United States: New Year's Resolutions To Improve Government Contracts Labor Law Compliance

In a post last week, we noted that nearly half of Americans make New Year's resolutions and that people who make resolutions are ten times more likely to attain their goals than people who don't make resolutions. On that basis, last week's post suggested 12 mini-resolutions that employers of all types can make — one per month — to improve their wage-hour compliance.

In this post, we offer another list of proposed resolutions — this time geared toward government contractors. Those employers are subject to the Fair Labor Standards Act (FLSA) like anyone else, but they are also subject to additional requirements such as the Service Contract Act (SCA), the Davis-Bacon Act (DBA), Contract Work Hours and Safety Standards Act (CWHSSA), and the Paid Sick Leave Executive Order. In fiscal year 2023, the U.S. Department of Labor (DOL) collected roughly $42 million in back wages for some 19,000 workers under government contracts specific wage-hour laws, so compliance can be good for your bottom line.

Careful readers will notice that some of the proposed resolutions below are similar to last week's suggestions because, after all, government contractors are employers too. However, we have added a unique government contracts perspective where relevant, so please read on.

January

By the end of this month, you must distribute W-2 forms to your employees and 1099s to your independent contractors. Resolve to know the difference between an employee and an independent contractor, since the former may be due overtime and paid sick leave, while the latter are not.

On a related note, resolve to understand that there is no independent contractor exemption from the SCA. Unlike the FLSA, which covers only "employees," the SCA covers "an individual engaged in the performance of a contract made by the Federal Government ... without regard to any contractual relationship alleged to exist between the individual and a contractor or subcontractor" (41 U.S.C. §6701(3)). That definition includes even properly classified independent contractors.

February

If you really want to comply with the labor laws, you need to know how close to or far from compliance you are already. Therefore, resolve this month to get a wage-hour self-audit, which involves having someone knowledgeable about the FLSA, SCA or whatever wage-hour laws apply to you — perhaps a consultant or outside attorney — review your existing policies and practices and determine where there is room for improvement or correction. There is always room for better compliance.

Many employers, for example, are relying on outdated job descriptions to make classification and exemption decisions without having a clear understanding of the duties incumbents actually perform. Some employers have not submitted SCA conformance requests as they were required to. Or they may be making improper deductions from employees' pay for uniforms; jury duty; broken or lost equipment; or a number of other things. A self-audit should find these and other problems and will help devise a strategy for correcting them raising a lot of red flags.

On a separate note, DOL's new rule on "Nondisplacement of Qualified Workers under Service Contracts (Executive Order 14055)" is scheduled to take effect mid-month. Make sure you understand what this means for you and your contracts. (More about this in a future post.)

March

With the weather gradually improving, some employees who are exempt from the FLSA or SCA may get spring fever and miss partial days from work. This may increase the likelihood of employers making improper deductions from exempt employees' salaries for partial day absences. Resolve to understand the salary basis test as applied to exempt employees as well as the definition of working time as applied to non-exempt employees so that you don't pay too much, on the one hand, and too little, on the other.

On a related note, make sure that you understand any differences between your time-keeping obligations under your government contracts and under labor laws. In particular, resolve to remember that the fact that your government customer won't reimburse you for overtime or certain nonproductive time does not excuse you from paying for it when required by the FLSA, SCA, CWHSSA or other laws.

Improving weather may also mean more infrastructure projects. Resolve to familiarize yourself with the revised DBA regulations that DOL published last year, as well as with the prevailing wage requirements in relatively new laws such as the Inflation Reduction Act.

April

Many employers file their tax returns this month. With earnings and costs now calculated, this may also be the month when they make profit-sharing payments. Such payments can have a number of FLSA implications, including retroactively an employee's "regular rate" and therefore pushing up the overtime compensation due to nonexempt hourly employees. Resolve to understand these complex areas of FLSA compliance.

Speaking of overtime, there are pending DOL regulations that will impact who is entitled to overtime pay. Resolve to stay on top of those and to get proper advice.

Back on the subject of profit sharing, some employers pay profit-sharing into pensions or 401(k) accounts, which may offset your SCA or DBA fringe benefit obligations. Resolve to get advice about this and to learn how to reconcile fringe benefit calculations.

May

Late this month and early next month, thousands of college students will begin internships in the workplace, including with government contractors. Resolve to know the criteria for determining whether an intern must be paid. If you have interns working on government contracts, make sure they have the qualifications that you promised the government you would provide.

June

School is letting out and teenagers are looking for jobs. Child labor violations can be costly, not to mention dangerous. Resolve this month to be familiar and to comply with the different restrictions that apply to youth.

July

In June or July, DOL updates — and typically increases — the SCA health and welfare benefit. Be aware that this increase is not self-implementing, so it does not apply to your contracts unless the contracting officer modifies them to incorporate updated wage determinations.

August

Reportedly, August and September are the months in which the most babies are born. Resolve this month to understand the provisions in the FLSA that require employers to provide break time for nursing mothers to express milk as well as a place other than a bathroom in which to do so. Along with this, resolve to understand the rules relating to break times and mealtimes. Also, note that many state laws require types of paid leave not required by federal law. Lastly, if you are providing any type of paid leave, make sure you understand what compensation is, or is not, an allowable cost under your government contracts.

September

Many recent graduates will start work this month. Resolve this month to correctly apply two rules that apply to new workers.

First, the Youth Opportunity Wage allows employers to pay employees under age 20 a subminimum wage for the first 90 calendar days of employment. Be careful, as there are certain conditions that must be met. Note also that the Youth Opportunity Wage is not available for SCA-covered workers, who must be paid in accordance with the applicable wage determination.

Second, entry-level employees, even college graduates, are more likely to be doing nonexempt work than their more experienced counterparts who have the same job title. Be careful to base exemption determinations on actual job duties. And, again, make sure any new workers assigned to government contracts have the qualifications that you promised the government you would provide.

October

With the federal fiscal year starting, this is a month when many contract options are exercised. For many contractors, that means new wage determinations, with increased prevailing wage and fringe benefits obligations. Your contract price adjustment request may be due within 30 days, so don't miss out.

Also, with new funding available, you may be sending workers for training this month. The FLSA, SCA and DBA rules regarding the compensability of both training and travel time trip up many employers. Resolve this month (and every month) not to be one of them. In particular, note that DOL treats some types of training differently depending on whether the worker is SCA-covered.

November

This month has many holidays. Some employees and employers don't realize that the FLSA does not require any holidays, nor does it require that overtime be paid if an employee worked fewer than 40 hours in the workweek, even if, with holiday pay, he or she was paid for more than 40 hours. Resolve this month to understand what the FLSA does not require. On the other hand, the SCA does require holiday pay. Also, some SCA wage determinations require fringe benefits to be paid for non-working time such as holidays.

December

When this month ends, the contractor minimum wage will increase again. This increase is self-implementing, which means you have to pay the new minimum wage to covered contractor employees without a contract modification, new wage determination or other government action. Resolve to understand whether your contract has this requirement and how it works.

Conclusion

If you've followed your resolutions until the end of the year, congratulations! Of course, there is much more than what we've listed here before an employer is fully compliant, so resolve to keep learning.

If you need help tailoring or sticking to any of these resolutions, or if you have other questions about wage-hour compliance or government contracts, please get in touch with your usual Brown Rudnick contact or this writer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.