Following up on President Obama’s Labor Day release of an executive order requiring government contractors to offer paid sick leave to employees, the Labor Department issued proposed implementing regulations and invited comments by April 12. Contractors with service contracts should consider submitting comments, especially if they already offer paid sick leave and rely on that leave to meet their fringe benefit obligations under the Service Contract Act (SCA).
Under the SCA, contractors cannot take credit for offering benefits that they are legally required to provide. By setting a minimum required level of paid sick leave, the proposed regulations convert seven days of those benefits into legal requirements, rendering them ineligible for bona fide fringe benefit status under the SCA. Contractors would remain free to continue to account for the value of excess paid sick leave in discharging their SCA obligations, but not the base requirements. As a result, contractors may have to recalculate their fringe benefit packages by extracting the value of current paid sick leave benefits, and then offer some other offsetting bona fide fringe benefit or an equivalent cash payment. In sum, the paid sick leave executive order could have the effect of penalizing contractors who were already offering the very same benefit that the government now requires.