New Paycheck Rules Will Apply to Federal Contracts Starting Jan. 1

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By Gayle Cinquegrani

Federal contractors should be getting ready for new paycheck transparency rules even though the new provisions don’t apply to contracts already in existence and may be rescinded by the new administration.

Businesses bidding on federal contracts worth at least $500,000 will have to give workers wage statements detailing their total and overtime hours, pay rates, gross wages and deductions. The businesses also must inform independent contractors of their status as non-employees and tell salaried employees that they’re not entitled to overtime pay. These obligations stem from President Barack Obama’s Fair Pay and Safe Workplaces executive order ( E.O. 13,673) and implementing rules.

“These are not retroactive obligations,” Laura Mitchell, a principal at Jackson Lewis in Denver, told Bloomberg BNA Dec. 21. “They have to be incorporated into a new solicitation or contract by inclusion” of the federal acquisition regulations, which will be written into new federal contracts starting Jan. 1. Nevertheless, even though “this is a new obligation” that does not affect current contracts, “you want to be prepared if you anticipate entering into federal contracts” after Jan. 1, she said.

“The requirements center around the pay stubs,” Mitchell said. Most federal contractors probably won’t have to redo their payroll system to provide workers with the new information because “most systems capture this information in some form” anyway.

Weekly Information Must Be Given

However, the requirements say federal contractors must relate the information to employees’ weekly work even though many employers pay their workers on a biweekly basis. “If you’re paying every two weeks or twice a month, then the pay statement has to break down the hours worked and the overtime on a weekly basis,” Mitchell said.

Different requirements apply for some workers. If an employee is exempt from overtime, his pay stub doesn’t have to include his number of work hours, but the federal contractor must notify the employee that he is not entitled to overtime. The contractor only has to notify the employee once, and the notification could occur in an employment contract.

The requirements also mandate that a federal contractor tell independent contractor workers that they’re independent contractors rather than employees. This notification must be made each time an independent contractor begins work on a new contract.

There is also a “flowdown provision,” meaning that a prime contractor whose contract contains the federal acquisition provision must include the same provision in its contracts with its subcontractors, Mitchell said.

A federal contractor that fails to meet these obligations would be in breach of contract. In cases of breach, a contracting agency could withhold payment, terminate the contract and, in extreme cases, debar the contractor from receiving future contracts, according to Mitchell.

Trump Could Rescind Requirements

The need to follow these requirements may be relatively short-lived. “There’s speculation that, since President-elect Trump has said he desires to roll back regulations for employers” and the executive order imposes “very burdensome” requirements on employers, “this may be one of the first places” Donald Trump goes to undo actions taken by the Obama administration, Mitchell said. If the new president eliminates the executive order, “the contracting agency would no longer have the legal footing to enforce” the federal acquisition regulation in its contracts, according to Mitchell.

“It’s going to be messy,” Mitchell said. Even if there is an eventual rescission, “there is going to be a time period of compliance.” Therefore, “the safest thing is to prepare to get into compliance for new contracts that include this provision after Jan. 1.”

Jill Harrison, a counsel at FordHarrison in Atlanta, told Bloomberg BNA Dec. 21 that her clients are asking how they should notify independent contractors of their status. “It’s a one-time notice that can be in any written form,” she said. It could be in an e-mail, and “there’s no magic language” that must be included.

Some companies repeatedly use the same independent contractors. “They would need to take a look at their independent contractor agreements and the scope of the work” they cover to ensure an independent contractor receives a new notice for each contract, Harrison cautioned. The notice is “a one-time thing for each contract” that must “go to an independent contractor before they can begin work on the new contract.”

Firms Should Tighten Their Controls

“Procedural rules and control around the hiring of independent contractors could be tightened up” to ease compliance with the independent contractor notification provision, Harrison said. For some large companies, “just identifying the independent contractors can be burdensome” because individual departments sometimes hire independent contractors without the knowledge of the company’s human resources office.

As for the notification requirements for nonexempt employees, “because of centralized payroll, logistically it’s probably easier” for a company “to do it for everybody,” including employees who aren’t working on the federal contract. “Some states already require some” of these notifications, so extending the notification to all employees could facilitate the company’s compliance with state rules, Harrison said.

Obama’s executive order would have imposed additional requirements on federal contractors, but a federal judge found the administration exceeded its authority in creating them and halted their implementation.

To contact the reporter on this story: Gayle Cinquegrani in Washington at

To contact the editors responsible for this story: Tony Harris in Washington at

For More Information

The text of Executive Order 13673 is available at

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