Paid Leave for Contractor Employees–What It Means for Businesses

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Paid Leave for Contractor Employees–What It Means for Businesses

On Labor Day, President Obama signed an executive order requiring federal contractors to offer paid leave for their employees, including paid leave for family care. Under the plan, employees of federal contractors will earn one hour of paid leave for every thirty hours worked, up to seven days of paid leave off per year.

The White House projects that the order, which is slated to go into effect for new government contracts beginning in 2017, will give approximately 300,000 people working on federal contracts the ability to earn seven days of sick leave each year. While contractors may offer more generous sick-leave amounts at their own discretion, the new order makes it mandatory that contractors must provide at least 56 hours (7 8-hour days) of paid sick leave to employees. These hours may be used for personal sick leave, the care of a family member, or absences resulting from domestic violence, sexual assault or stalking. According to the wording of the order, the Secretary of Labor must issue implementing regulations by September 30, 2016. This means that federal agencies have a little over a year to iron out the details and address the concerns of contractors who will be affected by the new mandate.

What Should Federal Contractors Do Before the Deadline?

Many employers are already struggling to provide health insurance under the Affordable Care Act. Paid sick leave mandates generally add expense to small and midsize employers. The new mandate will likely also mean that even some large employers will have to increase sick leave accruals.

It remains to be seen exactly how the new order will be implemented. However, there are some initial steps that federal contractors need to make to ensure compliance with the mandate. Here are a few of them:

  • Confirm status as a federal contractor or subcontractor. It is currently unclear whether this mandate will apply to all contractors as well as subcontractors, many of whom are  small businesses with less than 50 employees.
  • Review the federal FMLA as well as state and local mandated sick leave policies, and determine how, or if, the new mandate will have any effect on these. For instance, if a contractor already offers paid sick leave, will the paid leave days mandated by the new order be in addition to existing PTO days?
  • The new mandate has carryover rules, which means that unused sick leave can be carried over from year to year. Therefore, contractors must ensure that their payroll systems can adequately track and handle sick leave accruals.
  • Keep abreast of all rulings regarding the implementation of the new order, making adjustments to existing company policies as needed to remain in full compliance with the law prior to applicable deadlines.

Projecting Potential Outcomes

While it is not yet clear exactly how the new order will ultimately impact employers and employees, there is no shortage of opinions on the subject. Obama’s administration believes that having paid sick leave will give federal contractors a competitive edge and will increase efficiencies such as employee productivity, while lowering costs.Though the order will have no real effect until after Obama leaves office, the White House hopes that it will set a standard that will prod lawmakers, private employers, and state and local governments to expand existing leave policies.

As to the reaction from employers, Obama noted in his Labor Day speech:

“We’ve seen that many companies, including small businesses, support these policies, because they understand it’s helpful with recruitment and retention.”

The theory is that any costs to companies associated with the new policy will be offset by reduced attrition and improved employee loyalty and efficiency.

Jack Mozloom, media director of the National Federation of Independent Business, has another viewpoint, however. He observes:

“Mandatory paid leave is a great benefit for workers whose employers offer it. For workers whose employer’s can’t absorb the cost, it’s an arbitrary expense that will ultimately result in shorter hours, lower pay or disappearing jobs….No business in America would require its suppliers and contractors to increase costs that will naturally boomerang back in the form of higher prices.”

Jim Ryan, head of the commercial litigation department with Cullen and Dykman in New York, predicts:

“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. Eventually, the taxpayers will be paying for this.”

Another issue for smaller contractors is that many of them do not have an HR staff to outsource all the administrative tasks that come along with new mandates, such as posting relevant notices, tracking sick leave accruals, and ensuring compliance with all local, state, and federal regulations.

While the aim of the mandate is, in part, to provide a better work/life balance for a segment of America’s workforce, it remains to be seen what the final outcome of Obama’s order will be. As the 2017 deadline for implementation draws closer, it is wise for federal contractors and subcontractors to find ways to ensure compliance with all applicable leave laws. If you would welcome information about HR compliance issues, please contact us for a consultation today.

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