Executive Order 13706: Paid Sick Leave for Employees of Federal Contractors

October 24th, 2016|By Jeff Bennett

On September 7, 2015 President Obama signed Executive Order 13706, which requires paid sick leave for federal contractors. An extensive Q&A can be found on the USDOL webpage here.

We would like to highlight some questions and answers we have received lately that we believe have broad relevance to our clients and prospects.

Question: Does this apply to us?

Answer: It applies to construction contractors covered by the Davis-Bacon Act and service contracts covered by the Service Contract Act that begin or renew on or after January 1, 2017. It does not apply to existing projects.

Question: Does it apply to contracts I have with the state if there is federal funding for the project?

Answer: No.

Question: Can I take credit for the cost of the sick leave pay against the fringe benefit requirements of the Davis-Bacon Act?

Answer: No.  Section 2(f) provides that the paid sick leave required by the Order is in addition to a contractor’s obligations under the Service Contract Act and Davis-Bacon Act, and contractors may not receive credit toward their prevailing wage or fringe benefit obligations under those Acts for any paid sick leave provided in satisfaction of the Order’s requirements.

Question: Can I fund the mandatory sick pay leave from The DirectAdvisors Trust (bona fide plan & trust)?

Answer: This may be possible if the trust is funded with contributions other than those required under the Davis-Bacon Act or Service Contract Act. For example, if the contractor makes fringe benefit contributions to the trust fund required under state prevailing wage rules or makes contributions for private work. Careful attention would need to be paid towards individual state rules as well as the overall benefit plan design.

Question: We only work on projects covered by the Davis-Bacon Act occasionally and even then, only a portion of our employees may work on the project. What are our requirements under these conditions?

Answer: The regulations contemplate that a contractor may engage in varying amounts of public work, as will its employees. It requires a contractor to permit an employee to accrue at least 1 hour of paid sick time for each 30 hours worked on or in connection with a covered contract. An employee’s hours on all covered contracts must be aggregated. A contractor is not required to count hours worked on or in connection with a non-covered contract toward paid sick leave accrual – so there is no “annualization.”

The accrual must occur no less frequently than the close of each pay period or each month, whichever is shorter. Partial hours are not credited, but are carried over to the next accrual period.

Working “on” a covered contract is standard stuff (directly performing the specific services required under the contract), but working “in connection with” a covered contract is new and expansive – this means that employees who are not covered by the DBA because they are not “laborers and mechanics” will be covered by the paid sick leave requirements regardless whether they are physically present on the DBA-covered construction site. An employee is working “in connection with” a covered contract if performing work activities that are “necessary” to the performance of the contract, but are not directly performing the construction identified in the DBA work due to the nature of the non-physical duties or because they are off-site. Working “in connection with” a contract includes employees like human resources people doing things like recruiting, interviewing, or hiring employees to work on a covered contract, off-site fabricators, accounts payable and accounts receivable clerks, etc. There is an exception for “in connection with” employees who spend less than 20% of their time working in connection with covered contracts, determined on a work week –by – work week basis. In other words, if there is a week that more than 20% of the employee’s work is in connection with a covered contract, paid sick leave will be accrued for that week. The regulations specify ways in which an employer can estimate this time.

Our most recent whitepaper – “Working the Fringe, Prevailing Wage Bona Fide Fringe Benefit Plan Strategies for Merit shop Contractors” – goes into greater depth on these ideas. The whitepaper can be downloaded here and watch our short animated video at www.directadvisors.com/prevailingwage.

How we can help

DirectAdvisors, established in 2001 and located in Albany, New York provides bona fide benefit plan consulting and third party administrative services to merit shop (non-union) construction companies that are subject to the Davis-Bacon Act, Service Contract Act and state prevailing wage regulations. Our clients are located throughout the United States and range in size from 10 to 3,000 employees.

In 2016, our construction company clients will contribute tens of millions of dollars of prevailing wage fringe benefit contributions to The DirectAdvisors Trust (health & welfare benefits) and retirement plans managed by our team.

Our solutions are free from any conflict of interest as we do not sell any financial or insurance products. We work with existing agents, brokers and insurance companies.

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