Federal Contractors Must Give Paid Leave Under Final Rule

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By Ben Penn

Sept. 29 — Paid sick leave must be provided to employees on federal contracts awarded starting Jan. 1, 2017, under a new final rule from the Labor Department.

The regulation, which implements President Barack Obama’s executive order, marks the administration’s latest use of procurement authority to alter workplace policies that aren’t moving in Congress.

Contractors’ employees will receive at least 56 hours of paid leave per year for a personal illness or to care for a family member.

The administration estimates that 600,000 employees without paid leave will be eligible for the new benefits, significantly more than the 437,000 workers projected in the proposed version issued in February. If the DOL counts workers on federal contracts who already get some paid leave, but less than 56 hours, the number of directly affected workers rises to 1.15 million, the agency said.

Subdued Controversy

The executive order and implementing rules have drawn sharp criticism from the business community, which cited onerous compliance challenges and cautioned that the rule might lead contractors that already provide leave benefits to offer less generous policies. But public controversy over the paid leave mandate hasn't risen to the level of debate over other recent labor regulations, such as a rule to expand workers’ access to overtime pay.

The reason for the subdued employer reactions, according to Mark Wilson, vice president of employment and health policy at the HR Policy Association, is that “the vast majority of federal contractors already provide paid sick leave benefits.”

Still, even though the final rule does make concessions that address some of the business community’s concerns, “it still adds to the growing maze of state and local paid leave laws that impose increasing administrative challenges to large multi-state employers,” Wilson said.

For supporters of the paid leave requirement in the worker advocacy movement, the diminished business response speaks to the increasing popularity of providing leave benefits.

When paid sick leave laws “have played out in cities and states, there is some grousing at first but research has shown that these laws tend to be nonevents for employers for the most part,” Vicki Shabo, vice president of the National Partnership for Women and Families, told Bloomberg BNA Sept. 29. The DOL rule “hasn’t provoked the level of dissatisfaction in the employer community, and I think in part it’s because it’s pretty hard to argue with the fact that everybody should have a paid sick day when they need it.”

DOL Makes Key Changes

Labor Secretary Thomas Perez highlighted on a call for reporters a few revisions in the Wage and Hour Division’s final implementing regulation that responded to stakeholder concerns.

For instance, contractors will be allowed to fulfill paid sick leave obligations jointly with other contractors through a multiemployer plan.

The agency also modified the final rule from the proposed version by allowing some leniency for contractors with collective bargaining agreements that already require at least 56 hours of paid leave per year. If the union contract was signed before Sept. 30, 2016, then the executive order won’t apply to that company until the CBA expires or Jan. 1, 2020—whichever date is earlier.

Addressing a frequently cited concern, the department is no longer requiring successor contractors to reinstate paid leave to workers on a predecessor contract.

Short Compliance Window

For contractors facing a three-month window to comply, the biggest challenge may be more in adjusting their internal benefits process than a matter of cost.

“The biggest thing that we’ll be looking for is if you’re a federal contractor that already provides generous leave, what additional requirements will you need to implement?” Michael Eastman, vice president for public policy at the Equal Employment Advisory Council, told Bloomberg BNA Sept. 29. “Let’s say you already have seven days of paid leave; maybe you have to tweak the permissible uses for it,” and have additional record-keeping requirements, he said.

Companies operating in multiple jurisdictions throughout the U.S. will need to reconcile the new requirements for employees on federal contracts with varying leave policies in states and cities.

Even though the rule instructs contractors to provide the more generous benefits policy in scenarios where local or state mandates exist, that doesn’t necessarily ease the compliance process, Eric Crusius, an attorney with Miles & Stockbridge P.C. in Washington, told Bloomberg BNA Sept. 29.

The determination of which policy is more generous can still be difficult because the company’s current benefits may be “more generous to certain employees but not to others,” said Crusius, whose clients include government contractors.

For smaller businesses less likely to have existing paid leave policies, the regulation’s may prove more costly.

“We’re very disappointed that the Department of Labor moved forward with a rule that will make it even harder for small businesses to compete for government contracts,” Dan Bosch, senior manager of regulatory policy at the National Federation of Independent Business, said in a statement. “There is already plenty of red tape they have to wade through just to bid for work. This new requirement will cut out competition and drive up costs; it’s the taxpayers who really lose out.”

State and Local Laws Provide Track Record

The rule was released against the backdrop of an increasing number of states and localities moving legislatively to adopt paid leave policies, and of employers acting voluntarily to do so.

Research on the state and local laws consistently disproves the employer community’s concerns, the labor secretary said.

Myriad studies show that even though businesses had trepidation about the paid sick leave laws before they went into effect, in time they noticed “they were able to adjust and in fact, thrive,” Perez said. “Frankly, when I go out to lunch in a restaurant, I don’t know that it’s a good practice to have the waiter or waitress sneeze on my meal,” he said.

“We have a track record to build off of, and that track record gives us an immense amount of confidence that building this part of the social compact is good for workers, it’s good for public health, it’s good for families and it’s not an undue burden for businesses,” Perez said.

Continued Executive Force

The rule implements the latest in a series of Obama administration executive orders that target the federal contracting community on labor and other policy areas.

The administration issued final rules in August for the Fair Pay and Safe Workplaces EO, which requires federal contractors to disclose their recent history of labor and employment law violations. Effective 2015, contractors have been subject to a minimum wage of $10.10 per hour, which will rise to $10.20 in 2017.

“The federal government is the largest purchaser of goods and services in the country,” the labor secretary said on the call. “We should use, and we have used historically, that purchasing power to further important policy goals to help families and the economy.”

Minimum wage and paid leave in particular are areas that the White House has urged Congress to act on, but thus far the administration hasn’t found a willing partner in the Republican-controlled chambers.

Federal legislation introduced by Democrats that would impose similar paid leave requirements hasn’t gained enough bipartisan support to gain traction. Rather than make the benefit a requirement for all employers, some Republicans have said they’d prefer to provide a tax credit to employers offering paid family and medical leave.

The National Partnership for Women and Families views the DOL’s final rule as a sign of continued momentum and a signal for lawmakers. “This is just the latest indication that the time for a national paid sick days law has come and it’s time for Congress to take action,” Shabo said.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

For More Information

Text of the final rule is available at http://src.bna.com/iZV.

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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