Greatest Hits - Federal Contractor Vacation and Sick Leave Rules
Vacation, all I ever wanted
The GoGo’s
We’ve posted hundreds of blogs over the last six years. Looking back, three out of the top 10 posts are about Service Contract Act vacation rules. For a benefit that’s all about relaxation, it’s one of the most vexing SCA requirements—so much so that I believe they’re a poster child for the cliche that no good deed goes unpunished. Here are links to these greatest hits:
Based on the interest in these blogs and having cared for many in-house counsel and their HR teams traumatized by these requirements, I offer a brief high-level summary of the most troublesome aspect of the requirements: accrual, vesting, and coordination of vacation and sick leave.
In the commercial world, flexible paid time off (“PTO”) policies have become quite common. Such policies provide that employees can accrue paid leave in every pay period up to some set maximum amount. That leave may be used essentially for any purpose (such as vacation or illness). And many employers permit employees to carry their accrued leave over from year-to-year.
That’s all well and good until these heretofore flexible employers win an SCA-covered contract that also is covered by the federal contractor sick leave executive order. Flexible PTO policies simply don’t play nice with federal service contract vacation rules and the sick leave requirements.
First, Here’s how the Department of Labor’s Field Operations Handbook (“FOH”) explains the vacation accrual rules:
(d) Accrual or vesting and payment of vacation benefits
Where a prevailing wage determination specifies “1 week paid vacation after 1 year of service with a contractor or successor,” an employee who renders the 1 year of service continuously becomes eligible for the 1 week paid vacation (i.e., 40 hours of paid vacation, unless otherwise specified in an applicable wage determination) upon his/her anniversary date of employment and upon each succeeding anniversary date thereafter. There is no accrual or vesting of vacation eligibility before the employee’s anniversary date of employment, and no segment of time smaller than 1 year need be considered in computing the employer’s vacation liability, unless otherwise specifically provided for in a particular wage determination. The vacation benefits need not be provided by the employer on the date of vesting. However, the required benefit must be furnished before the employee’s next anniversary date, before the current contract is completed, or before the employee terminates employment, whichever occurs first. See 29 CFR 4.173(c)(2).
What does this mean in practice? First, employers that permit employees to accrue PTO from the beginning of their employment are often taken by surprise that the typical SCA Area Wage Determination (“AWD”) will require the immediate vesting of vacation leave as of that new employee’s first employment anniversary. So an employee could have accrued and used a fair amount of PTO such that their bank is empty and then on the anniversary receive one or two weeks of vacation entitlement that must be used or cashed out by the first of the following three events: the employee’s next anniversary, the end of the contract they’re working on, or the end of their employment. Yes, that means if the employee quits on the 366th day of their employment, they’ll be entitled to a full cash-out of the amount of vacation that vested the day before. And if that employee had accrued, but didn’t use, two weeks of leave in their first year, they may be entitled to even more leave unless your accrual policy caps the number of hiours that can be in an employee’s leave bank.
Now let’s add the sick leave obligation to the mix… The sick leave requirement is set forth in the clause at FAR 52.222-62. If the contract has this clause, employees on covered contracts must be permitted to earn not less than one hour of paid sick leave for every 30 hours worked. The sick leave is ordinarily additional to any vacation time off required by the other wage and hour laws. However, PTO may satify the requirement so long as it can be used for the purposes set forth in the clause. A covered contractor is not allowed to set a limit on the total accrual of paid sick leave per year, or at any point in time, at less than 56 hours. Paid sick leave accrued under the order will carry over from one year to the next and will be reinstated for employees rehired by a covered contractor within 12 months after a job separation. But, nothing in the order requires a covered contractor to make a financial payment to an employee upon a separation from employment for accrued sick leave that has not been used (except for the reinstatement requirement).
If you didn’t sense it already - here’s the problem. Sick leave benefits accrue and carry over; vacation does not. Employers who have PTO policies that can be used for either vacation or illness don’t track these kinds of leave separately. Thus, unless employers change their policies, their ability to track compliance is difficult, if not impossible. That’s why we generally urge our clients to go old school and abandon PTO in favor of separate pools of sick leave and vacation time.
If you’re perplexed by these rules, welcome to the club. Take a look at some of our greatest hits, and give us a call if you need some guidance.