede other federal, state or local laws or collective bargaining agreements that provide greater benefits,” she noted.

  •  Take into account that this is an accrual policy, and ensure that their payroll system can provide sick leave accruals. “There are carryover rules, which means that unused sick leave can be carried over from year to year,” Rhodes explained.

Wider Repercussions

“The benefits to employees of required paid sick leave are obvious, but the employers will pass the costs on to the government in the form of higher contract prices,” said Jim Ryan, head of the commercial litigation department with Cullen and Dykman in Garden City, N.Y. “Eventually, the taxpayers will be paying for this,” he told SHRM Online.

While the executive order impacts only government contractors, “it illuminates the problem facing all employers in today’s intense regulatory climate” and shows the need for employers to “constantly keep informed of ever-changing laws,” Ryan said.

“The administration, as it did with the Fair Pay and Safe Workplaces executive order, continues its questionable use of its procurement powers to usurp legislative authority and implement workplace policies,” added Paul Kehoe, senior counsel with Seyfarth Shaw in Washington, D.C. “It is difficult to understand how this will promote the economy and efficiency of the procurement process, and [it] will likely make it more difficult for small businesses to remain federal contractors.”

“This is just the latest salvo by President Obama designed to change the rules of the country’s workforce, certainly aimed at shoring up his relationship with unions,” said Cheryl Behymer, a partner in the Columbia, S.C., office of Fisher & Phillips.

“Employers will have to revise their existing sick leave policies and how and when employees are eligible for it in order to comply with the new executive order,” added Jaime Ramón, a member of the labor and employment practice in the Dallas office of Dykema. “They also must manage the leave an employee takes to comply with other applicable laws, especially the FMLA.

“Providing paid sick leave also means additional costs to the employer, and additional costs mean less profits,” Ramón said. “Productivity for employers will also be reduced as employees use their paid sick leave, and less productivity cuts into revenues as well. Small businesses are likely to be impacted more significantly.” But, he noted, “a consequential benefit is that providing sick leave is an incentive for retention of employees.”

Compliance Challenges

“President Obama’s administration has opined that having paid sick leave will give federal contractors a competitive edge and will increase efficiencies such as employee productivity while lowering costs. However, no hard data has been made publicly available to support this opinion, including what the estimated cost will be to contractors of providing such leave,” noted Melissa Burdorf, legal editor at XpertHR, a New York City-based provider of HR and employment law resources, in an e-mail to SHRM Online.

“Unlike private-sector paid-sick-leave laws, the executive order in its current form is quite broad,” she said. For example, the order:

  •  Casts an affirmative duty on the executive department and agencies to ensure that all new contracts include a clause (which contractors/subcontractors must then incorporate into their lower-tier subcontracts) that clearly conditions payment of the contract on the provision of paid sick leave to all employees performing work under the contract.

  •  Does not provide smaller contractors with the option of providing unpaid sick leave. (Many private-sector paid-sick-leave laws have such carve-outs for smaller employers.)

  • Allows employees to take leave resulting from the typical paid-sick-leave reasons (e.g., physical or mental illness of the employee or other specified people, leave to seek assistance relating to a domestic violence incident, etc.); however, the list of people an employee can care for is quite expansive (e.g., any individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship).

  • Allows employees to earn up to seven days or more of paid sick leave annually. Seven days is much higher than the average amount of allowable leave under private-sector paid-sick-leave laws. (Most range from three to five days.) “The District of Columbia is currently the only jurisdiction that allows employees to accrue up to seven days, and that is only for employers with 100 or more employees," Burdorf said

  • Allows accrued hours to be carried over from year to year. “This does not appear to be capped,” Burdorf pointed out.

Especially for smaller contractors that cannot afford the resulting costs, the executive order “could result in providing employees with less hours, lowering pay, downsizing or passing along the costs in the form of higher prices for the end consumer,” Burdorf warned. “Also, because most smaller contractors do not typically have an HR staff to outsource all of the administrative tasks that come along with these laws—such as posting appropriate notices/posters [and] tracking leave, including leave accrual information on pay stubs, where applicable, etc.—the administrative burden can be overwhelming and can take them away from more-pressing concerns.”

Another issue is that “in certain contexts, it may be challenging to tell whether paid sick leave is only for hours worked on a government project or total hours worked. Thus, the separating of hours for employees who only work part time on government contracts can induce a headache,” she advised.

Federal, State and Local Laws

Because the executive order does not supersede other federal, state or local laws or collective bargaining agreements that provide greater benefits, “for those contractors who operate in a jurisdiction with an existing paid-sick-leave law, they will need to ascertain if those laws go further than the executive order on certain provisions, and provide the greatest benefit, provision by provision,” noted Burdorf, whose firm recently published a report on state and municipal paid-sick-leave laws.

“Multistate employers are faced with untenable compliance options,” added Tracy Billows, a partner in the Chicago office of Seyfarth Shaw. “They can adopt paid-sick-leave policies and programs for each state and/or municipality where they have covered employees. This is administratively burdensome and is contrary to the culture of companies that take pride in being an organization that is one team subject to consistent policies and practices.”

As an alternative, “companies can adopt a national policy, but then would have to pick the law with the most generous provisions and model its national policy accordingly,” Billows continued. “This can result in significant increased costs and the need to constantly re-evaluate the national policy for the ever-changing and growing number of paid-sick-leave laws.”

“Many employers have no objection to providing their employees with paid sick leave and, in fact, have been doing so voluntarily for years,” added Ann Marie Zaletel, a partner in the Los Angeles office of Seyfarth Shaw. “Unfortunately, as a result of the scattershot implementation of numerous paid-sick-leave laws and municipal ordinances across the country, national employers who attempt to comply fully with paid-sick-leave requirements nonetheless may face liability and ‘gotcha’ lawsuits for unknowingly violating a specific technical requirement of one ordinance or another, even where the paid-sick-leave policy overall is more generous than what applicable law requires.”

This is because the requirements of paid-sick-leave laws vary significantly, Zaletel noted. The reasons an employee may use paid sick leave under local laws also vary, as do eligibility provisions, all of which creates compliance confusion.

On the positive side of the ledger, paid sick leave “can be useful for recruitment, retention and loyalty,” Burdorf said. “There are also employee health benefits—including potentially lowering health care costs—and employee morale benefits to keeping sick employees from spreading infection throughout a workplace, including to co-workers and customers.”

Matt Straz, founder & CEO of Namely, a New York City-based HR, payroll and benefits platform, pointed to additional benefits of the order. “Ensuring employees have appropriate work/life balance is crucial,” he contended. “There are countless studies that show the negative ramifications of overwhelmed, overworked employees—including an overall decline in health. When employees don’t take the breaks they need to stay healthy, it’s a lose-lose situation for both the employer and employee.”

Moreover, “In the age of always-on tech, it’s only getting harder for employers to ensure employees maintain the work/life balance necessary for a healthy well-being. This paid-leave order is an opportunity to help employers extend a much-needed benefit to workers who might otherwise overwork themselves into burnout,” Straz said.

DOL Raises Contractor Minimum Wage Rate for 2016

Beginning on Jan. 1, 2016, the minimum rate for federal contractors rose to $10.15 per hour, a $0.05 per hour increase from the $10.10 hourly rate that took effect on Jan. 1, 2015, the U.S. Department of Labor (DOL) announced in the the Federal Register on Sept. 16, 2015.

President Obama's Executive Order 13658, issued in February 2014, and subsequent implementing regulations called for the DOL to conduct an annual re-determination of the contractor minimum wage, giving the Secretary of Labor the authority to determine the hourly rate for subsequent years.

The DOL also announced that the 2016 minimum cash wage for tipped workers performing on or in connection with a covered contract will increase by 95 cents per hour to $5.85 per hour, effective Jan. 1, 2016.

The DOL has revised its required poster to reflect these figures.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.

Job Finder

Find an HR Job Near You
Search Jobs


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect

HR Daily Newsletter

News, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day.