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NeoSystems Corporation


The Times(Off) they are a Changin’ Too

September 18, 2015 | BY: NeoSystems
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On September 7, 2015, (Labor Day, of course) President Obama signed an Executive Order Establishing Paid Sick Leave for Federal Contractors. See the full text of the Order on the web site by clicking here.

The Order requires contractors to provide one hour of paid sick leave for each 30 hours worked on covered contracts. This amounts to about seven days of leave per year for full time employees.

New contracts awarded on or after January 1, 2017, will contain a clause mandating the new sick leave for workers charging to that contract. This new requirement is to be over and above any current requirement of law or regulation including those of the Service Contract Act or the Davis Bacon Act. Further, the leave earned is to accumulate over time without limit.

Unused will not have to be paid out upon termination of employment, so most employers will probably not accrue a liability for the leave unless required to by interpretation of the Cost Accounting Standard on paid absence (CAS 408). But, even if “expensed as taken” (that’s accounting-speak for “pay as you go”), the impact on a typical fringe rate for employees working mostly on covered contracts might be in the neighborhood of two to three points depending on how much leave is actually taken. The amount of leave taken might well be higher than experience would indicate because the Order prohibits requiring employees to submit a “doctor’s note” for the absence until the employee has been absent for three consecutive days. And, it specifically permits the leave to be used to care for a sick family member.

Implementation of the Order will require new regulations to be issued by the Secretary of Labor and for the FAR Council to issue a new Federal Acquisition Regulation (FAR) contract clause for use in contracts and solicitations. The DOL regulations are to be promulgated no later than September 30, 2016 and the new FAR clauses with 60 days of the new DOL regulations.

Thirteen months might seem overly generous for the DOL to issue regulations, but those of us that follow such actions know better.  The fact is, the process will probably go right down to the wire. And, 60 days to issue new clauses is VERY optimistic. That will probably go right down to the wire as well.

This means the new clauses will probably not be available for insertion into contracts or solicitations until thirty days before it goes into effect. Companies bidding on contracts to be awarded after the effective date will almost certainly have to incorporate the cost of the new leave into their forward pricing rates well before then or risk experiencing a cost increase with no mechanism for recovery.

It’s tempting to believe the political pundits who predict the next president will rescind most of President Obama’s Executive Orders, including this one. But, taking away a leave entitlement, even one that has just gone into effect, is VERY difficult. Some companies may find it is a practical impossibility.

Either way, the times certainly are a changin’. And, it would seem that includes times off.

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