what government contractors need to do to comply with new employment policies & regulations

What Government Contractors Need to Do toComply with New Employment Policies & Regulations

Taylor Dean, CPA, CGMA

Taylor Dean, CPA, CGMA

• Director of Gross Mendelsohn’s Government Contractors Group

• Provides financial and compliance services to government contractors throughout the Mid-Atlantic region

• Co-founder of Government Contractor Training and Education Consortium (GC-TEC)

• Updates to Service Contract Act (June 2013)• Fair Labor Standards Act – Updating and Modernizing Overtime

Regulations• Establishing Paid Sick Leave for Federal Contractors• Non-Displacement of Qualified Workers Under Service Contracts• Establishing a Minimum Wage for Contractors

Updates and New Executive Orders and Legislation Impacting Government Contractors

• Fair Pay and Safe Workplaces Act• Strengthening Protections Against Trafficking in Persons in

Federal Contracts• National Industrial Security Program Operating Manual

(NISPOM) change• DOL OFFP

‒ VEVRAA & Section 503 Rule‒ Non-Discrimination based on Gender Identity

Updates and New Executive Orders and Legislation Impacting Government Contractors

McNamara-O’Hara Service Contract Act (SCA) (June 2013)

• Contracts in excess of $2,500 must pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality (Wage Determination) or the rates contained in a predecessor contractor’s employment agreement or collective bargaining agreement for the first year

• For contracts equal to or less than $2,500, contractors are required to pay the federal minimum wage

• For contracts in excess of $100,000, must pay overtime


• Mandates minimum wages and health and welfare (H&W) fringe benefits for contracts over $2,500‒ DOL sets H&W each year – current is $4.27 per hour (includes paid

vacation, sick leave and holiday hours) – assuming employees do not all work the same number of hours, the minimum H&W amount per employee will vary – max 40 hours per week or 2,080 hours annually

‒ H&W must be separately stated from wages


• H&W benefits are either “bona fide” benefits or cash in lieu of benefits‒ Bona Fide H&W Benefits:

‒ Health, dental, vision, accidental insurances‒ 401(k) contributions on behalf of employee‒ PTO in excess of Wage Determination (WD) requirements‒ Educational assistance


• Not Bona Fide H&W Benefits:‒ Amounts required by other provisions of federal or state law

‒ FICA/FUTA/SUTA/workers comp‒ Extra leave required by state or local law‒ Vaccine coverage mandated under OSHA‒ Benefits provided for employer’s convenience – meals, tools, club dues,

etc.

Service Contract Act Intersection with the Affordable Care Act

Under the Affordable Care Act, employers with 50 or more full-time equivalent (FTE) employees must offer affordable minimum health insurance coverage or risk a penalty if any employee claims a tax credit to purchase his/her own coverage through the health care exchanges

Service Contract Act Intersection with the Affordable Care Act

Problem #1:Technically, since this is a provision of federal law, the cost to provide this insurance does not qualify as part of the H&W minimum, therefore, if you have 50 or more FTE, under SCA, you will need to subsidize HI + H&W• There is an exception if the plan starts prior to 1/1/17 – HI will count towards

H&W• Plans effective after 1/1/17 are under consideration by the IRS and may not

qualify

Service Contract Act Intersection with the Affordable Care ActProblem #2:SCA and the Davis Bacon Act for construction contractors allow cash in lieu of H&W• Technically, paying cash in lieu of H&W does not qualify because the ACA requires a

health plan be sponsored by the employer. When cash is paid to an employee as H&W, the employer cannot require the employee to spend the money on health insurance.

• If an employer is paying cash in lieu of benefits, it would also need to subsidize a health care plan – HI + H&W

• ACA/SCA Temporary Safe Harbor: If employer is offering a health plan and cash in lieu, and the health care policy’s plan year starts prior to 1/1/2017, the cash in lieu can be used to demonstrate affordability. For plans commencing after 1/1/2017, the IRS will make a determination.

Fair Labor Standards Act (FSLA) –Updating and Modernizing Overtime Regulations• Enacted to ensure that extra work means extra pay for “white-

collar” employees making less than $22.825 per hour‒ Employers can raise salary and keep the employee exempt from overtime if

the employees meet the duties test‒ Pay overtime (time and a half) in addition to employee’s current salary when

necessary‒ Evaluate and realign hours and staff work load to eliminate or reduce

overtime

• Sets the standard salary level at the 40th percentile of earning of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker) or $22.825 per hour

• Sets the total annual compensation requirement for highly compensated employees subject to minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004)

Fair Labor Standards Act (FSLA) –Updating and Modernizing Overtime Regulations

• Expands definition of “service employee” under SCA to include individuals employed in a bona fide executive, administrative or professional capacity

• More SCA covered employees must receive SCA benefits such as H&W, Holidays, Vacation

• Employers will need to classify newly covered SCA employees in the correct Wage Determination categories. Wages may rise.

Fair Labor Standards Act (FSLA) –Updating and Modernizing Overtime Regulations

Establishing Paid Sick Leave for Federal Contractors – EO 13706

• Provide up to seven days (56 hours) of paid sick leave annually, including paid leave for family care

• Applies to certain “new” contracts on or after January 1, 2017‒ A procurement contract for construction services covered by Davis-Bacon Act‒ A contract for services covered by the Services Contract Act‒ A contract for concessions, including any concessions contract excluded from

coverage under SCA by DOL regulations‒ A contract in connection with federal property or lands and related to offering

services for federal employees, their dependents or the general public

• Does NOT apply to:‒ Prime contracts and subcontracts for the “manufacturing or furnishing of

materials, supplies, articles, or equipment” for use on a covered contract; and‒ “A significant portion of commercial items contracts” including “commercial

supply contracts subject to the Walsh-Healey Public Contracts Act”

• State and local requirements – at least five states, 29 cities, one county and Washington, DC have paid sick leave laws. Contractors are NOT exempt from complying with the requirements of state and local laws.


• Other Paid Sick Leave Requirements - Does not excuse a contractor from a collective bargaining agreement requiring greater paid sick leave or leave rights than those established under the EO and rule

• The prime contractor and any upper-tier contractor shall be responsible for the compliance by any subcontractor or lower-tier subcontractor, whether or not clause was included in the subcontract

• Must be separately tracked from “PTO”


Non-Displacement of Qualified Workers Under Service Contracts –EO 13495• Effective 1/18/2013• Workers on a federal service contract who would otherwise lose

their jobs as a result of the completion or expiration of a contract be given the right of first refusal for employment with the successor contractor

Non-Displacement of Qualified Workers Under Service Contracts –EO 13495• Applies to all service contracts (prime and subcontractor) above

the simplified acquisition threshold (currently $150,000) and their solicitations, except those excluded, that succeed contracts for the same or similar service at the same location

• A successor subcontractor may reduce the size of the workforce, may give first preference to certain of its own employees and may offer employment to the predecessor’s employees in positions for which they are qualified other than those which they held previously

Establishing a Minimum Wage for Contractors – EO 13685

• $10.10 per hour, beginning January 1, 2015 with annual updated on 1/1 by Secretary of Labor

• 9/20/16 – rate for 1/1/2017 is $10.20• Beginning 1/1/17, tipped employees performing work on or in

connection with covered contracts must be paid a cash wage of at least $6.80 per hour

Fair Play and Safe Workplaces Act (FPSWA) – EO 13673

• Requires contractors to self report violations of 14 different labor laws and mandates that agencies consider those reported violations in responsibility determinations during bidding process and then subsequent reporting during contract performance.Pre-award in SAM and semi-annual reporting thereafter.

• Gradual implementation:‒ 10/25/16: new solicitations worth $50 million or more (CAS covered contracts)‒ 4/25/17: new solicitations worth $500,000 or more – does not apply to

Commercial Off-the-shelf (COTS) items‒ 10/25/17: subcontractor sections effective


• Subcontractors report directly to DOL, however, will need to certify to Primes and must report new violations to primes‒ Note, DOL has three days to make Responsibility Determination for

subcontractors. If DOL does not make such a determination, prime must make it, however, DOL will make one after the fact.

• Initial Look-Back is to 10/25/15 and then within past three years


• Includes:‒ Violations where a final determination has not been issued ‒ Determinations on appeal‒ Civil Judgements – even if confidential‒ Arbitral awards or decisions – even if confidential

• Labor Compliance Agreements can be entered into post-award• New violations that occur while bids are pending are reportable• Existence of Labor Compliance Agreements are public


Fair Play and Safe Workplaces –Component #2: Paycheck Transparency and Arbitration

• For employees on covered contracts covered by FLSA, DBA, SCA or equivalent state or local laws:‒ Paychecks must include information about pay, hours worked, overtime

hours and any additions or deductions from pay and overtime exempt employees notice of their status

‒ Will require conversion to weekly reporting for those with bi-monthly or monthly pay periods

‒ Effective 1/1/2017

• Written notice must be provided if individual is categorized as independent contractor

• Bans contractors that enter into covered contracts over $1 million, from requiring employees to agree to mandatory pre-dispute arbitration claims arising under Title VII of the Civil Rights Act of 1964 or torts related to sexual assault or sexual harassment

Fair Play and Safe Workplaces –Component #2: Paycheck Transparency and Arbitration

Steps to Ensure Compliance with and Further Considerations of Fair Play and Safe Workplaces Rule

1. Contractor needs to evaluate their current labor and government compliance systems and incorporate the new requirements into those compliance systems – Federal, State, Local, International‒ Make sure that breadth and depth of documentation is adequate for 14

major labor laws/regs‒ HR, Operations, Corporate versus satellite offices‒ OSHA compliance at facilities – CONUS and OCUNUS‒ Subcontractors – CONUS & OCONUS

2. Contractors will have to evaluate potential labor violations to determine how they should be treated in light of the new regulations

3. Contractors will have to review and evaluate previous violations and create mitigation narratives and retrieve documents for each labor violation‒ Need to show violation is an aberration and not a corporate wide or

pervasive issue‒ Document violation – action – remediation – monitoring


4. Contractors will have to update subcontract agreements to include reporting requirements and changes to labor laws. In addition, contractors will need to explain to agency/customer if they continue to use a subcontractor that DOL deems to not be responsible.‒ Update subcontracts – ability to terminate if DOL determines not

responsible


5.GSA may use a “mass mod” to include labor law provisions into existing GSA Schedules‒ Complicates reporting requirements and accelerates time frame for

implementation

6.Proposal teams need to know a company’s labor compliance history in order to know what to disclose to an agency and when

7.Contractors need to understand the types of violations that may trigger an agency requiring an LCA or denial of award


8. Organization needs to be educated about Labor Compliance Agreements (LCAs) and whether terms presented in such agreements are acceptable. LCAs should be evaluated by in-house or outside counsel.

9. Contractors are still responsible for their subcontractors and ensuring their subcontractors are sufficiently responsible

10. Appeals and higher-level determinations of violations will have the effect of lengthening the time a violation is reportable

11. All of the above are likely to trigger more bid protests


BREAKING NEWSOn 10/24/16, a federal district court judge for Eastern District of Texas issues a nationwide preliminary injunction prohibiting key provisions of the rule from taking effect – portions of the Rule “relating to new reporting and disclosure requirements regarding labor law violations” and “the restriction on arbitration agreements.” This does not impact the paycheck transparency provisions which go into effect on 1/1/2017.


Strengthening Protections Against Trafficking in Persons in Federal Contracts – EO 13627• Human trafficking includes commercial sex as well as labor

trafficking (illegal and under age workers)• Zero-tolerance policy – failure to comply means possible

penalties• Requirement to consider subcontractors – primes must

effectively police their global supply chains‒ Will require policies and procedures to document this consideration

• Similar laws are being enacted by states (CA) and countries (UK)

National Industrial Security Program Operating Manual (NISPOM) Change

• Reaction to cyber security threats – WikiLeaks and release of other government and corporate data

• Contractors must implement a program by November 30, 2016• Must appoint an Insider Threat Program Senior Official (ITPSO)

• Program must:‒ Gather, integrate and report relevant and credible information indicative of

a potential or actual insider threat from cleared contractor personnel‒ Detect insiders who pose a risk to classified information‒ Mitigate the risk of an insider threat


• Program must:‒ Industrial Security Letter – provides guidelines of 13 standards for security

clearances‒ Protects intellectual property of company along with government data‒ IT analysis requirement to track behavioral analytics – Requires monitoring

by contractor of employees for deviations in behavior ‒ Heavy downloads, change in sites accessed, folders or data accessed

‒ Obligation to train employees – notify them of requirements and impacts to their privacy

‒ Notify government with any concerns


DOL – OFCCP – Office of Federal Contract Compliance Programs: VEVRAA & Section 503 Rule

The Vietnam Era Veterans Readjustment Assistance Act (VEVRAA) requires contractors to annually adopt a benchmark for hiring veterans• That benchmark is to be based on the national percentage of veterans in the

workforce – currently 8% – or their own benchmark based on the best available data, according to the OFCCP announcement

• Document and update annually several quantitative comparisons for the number of veterans who apply for jobs and the number of veterans hired. Data must be maintained for three years.

The Vietnam Era Veterans Readjustment Assistance Act (VEVRAA)• Requires contractors to invite applicants to self-identify –

cannot require them to self-identify• The rule also clarifies job listings requirements and subcontract

requirements• Effective date is 3/24/2014


Section 503 of the Rehabilitation Act requires annual goal for federal contractors and subcontractors that 7% of each job group in their workforce be qualified individuals with disabilities• The rule doesn’t establish a quota, but it does require

contractors to take specific actions in the areas of recruitment, training, record keeping, and policy dissemination that are similar to those that previously have been required to promote workplace equality for women and minorities


Section 503 of the Rehabilitation Act• Document and update annually several quantitative comparisons for

the number of veterans who apply for jobs and the number of veterans hired. Data must be maintained for three years.

• Require contractors to invite applicants to self-identify – cannot require them to self-identify

• The rule also clarifies job listings requirements and subcontract requirements

• Effective date is 3/24/2014


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