The Federal Acquisition Regulation (FAR) 31.205-6(m) states that, except as provided otherwise (in FAR Subpart 31.2), fringe benefits are allowable to the extent that they are reasonable and required by:

  • Law;
  • An employer-employee agreement; or
  • An established contractor policy.

An example of a fringe benefit cost that is not allowed is the cost of a company-furnished automobile that involves personal use by employees, including transportation to and from work. While this is nice perk, is not allowable regardless of whether the cost is reported as taxable income to the employees.

When evaluating the allowability of your fringe benefit costs under U.S. government cost-based contracts, federal government contract auditors:

  • Evaluate the various types of payroll allowances or fringe benefits provided to employees, including paid time off;
  • Determine whether allowances are in accordance with an established company policy; and
  • Opine on whether they are reasonable in view of standard industry practices and criteria for determining reasonableness contained in procurement directives.

Paid time off benefits include paid vacations, payments in lieu of vacation, payments for holidays and for holidays worked, paid sick leave, payments for National Guard, Army, other reserve duty, jury duty and administrative leave for unforeseen events such as inclement weather related closures. Your business is expected to have written policies addressing these benefits.

When your business pay its personnel for time off due to inclement weather or other unforeseen circumstances, your cognizant audit officials evaluate the allowability of the costs and the accounting treatment of the payments for your cost-based contracts on a case-by-case basis in accordance with FAR 31.205-6.

Payments for administrative leave for inclement weather-related closures are fringe benefits that, per FAR 31.205-6(m)(1), are allowable to the extent that they are reasonable in nature and amount and are required by law, an employer-employee agreement or your established policy. The reasonableness of the amount paid is generally not an issue. The concern is whether or not the circumstances warranted the payment of administrative leave.

Factors that are considered in determining the reasonableness of the payments include the severity of the weather conditions and whether other businesses and organizations in the same geographical location were also closed for weather-related reasons. Suspension of operations and the decision to suspend local, state or federal government similar operations in the area due to the weather usually supports the reasonableness of your decision to incur the administrative leave costs.

In addition to weather-related closures, there may be other unforeseen situations necessitating early dismissal of employees or temporary closure where paid time off may be appropriate. For example, you may experience a facility utility failure, a local disaster or a viable threat to workplace safety. The costs should be charged in accordance with your disclosed or established cost accounting practices for charging paid absences. Consequently, it is important to have an established policy for administrative paid time off.


  • Establish a written policy that addresses inclement weather protocol.
  • Provide for the use local radio, television and Web-based media to announce closures.
  • Include time frames for closure decisions.
  • Take cues from local or state government closures when possible.
  • Include provisions for other unforeseen administrative closures.
  • Maintain sufficient documentation to demonstrate that an unforeseen administrative closure was prudent given the circumstances.

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