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Labor Department Publishes Final Rule on Paid Leave for Federal Contractors

September 30, 2016

The U.S. Department of Labor (DOL) has released its final rule to implement Executive Order 13706, which requires federal contractors to provide paid leave to employees for sickness and other covered purposes.  AGC submitted extensive comments regarding the DOL proposed rule and testified before Congress on the significant statutory and practical compliance problems the executive order presents for the construction industry.  Many of the complications in the proposed rule remain in the final rule, but several changes were made in response to AGC requests.  Answers to key questions about the rule are provided below. 

When does the rule take effect?  The rule does not take effect until the effective date of regulations not yet issued by the Federal Acquisition Regulatory (FAR) Council.  Once effective, it will apply to new contracts that are awarded, or based on solicitations issued, on or after January 1, 2017.  Delayed implementation is provided for workers covered by collective bargaining agreements under certain circumstances.

What types of contracts does the rule cover?  The rule covers only contracts directly with the federal government for work to be performed within the U.S.  It does not apply to contracts with state government agencies, like state departments of transportation, even if the contracts are federally funded.  It covers contracts governed by the Davis-Bacon Act and the Service Contract Act, but not the Davis-Bacon Related Acts.

How much leave is required?  Contractors working under covered contracts and their subcontractors must allow covered employees to accrue one hour of paid sick leave for every 30 hours worked on or in connection with a covered contract, up to 56 hours (7 days) in a year.  Employees are entitled to carry over up to 56 hours of unused leave from year to year while they work for the same contractor on covered contracts, and they generally get their unused leave back if they return to work within a year of separation.

What types of workers are covered?  The rule covers employees who perform work on or in connection with a covered contract.  This includes employees who are exempt under the Fair Labor Standards Act.  Independent contractors are also covered.  However, in response to an AGC request, the rule clarifies that bona fide independent contractor owner-operators and sole proprietors are not covered if they are not entitled to prevailing wages.  An exemption applies to employees who perform work in connection with covered contracts (but are not directly engaged in specific work called for by the contract) that amounts to less than 20 percent of their work hours in a given week. 

For what purposes may an employee take leave?  Contractors must allow employees to use paid sick leave for time they would otherwise be working on or in connection with covered contracts if the absence is due to:  (a) the employee’s own illness or health care, including preventative care; (b) the care of a family member or loved one who is ill or needs health care, including preventive care; or (c) being the victim of domestic violence, sexual assault, or stalking, or the need to assist a family member or loved one who is such a victim.

Will the cost of the paid leave count toward meeting Davis-Bacon prevailing wage obligations?  No. The Davis-Bacon Act prohibits contractors from taking credit for benefits required by federal, state, or local law.  In accordance with its interpretation of the Act, DOL in the present rule expressly states that contractors may not receive credit toward their prevailing wage or fringe benefit obligations under the Act for paid sick leave provided in satisfaction of the requirements of this rule.  Contractors may take credit for leave provided in excess of the rule’s requirements.

Must the contractor pay the employee directly for paid leave, or can it pay into a benefit fund?  In response to AGC’s request, the final rule adds a provision to permit contractors to fulfill their obligations under the rule jointly with other contractors – as though all of the contractors are a single contractor for purposes of the rule – through a multiemployer plan pursuant to a collective bargaining agreement if it provides paid sick leave that meets the rule’s requirements.  In further response, the final rule adds a provision clarifying that contractors may meet their obligations by contributing to a fund outside the collective bargaining context and delegate their responsibilities to plan administrators.  In all cases, the contractors remain responsible for any violations of the rule.

What are the flow-down requirements?  Covered prime contractors must include a designated contract clause in their subcontracts and must require, as a condition of payment, that subcontractors include the clause in any lower-tier subcontracts.  Prime and upper-tier contractor are responsible for compliance their subcontractors or lower-tier subcontractors.  In response to AGC’s request for removal of this liability, DOL stated that doing so could diminish the level of care that contractors exercise in selecting and monitoring their subcontractors.  DOL also noted that upper-tier contractors can, and often do, indemnify themselves against violations committed by lower-tier contractors.

AGC will hold a webinar to provide further guidance on the rule on November 16.  Click here for more info.

Additional resources about the rule are also provided on a dedicated page of DOL’s website.

For more information, contact Denise Gold at goldd@agc.org or Jimmy Christianson at christiansonj@agc.org.

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