What kind of concurrent credit can contractors get for federal, state and local sick leave and vacation laws?

Contractors can be subject to a web of federal, state and local regulations and/or laws. This includes varying sick leave laws and requirements. As a general rule, the federal sick Executive Order (“EO”) 13706 sick leave requirement does not preempt state or local laws. Obviously, those laws can vary and even be more generous in some respects than the federal requirements.

State and local laws can allow a concurrent credit for federal sick leave furnished the workers (some expressly), but it isn’t always clear. And new laws are still being enacted around the country -- Maryland just did so in early 2018. Federal contractors must check compliance with state and local laws along with the federal EO regulations.

There can also be an issue under the federal Service Contract Act (“SCA”) as to whether the contractor can claim credit for paid time off (“PTO”) based sick leave furnished under state law towards the SCA vacation benefit requirements of the SCA. Ostensibly, the SCA doesn't allow credit if a contractor is providing a benefit required by law, including state or local law. The examples in the regulation are worker’s comp, unemployment comp, and social security premium costs. However, these state and federal premiums are universally paid for all workers and are quasi-taxes. They are different than things like sick leave which is expressly defined as a SCA fringe benefit. Of course, the SCA vacation benefit is additive to the sick leave EO benefit. They do not offset each other. Thus, the government might argue that benefits required by state law may not be bona fide benefits under the SCA. The efficacy of this argument could depend on how the state or local leave law is written. Is it a cost borne for each employee? Or does the cost get incurred for only some workers? Is the ostensible benefit really a quasi-tax? It is a Catch-22 situation.

But contractors should note that since August 1, 2017, DOL has issued special provisions in SCA wage determinations which lower the health and welfare (“H&W”) benefit level for contracts covered by the sick leave EO. The general SCA HW level effective August 1, 2017 was set at $4.41 an hour. But if the contract is covered by the sick leave EO, the All Agency Memorandum (“AAM”) no. 225 set the H&W level at $4.13 an hour. This lower H&W level is supposed to account for the extra sick leave benefit, and thus offset the cost. However, contracts that were awarded prior Aug. 1, 2017 but after Jan. 1, 2017, continue to have an older wage determination with a $4.27 H&W level across the board, and thus fail to account for the extra sick leave EO costs.

And even if state law allows current credit for the federal sick leave, it remains difficult to implement a paid time off policy that is compliant with both the SCA, the sick leave EO, and state and/or local law. For example, the SCA requires that PTO substituting for vacation benefits be cashed out annually on the employee’s anniversary, never forfeited, and not be carried over into another period. The SCA vacation/PTO benefit is accrued annually on the employee’s anniversary date. New employees generally are not entitled to any SCA required leave for the first year of employment. The sick leave EO, in contrast is accrued every 30 hours worked, and doesn’t require one year of service, must be allowed to be carried forward into another period of employment, can be forfeited upon departure, and must be reinstated upon if the worker is rehired within a year.  It is difficult thus to reconcile the conflicting rules and combine PTO with federal sick leave EO benefits. It is much easier to have separate SCA/DBA vacation benefit plans and an independent sick leave benefit plan than to combine the two. Combining the two types of leave in one plan (while permissible) presents recordkeeping and compliance obstacles.

Accordingly, the overlapping wage and hour, federal sick leave benefit rules, and state and local law requirements for sick leave can be difficult to harmonize. Some contracts are covered by the federal sick leave EO, while others are grandfather out of the EO requirements. Some are also covered by SCA requirements. Others may be covered by varying state law requirements. Some unionized workers are also covered by collective bargaining agreements (“CBA”) with sick leave provisions. Sick leave thus is a potentially complicated issue – it can be fact specific and necessitate state by state or local law analysis. It just not possible to give a one size fits all circumstances answer, unless employers operating in many jurisdictions decide to nationalize their benefit policies and give workers the most generous interpretation applying anywhere.

Contractors should consult with legal counsel, revise their leave policies and adjust their leave benefit plans to satisfy this overlapping web of laws.  Choices must be made about how to implement the EO sick leave benefits as they get phased into more contracts. Making no choice likely means being out of compliance with one or more of these federal, state and local requirements. And the penalty for violating the sick leave EO is potentially debarment, making noncompliance a serious matter.