Final rules and guidance have been issued that require the federal government to take into account a federal contractor’s compliance with federal and state labor laws violations before awarding the contractor a contract. The rules also include provisions on payroll compliance.

Background of the Issue

The rules were issued in August of 2016 to help implement Executive Order No. 13673, Fair Pay and Safe Workplaces, which President Obama signed on July 31, 2014. The order seeks to ensure that federal contractors comply with the labor laws. While the vast majority of federal contractors abide by labor laws, the White House and some studies have suggested that a significant percentage of the most egregious labor law violations identified in recent years have involved companies that received federal contracts.

The executive order requires that prospective and existing contractors on covered contracts disclose decisions regarding violations of certain labor law. Further, contracting officers, in consultation with agency labor compliance advisors (a new position created by the executive order) consider the decisions as part of the contracting officer’s decision to award a contract in excess of $500,000.

Final Rule

The final rule was issued by the Department of Defense, General Services Administration and National Aeronautics and Space Administration. It requires prospective contractors on solicitations estimated to exceed $500,000 to disclose whether, in the past three years, any labor law decision was rendered against them and to provide information on new labor law decisions. Contractors are required to direct their prospective subcontractors to submit labor law decision information to the U.S. Department of Labor.

Paycheck Transparency

One section of the final rule is called “Paycheck transparency.” Contractors and subcontractors on contracts that exceed $500,000, and subcontracts that exceed $500,000 other than for commercially available off-the-shelf items, must provide a wage statement document (for example, a pay stub) in every pay period to all individuals performing work under the contract or subcontract for which the contractor or subcontractor is required to maintain wage records under the Fair Labor Standards Act (FLSA), Wage Rate Requirements (Construction) statute, or the Service Contract Labor Standards statute.

A document must be provided to all individuals performing work under the contract or subcontract who are treated as independent contractors informing them of that status. The document must be provided at the time the independent contractor relationship with the individual is established — or prior to the time that the individual begins to perform work on the government contract or subcontract.

Phase-in of the Final Rule

Beginning October 25, 2016, the provisions in the final rule will apply to prospective contractors soliciting contracts valued at $50 million or more. It will apply to contracts and subcontracts valued at $500,000 or more, beginning October 25, 2017.

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