Navigating the Unpredictable World of Labor & Employment Obligations for Federal Contractors
Once a company agrees to do business with the United States federal government, with that promise comes agreement to assume a slate of obligations, most of which are foreign to commercial practices. This precept could not be more accurate when it comes to the labor and employment obligations that apply to federal contractors. From prevailing wage obligations to affirmative action to federal sick leave, it is critically important that a federal contractor understand the scope of obligations applicable to the type of federal government contractor work it undertakes to perform. In this course, we will highlight key federal labor and employment obligations and suggest strategies for how to ensure compliance and mitigate risk, particularly given the potentially debilitating sanctions associated with non-compliance with some of these statutes, regulations,and executive orders.
Eric Leonard: Welcome everyone to Navigating the Unpredictable World of Labor & Employment Obligations for Federal Contractors. This presentation is brought to you by Quimbee. My name is Eric Leonard, and I look forward to spending the next 60 minutes with you surveying and analyzing the wide range of federal labor and employment obligations imposed on Federal Government contractors. This area is truly a living area of the law, as federal labor and employment obligations can be shaped by not only the far council and other regulators, but also Congress and the priorities and/or agendas of the individual residing at 1600 Pennsylvania avenue, as we will soon see. But perhaps further complicating this exercise, is the realization that federal contractors only have to navigate the federal contractor specific requirements, but also traditional labor and employment obligations that apply to virtually all, if not all companies.
Over the next 60 minutes we will seek to sort out all these, at times overlapping and intertwined obligations, and suggest strategies for managing compliance risks associated with them. So let's get started. There are a number of sources from which labor and employment obligations for government contractors arise from. Let's assume you're an in-house council of a Federal Government contractor that may be new to the federal marketplace. Like any good in-house council you've undertaken the process of developing a compliance program focused on the myriad of specific obligations imposed on Federal Government contractors. One critical component of such a program is ascertaining the scope and extent of labor and employment obligations specific to federal contractors.
Unfortunately, there is no one-stop-shopping destination that would list all these obligations. Instead, these obligations can originate from a wide variety of sources and change over time, further complicating this exercise. Let's delve a little bit deeper into these sources of Federal Government contracting labor and employment obligations. Federal statutes are probably a good place to start, and a primary source of a number of the federal labor and employment obligations. We'll talk about a few of these examples today, including the Service Contract Act, the Davis-Bacon Act and Title VII. But it's not just statutes from which these obligations derive. Executive orders can also impose obligations on federal contractors.
And in fact, one of the broadest and arguably most important federal labor and employment obligation, derives from an executive order. EO 11246. Since 1965 Executive Order 11246 prohibits US Government contractors from discriminating in hiring or employment decisions on the basis of race, color, religion, sex, or national origin. And requires them to engage in a affirmative action. The US Department of Labor Employment Standards Administration, Office of Federal Contract Compliance Programs OFCCP, enforces EO 11246. We'll talk a little bit more later in the presentation about 11246, but it's not just EO 11246. Presidents have been using administrative orders particularly more recently to impose obligations that maybe had little to no chance of succeeding and passing through Congress.
One example of this are the Minimum Wage executive orders for federal contractors. Started in 2015, with the issuance of an executive order, and followed up a few months ago with a new executive order, the executive branch has increased the Federal minimum wage that contractors must pay on certain types of contracts, primarily services and construction. These Minimum Wage Executive Orders work in tandem with some of the labor standard statutes that we're going to talk about, including the Service Contract Act and Davis-Bacon Act.
But as we will discuss in detail later, the scope of these obligations may be broader than they appear at first, and require careful consideration. Particularly for companies that use employees to perform a mix of federal and commercial work during their work week. Another executive order issued in 2016 and implemented starting in 2017, is the Paid Sick Leave Executive Order. Under this executive order, federal contractors must provide paid sick leave to their employees if those employees perform work under a contract subject to the rules. Again, primarily service contracts and construction contracts. This obligation again derived from an executive order, and just adds to the pile of leave-related obligations a federal contractor must navigate.
Now, in addition to statutes and executive orders, there are a number of key regulations and key provisions within these regulations that you need to be aware of in order to fully navigate labor and employment obligations for federal contractors. FAR Subpart 22 and the FAR Part 52.22 clauses are critical provisions to understand. As you probably know, the FAR is really the Bible for federal contractors in terms of understanding obligations. FAR Part Subpart 22 is where you'll find regulations for nearly all the federal labor and Employment obligations that we'll discuss today. FAR 52.22 clauses are the contract provisions that you would likely see implementing these FAR Subpart 22 obligations.
So if you have a government contract's labor and employment issue, and don't know where to start, FAR Subpart 22 is as good a place as any. When it comes to interpreting the obligations imposed by certain labor standard statutes that we'll discuss shortly like the Service Contract Act and Davis-Bacon Act, as well as understanding the process for litigating or appealing disputes under these statutes, 29 CFR is the place to go. 29 CFR part 4 has the regulations for the Service Contract Act that are pretty detailed, complex, but also provide a significant amount of guidance when it comes to compliance and gray area issues under the service Contract Act. Similarly 29 CFR part 6 provides statute regulatory guidance for Davis-Bacon Act covered construction contracts.
Now, I'd remiss if I didn't also mention the OFCCP regulations found in 41 CFR part 60. These are the regulations that contain the detailed guidance for implementation of Executive Order 11246. 11246 as I mentioned before, governs federal contractor affirmative action obligations. These obligations apply at a extremely low dollar threshold, and impose significant obligations on federal contractors. But the guidance, the details for how to comply, are found in 41 CFR part 60. And finally, it's also important to consider state law. Because state law may be "in the mix" for at least part of the inquiry when it comes to federal labor and employment obligations.
Let me give you a couple of examples. When we talk about paid sick leave under the Federal Executive Order, there are also state sick leave laws in place in various states, including Arizona, California, and also state sick leave laws in various local jurisdictions that could affect one's obligation. When it comes to sick leave or minimum wages, if state law provides for a more robust benefit or wage, that has to be taken into consideration when assessing any wage an hour or sick leave obligations. Another example of a state statute that can come into play is the Montana Little Davis-Bacon Act. This is a somewhat obscure statute, but again serves as a reminder that, work that's done for a state entity may come under similar enforcement regime, even if it's not necessarily covered by the Federal Davis-Bacon act.
And finally, even the common law precepts need to be understood and appreciated in terms of how they affect one's obligations as a federal contractor. For instance, the non-compete rules, and whether a particular covenant not to compete is enforceable or not under a particular state may impact whether or not a contractor may enforce that non-compete rule to prevent its competitor from taking its employees to perform a Federal Government contract. Similarly, rules related to independent contractor status configure into Federal Government contracting issues, particularly when it comes to coverage of whether or not an individual is an employee or not.
Some of these federal statutes cover employees. Some are more broad in terms of covering any personnel, whether they're an employee or independent contractor. Either way, many of these independent contractor determinations derive from state rules. And so understanding them, is important in order to assess whether or not an individual qualifies as an independent contractor or an employee for purposes of an assessment. So with that background, let's shift gears a little bit and talk more about some of the specific federal contracting obligations. And we'll start first with the labor standards clauses. I mentioned some of them earlier, including the Service Contract Act and Davis-Bacon Act.
But what are these clauses? Well, labor standards clauses and federal contracts derived from statute have been around for over 50 years. And in some cases with the Davis-Bacon Act even longer. These statutes were passed by Congress in order to basically level the playing field for competitions, and prevent companies from winning contracts by proposing the lowest possible wages for employees. In the world of Federal Government contracts labor employment, we call these labor standards, sort of a three-legged stool of compliance. At their core, these statutes impose requirements to pay certain Department of Labor, United States Department of Labor, specified prevailing wages and fringe benefits based on the geographic location of performance.
Both the Service Contract Act and the Davis-Bacon Act wage rates are almost uniformly higher than any Fair Labor Standards Act minimum wage rate. While the Walsh-Healey Act, which we call the third leg of the stool, those requirements simply mirror those under the Fair Labor Standards Act, making compliance a bit less complicated. But let's not get ahead of ourselves here. The first question really is, how do I know if these statutes even apply to the work that my company is doing for the Federal Government? Well, to determine if you're covered by one of these clauses and if so which one, and how you are covered by either clause, you must ascertain first exactly, what are you providing to the Federal Government?
If you're providing services, then it's likely the Service Contract Act may apply. If you're providing construction work, then the Davis-Bacon Act, or Davis-Bacon and Related Acts may apply. If you're providing manufacturing work, then the Walsh-Healey Act may apply. Sounds simple, right? Well, not really, since coverage under these statutes, especially the SCA can be a very subjective inquiry. For instance, under the Service Contract Act coverage is appropriate if a particular contract is principally for services. Unfortunately there is no hard and fast rule for what principally for services means.
So for any particular contract, the inquiry is typically fact specific, and at times subject to dispute by the Federal Government, or perhaps individuals within your organization. And of course above, I note, these clauses may apply. Because each of them has a detailed set of criteria that has to be met before the act would apply. This includes dollar thresholds, although they are generally pretty low, location of where work would be performed. For instance, whether the work is in the United States or outside the United States. For work outside the United States the Service Contract Act wouldn't apply for example, and other specific criteria.
Such as under the Davis-Bacon Act, the need for the work involved to involve a public work. But all these are questions you need to ask and analyze prior to any award of a contract, so your company knows what labor standards obligations you may be subject to, which will inevitably have a significant impact on the pricing of your proposal. Now, I warn you before we briefly journey into this world of government contracts, I'm going to be throwing a lot of abbreviations at you. The SCA, DBA, EEO, and I want to apologize in advance. I'll try to be as clear as possible and not make your head spin too much, but there are a whole lot of shorthand abbreviations in the world of Labor and Employment Government Contracting.
And let's start with one of them, the SCA. The McNamara-O'Hara Service Contract Act or SCA as it's commonly referred to, or Service Contract Act Labor Standards if you look at the FAR, is found at 41 USC, 6701 through 6707, and requires service contractors to pay specified minimum wages and fringe benefits under federal service contracts since its passage in 1965. SCA service contracts can range from lawn cutting, to security services, to more complex IT service procurements. Basically, any contract awarded by the Federal Government that is deemed principally for services and over $2500 for performance in the United States, is likely covered by the Service Contract Act.
But keep in mind, as I said earlier, the term principally for services is broadly interpreted by the labor department, and can involve situations where even as little as 20% of the labor or dollars related to services puts a contract firmly within the scope of the Service Contract Act. So if you're unsure whether a contract is covered by the SCA, better to ask those questions on the front end, rather than assuming that there is no coverage. At it's core, the SCA requirements are rather simple. The SCA requires contractors to pay minimum wages and fringe benefits specified in one or more area wage determinations known as AWDs, or a collective bargain agreement, CBA, if a CBA is incorporated into the solicitation or contract. So let me stop for a second on that.
Under the SCA, either you will have an AWD, an Area Wide Wage Determination, or a CBA, Collective Bargaining Agreement, that will dictate the wages and fringe benefits. Or potentially both. But it's important to understand which regime you're under, Area Wide Wage Determination, or CBA. AWDs, or Area Wide Wage Determinations separately state required amounts for wages and fringe benefits such as holiday, vacation, and health and welfare. These wage determinations are maintained by the labor department, and updated frequently. Wage rates are determined by labor categories and level, and each wage determination contains dozens of labor categories.
But unfortunately, the burden is on the contractor typically to pick the right labor category by mapping their skills to the appropriate labor category. And keep in mind, under the Service Contract Act, there are both wage payment obligations and fringe benefit obligations. The fringe benefit obligations which include vacation, holiday, and health and welfare, are defined within the wage determination. However, any excess wages cannot be used to meet fringe benefit obligations under the Service Contract Act. As we'll talk about later, this differs from the Davis-Bacon Act, but it's a very important distinction.
It is also important to remember that wage determination compensation requirements apply only to service employees working on a SCA covered contract. If an individual is exempt under the Fair Labor Standards Act Test, if they qualify as exempt, then those employees are excluded from coverage under the SCA. The DOL maintains its SCA regulations at 29 CFR part 4, and this is really the first place to term when questions arise access to the application of the SCA to a particular situation. In addition to those regulations the DOL publishes additional guidance online in the form of its prevailing wage resource book and field operations handbook.
Both of those are available at dol.gov. The requirements for the Service Contract Act are implemented in FAR Subpart 22.10 and relevant FAR clauses, including FAR 22 52.222-41, the Service Contract Act main clause, and FAR 52.222-43, the price adjustment clause. Keep in mind, understanding these DOL regs is critical. Because if you get an audit under the SCA, audit investigators are going to rely on the DOL regs. The DOL enforces compliance with the SCA requirements via targeted audits and investigations. And these can be initiated independently or in response to outside complaints.
SCA covered employees do not have a private right of action to enforce the SCA compliance, only DOL can enforce it. And penalties for non-compliance with the Service Contract Act can include retroactive wage payments, withholding contract termination and statutory debarment. Relevant DOL regulations in this area include 29 CFR 4.6G, 4.185 and 4.191. But keep in mind, the penalties for noncompliance with the SCA can be quite substantial. Even though debarment isn't sought in all cases of noncompliance, it's always available as a remedy for the labor department for a violation. And although the SCA at first glance does seem deceptively simple, remember, there are pages and pages of DOL regulations interpreting the SCA.
So make sure you understand these regulations carefully or get guidance related to them, so you fully understand and appreciate the obligations imposed by the SCA when you're awarded a service contract. And let's shift gears a little bit to the Davis-Bacon Act, and Davis-Bacon and Related Acts. The Davis-Bacon Act or DBA, requires all contractors and subcontractors performing work on federal or District of Columbia construction contracts, or federally assisted contracts in excess of $2000, to pay their laborers and the mechanics not less than the prevailing wage rates and fringe benefits for the corresponding classes of laborers and mechanics employed on similar projects in the area.
Whew, okay, that was a lot. Bottom line is, the Davis-Bacon Act requires payment of particular wages set forth by the DOL for these specific covered construction contracts. The type of work that's covered is not only construction, but also alteration and repair, which includes painting and decorating of public buildings or public works within the United States. Remember that the work though must be done on a public building or public work. And although some courts and boards have interpreted these terms rather broadly, it's still a requirement for there to be a public building or public work at issue for there to be Davis-Bacon Act coverage.
And keep in mind, there also are circumstances where you can have a contract that has overlapping coverage for the SCA and Davis-Bacon Act. So these aren't necessarily mutually exclusive. As mentioned, the core obligation under the DBA, like the SCA, is that it requires employers to pay, in this case laborers and mechanics, the prevailing wage and fringe benefits. It is important to note though, that the DBA only applies to laborers and mechanics employed or working upon the site of the work. We'll talk about what that means later, but that is a critical component to understand, that it's only employees at the site of the work that receive the payment. These employees that are subject to the DBA though, must be paid on a weekly basis unconditionally, and not less than at the prevailing wage and fringe benefit level.
The DBA prevailing wage rates, just like the SCA, are set by the Department of Labor Wage and Hour Division, and are generally supposed to reflect the market wages for a particular geographic area. Just like the SCA, these rates vary according to an employee's labor classification in the area where the work is performed. And again just like the SCA, an employer also has the obligation to determine what the appropriate category is. And if that category doesn't exist, labor category doesn't exist on a particular determination, there is a process known as conformance available for contractors to submit information to the Department of Labor, to ask the Department of Labor to set a particular wage category and wage rate for particular job being performed that is not in the existing labor classification.
The DBA also has various posting obligations. These posters are available on the DOL's website, just like they are for the Service Contract Act that has similar obligations. These notices and postings must be done at the site of work and prominently displayed in order for individuals to be able to review and understand them. In terms of record keeping, the DBA has strict obligations and a unique requirement to provide certified payrolls to the government on a weekly basis. The records the DBA requires employers to maintain include payroll and other records for the employees on the project. Such as employee name, address, social security number, the employee's labor classification, hourly rates of wage pay, deductions made, actual wages, daily and weekly number of hours worked, and computation schedules used to provide certified payrolls.
The contractors must maintain these records for three years, following the completion of the work, and submit this information on a weekly basis. The payrolls must be certified also as accurate and complete, and prepared within seven days of the regular pay date for the period. Falsified or even sometimes simply your inaccurate or unsupported payroll certifications may lead to civil or even criminal penalties for the employer. In terms of the scope of coverage for employees, as I noted earlier, there are limits to the range of employees covered by the DBA in a given project. For instance, the DBA applies only to laborers and mechanics that are employed at the site of work of the project. Employees not employed at the site of work, perhaps at the home office for instance, are not entitled to DBA wages.
The DOL regulations define the site of work as the physical place where the work called for in the contract will remain, and a significant portion of the work is constructed if the site is established for the project and dedicated to performance of the project. So generally things like home offices, fabrication plants, tool yards, typically would not be part of the site of work. However, a headquarters, a tool yard, or a batch plant may be considered the site of work if it's dedicated exclusively or nearly so to the project, and adjacent or nearly adjacent to the site of work. If it's not, then it wouldn't be considered the site of work.
So again, here this requires a factual interpretation, and a factual analysis to determine if a particular location is part or not part of the site of work. And keep in mind, workers must be paid at least the prevailing wage and fringe benefit level under the Davis-Bacon Act for all hours worked at the site of work. Time spent traveling between the sites of work must also be paid at DBA rates, and time spent traveling from the site of work to a location, not part of this site of work though, does not need to be paid. But if an employer does not pay DBA rates for work outside the site of work, the employee still must be paid the applicable minimum wage for those non-DBA hours.
Finally, the Contract Work Hours and Safety Standards Act, also known as CWHSSA, requires employers to pay overtime for hours worked in excess of 40 per week. Under the SCA, the General Fair Labor Standards Act overtime rules would apply. For Davis-Bacon, the contract work hours Safety Standards Act requires payment of overtime at one and a half times the prevailing wage rate, plus the fringe benefit rate. And finally, like the SCA, penalties for compliance can be extreme. Failure to comply with the DBA can result in contract termination and/or debarment. And as noted earlier, falsified certified payrolls can bring about even criminal liability.
So the third stool and final, and I would call least complex leg of the stool as far as labor standards compliance and implementation goes, is the Walsh-Healey Act. For US government contracts under the Walsh-Healey Public Contracts Act 41 USC35 and 41 USC part 50-201-5203 and the regulations, subcontracts or purchase orders above $15,000 for manufacturing or servicing furnishing of materials, supplies, or equipment, the wages for covered workers are subject only to the minimum wages opposed by DOL. In other words, unlike the SCA and DBA, the Public Contract Act of Walsh-Healey does not have separate higher wage schedules for covered employees. Where the PCA applies, generally the SCA would not apply.
But again, these are all factual inquiries that need to be made on the front end to determine which if any of these labor standard statutes applies. And it's not always readily apparent if the work involves a portion of services and manufacturing. As with the SCA, the labor department, US Department of Labor, not the procuring agencies, interprets and and enforces the act FAR part 22.6 advises procuring agencies on how to support the DOL in this action. The PCA is implemented primarily through the inclusion of FAR 52-20. But as I noted, the obligations for payment under the PCA are minimal, and need to only be in line with current federal minimum wage requirements.
There are however record keeping obligations that are applicable if the public contract act applies. These records must be available for inspection for at least three years from the last date of entry, and include basic information such as the name, address, sex and occupation of the employer, date of birth, wages an hour records that include the rate of wages paid and the amount paid for each pay period for each day, basic employment and earnings records, and a wage rate table. There are penalties and sanctions for failure to provide proper wages or maintain records that are subject to the Walsh-Healey Act. These also include demands for retroactive payment, cancellation of the contract, service purchase order, or subcontract, withholding payments, and even possibly debarment.
But as we've noted, compared to the SCA and DBA, compliance with the PCA is much less complex. So that's the basics for labor standards clauses. Let's now turn to the EEO obligations imposed primarily by EO 11246 and enforced by the labor department DOL's Office of Federal Contracts Compliance Program known as OFCCP. since the issuance in 1965 by president Johnson, EO 11246 has provided the bedrock of core labor and employment obligations for federal contractors. The EO and EO regulations adopted since its issuance require contractors to take affirmative steps to ensure equal opportunity affirmative action, and to prevent discrimination. But like many of these requirements, that devil's in the details.
And particularly when it comes to developing an affirmative action plan that complies with all the requirements. In addition to supplementing the requirements of the EO are a bevy of FAR provisions and clauses that provide the detail contractors need to understand in order to implement these requirements. Similarly, detail regulations found at 41 CFR Part 60, provide key definitions and legal guardrails for the EO. 11246 obligations. These regulatory provisions work in tandem and are the first two sources to turn to when the EO 11246 questions inevitably arise. The equal opportunity clause found at FAR 52.222-26 sets forth the basic requirements under the executive order. At a high level commits the contractor and its employees to the following basic obligations.
The contractor will not discriminate against any employee or applicant for employment because of race, color, religion, sex, sexual orientation, gender identity, or national origin. The contractor also agrees to take affirmative action to ensure that applicants are employed, and that employees are treated during employment without regard to their race, color, sex, religion, sexual orientation, gender identity, or gender status, pregnancy, childbirth, or related conditions or national origin. Employment related actions in which discrimination is prohibited include but are not limited to employment and hiring, upgrading promotion, demotion, transfer, recruitment and recruitment advertising, layoff or termination, rates of pay or other forms of competition, and selection for training including apprenticeship.
The contractor will in all solicitations or advertisements for the employee is placed by or on behalf of the contractor, state that all qualified applicants will receive consideration from employment without regard to race, color, religion, sex, sexual orientation, gender, or gender status, pregnancy, childbirth, or related conditions, or national origin. 41 CFR 60-142 requires a contractor to post in conspicuous places, all of the notices required. The contractor will also agree to furnish the US Government contracting agency, all information required by EO 11246, as well as comply with all EO 11246 obligations. This is a common certification and representation that you'll find in an RFP or any other related government solicitation. Contractors also are required to file annual compliance forms on standard form 100 known as the EEO 1.
Wherever applicable, a contractor must include the terms and conditions of the EEO clause in its subcontract and purchase orders that are not exempted under the rules and regulations in order to ensure that these terms and conditions will be known in binding upon each subcontractor or vendor. This requirement applies the prime contractors and first year subcontractors with 50 or more employees in a contract subcontractor purchase order of $50,000 or more. So the thresholds application of this 11246 are pretty low. And EEO 1 filing must be made within 30 days after award, unless the contractor's already submitted a report within the past 12 months. And after that, the EEO 1 must be filed and resubmitted annually.
Once a contractor has a contract subject to EO 11246, a contractor agrees to permit access during normal business hours, and with advanced coordination to its books, records and accounts by the US Government agency or by the OFCCP to ascertain the contractor's compliance with these rules, regulations and obligations. But keep in mind, and as noted above, these requirements do not apply to contracts performed outside the United States by employees who are not recruited in the US. Failure to comply with these obligations, again, can result in cancellation, termination or suspension of a contractor's contract, and also may cause suspension or debarment. Non-compliance also may lead to administrative and civil enforcement proceedings, where the government may seek monetary and other relief for victims of discrimination.
In addition to this equal opportunity clause, a contractor may be also required to certify in proposals, whether they've participated in previous contracts or subcontracts that are subject to the equal opportunity clause, whether the contractor has filed all required compliance reports, whether the contractor has developed and has on file at each of his establishments an affirmative action program required by OFCCP regulations. And whether a contractor has previously performed contracts subject to the written affirmative action plan requirement. These representations and certifications if found to be false or inaccurate, can subject the contractor to significant liability.
Under EO 11246, affirmative action refers to the good faith efforts to achieve equal employment opportunity in a contractor's workforce. Including full utilization of employees across gender racial and ethnic groups in all levels and all segments of workforce. However, affirmative action is not providing special employment preferences to those in the protected class. In general, under utilization, or underrepresenation, for the situations where there are fewer employees from certain gender, racial, or ethnic groups for a particular group that would reasonably be expected or based on availability in the labor pool, For those job groups with underutilization, the contractor must show good faith efforts to recruit, hire and promote qualified members of that particular gender, racial, or ethnic to address this underutilization.
Importantly, a contractor sites must prepare and implement a written affirmative action plan for each of its locations. This plan must describe the programs, policies and procedures that the contractors design to ensure that all individuals have equal opportunity in employment decisions and practices. These individual affirmative action plans should be updated on an annual basis, and a contractor must also require any non-exempt subcontractor suppliers to develop their own plans. Specific guidance on the required contents of an affirmative action plan are found in the of OFCCP regulations at 41 CFR Subpart 60-2. The key component of an affirmative action plan is the analysis of whether in the various job groupings, members of the particular gender, racial, or ethnic groups are underrepresented in comparison to the estimated availability of members of the gender, racial, or ethnic groups qualified to be employed.
Job grouping is focused on jobs at locations with similar duties and responsibilities, wage rates and opportunities for training, transfers, promotions, pay, mobility, and other career enhancement opportunities. The contractor will make good faith efforts to recruit and promote qualified candidates in all gender, racial, and ethnic groups. The OFCCP evaluates the affirmative action plans and tracks the progress of the good faith efforts to meet these goals. The AAP set forth the specific procedures for how a contractor commits to making these good faith efforts. This includes a detailed analysis of a contractor's current workforce action oriented programs to address underrepresenation, and efforts to remove any identified barriers, or expand employment opportunities and provide measurable results.
A contractor also must monitor its affirmative action plan, including any internal employment activity, applicant flow, hiring promotions, transfers, terminations, to measure the progress toward its objectives under the plan. Each affirmative action plan for a contractor site should include the following basic components. One, a narrative. A narrative should have general information on the contracting site's activities, supporting compliance with EO 11246, and it's implementing regulations. Two, a statistical analysis. In addition to the narrative, the affirmative action plan must report the results of several analyses that examine the structure, make up the content, make up the content of a contractor's work sites workforce, and how employees by race, gender, and ethnicity are utilized within the employee ranks.
The analyses are designed to indicate whether women and or minorities are underrepresented when compared to their availability in the relevant qualified workforce. The affirmative action plan must contain the following analyses. Organizational profile, job group analysis, availability analysis, and the utilization analysis. It's also important to note that a contractor's compliance status will not be judged solely by whether or not the contractor reaches the goals under the AAP. Instead, a contractor's compliance status will be determined based on the nature and extent of the contractor's good faith efforts to undertake affirmative action, and the appropriateness of these activities to address identified equal employment opportunity issues. The FAR and OFCCP regulations list the number of consequences for contractor noncompliance with affirmative action requirements.
And there's also a number of different ways a contractor can be found to be not compliant. Including by not having an affirmative action program, or deviating substantially from an established affirmative action program, or failing to develop or implement an affirmative action program that complies with the regulations. Prior to award non-compliant contractors could be declared non-responsible and ineligible for award. After award non-compliance can result in cancellation of a contract, termination, or suspension, or debarment of the contractor, as well as enforcement proceedings to attempt to obtain monetary relief or other relief for the victims of discrimination. As a result, a contractor needs to follow the above guidance and the details of its affirmative action plan diligently.
As if that wasn't enough already, for many federal contracts, there are other more specific affirmative action obligations contractors agree to assume upon award. For example, the Vietnam Error Veterans Readjustment Assistance Act of 1972, also known as VEVRA, requires among other things, that US Government contractors take affirmative action to employ and advance in employment, qualified covered veterans. Qualified covered veterans are defined in 38 U.S.C. 4212a. And within the veterans act, obligations imposed on a contractor include, the contractor must take affirmative action to employ and advance in employment qualified covered veterans. Contractor must list all employment openings with certain employment service delivery systems, and must provide priority and referral to such employment openings.
The contractor also must file annually a report known as the Vets 4212 filing, identifying their qualified veteran hires. Under applicable FAR provisions, these veteran act obligations under VEVRA currently apply to a contractor that has contracts or subcontracts in the amount of $150,000 or more. So again, relatively low thresholds in the world of government contracts. The relevant FAR provisions include equal employment opportunity of veterans at FAR 52.222-35, which contains the prohibition on discrimination against qualified protected veterans, and requires the affirmative action be taken for employment of qualified protected veterans. The employment reports on veterans at FAR 52.222-37 contains the detail for what needs to be filed as part of the vet's 4212 annual report.
While it may be possible to fold these veteran affirmative actions into an existing affirmative action plan, either way a company needs to have a plan for addressing these obligations on top of the affirmative action obligations of EO 11246. And wait, there's even more when it comes to affirmative action obligations for Federal Government contractors. The Rehabilitation Act of 1973 requires among other things, that the US Government contractors take affirmative action to employ and advancing employment ag all levels, and for all employment activities, qualified disabled individuals without discrimination based on their mental or physical disability. We call these section 503 obligations for short.
The Rehabilitation Act implemented through FAR 52.222-36, the Equal Employment for Workers with Disabilities Cause applies to US government contracts and subcontracts exceeding $15,000, except as waived by the Secretary of Labor. Therefore, even lower threshold than VEVRA. The rehabilitation act applies only to employment activities within the United States pertaining to a contractor's applicants and employees, including employment obligations outside the United States, such as recruiting and hiring for positions within the United States. FAR 22-1408a excludes application of equal opportunity for workers with disabilities when performance of the work and the recruitment will occur outside the United States.
But again, this is a very fact specific inquiry. And before you take advantage of exception or try to take advantage of an exception for either 11246 or the rehab act, you need to ensure that the work is not going to be involved in employment activities in the United States. The Equal Employment for Workers Disability Clause which incorporates requirements of 41 CFR 60-714-5a under the Rehabilitation Act imposes the following requirements. One, the contractor shall not discriminate against any employee or applicant who is qualified for a position because of a mental or physical disability. The contractor also agrees to take affirmative action to employ in advance in all employment levels, and otherwise treat the qualified individuals with disabilities without discrimination based on their physical or mental disability in all employment practices.
And finally, the contractor agrees to comply with the rules, regulations, and orders of the Secretary of Labor issued under the act. And as I mentioned before, it's not just simple compliance with non-discrimination provisions. Both the Veterans Act and section 503 have affirmative action plan and record keeping requirements. So just having a policy statement in this area is not enough if you meet the threshold for application for both of these statutes. Current OFCCP regulations for the Veterans Act require contractors with 50 or more employees and with contracts of $100,000 or more, to establish affirmative action plans, or achieve compliance with the act. Similarly, the Rehabilitation Act requires contractors with 50 employees or more, and with contracts of 50,000 or more to establish affirmative plans to comply with the act.
So as you can see, affirmative action compliance requirements for government contractors are complex, and there are multitude of statutes that impose similar yet nuanced obligations for federal contractors. For the Veterans Act and the Rehab Act, I do want to note real quickly before we move on, the penalties for non-compliance. Again, this is more than simply monetary penalties. Withholding of payments, termination, suspension, termination of the contract, and suspension, debarment of the contract are all potential penalties for non-compliance with the affirmative action obligations under both the Veterans Act and Rehabilitation Act. Okay. So that was a lot of affirmative action. And obviously it's a core and critical obligation for federal contractors.
Let's move on to some other recent developments that impose other labor and employment obligations on federal contractors. As I mentioned earlier, we've seen the Federal Government become more active in recent years on key federal contractor, labor and employment issues that deal directly with contractor personnel. Whether by statute regulation, EO, or some combination of these three. We've already discussed wage payment statutes and the EEO hiring promotion requirements. But I'd like to spend a few minutes discussing three more specific and somewhat recently adopted requirements found in FAR part 22, trafficking in persons, E-Verify in the federal paid sick leave rules.
The US government strictly forbids any form of human trafficking. And the US Government has published its zero tolerance policy in FAR 52.222-50, combating trafficking persons. This clause imposes several obligations on contractors during performance of any US Government contract, subcontract or purchase order at any level, at any location worldwide. The US Government's anti-human trafficking policy, prohibits human trafficking and the consequences for violating it. The term trafficking is rather broadly defined and includes, one, engaging in severe forms of trafficking in persons during the period of performance of the contract. Procuring commercial sex acts during the period of performance of the contract.
Using forced labor in the performance of the contract, destroying or denying access to an employee's identity or immigration documents using misleading or fraudulent practices in recruiting employees or offering employment, or using recruiters that do not comply with the labor laws of the country where the recruiting takes place. Charging employees recruitment fees. Failing to provide return transportation or pay for the cost of return transportation upon the end of employment. Providing housing that fails to meet those countries housing and safety standards. Or, if required by lower contract, requiring to provide an employment contract recruitment aid agreement or other required work document in writing.
All of these details of these prohibitions are spelled out in FAR part 20 52.222-50. But as you can tell, the term trafficking encompasses a lot of activities that go far beyond what you would think of as traditional trafficking of persons. Federal contractor sites performing contracts and subcontracts or purchase orders greater than 500,000, subject to a few narrow exceptions, but must have a written FAR 52.222-50 compliance plan for their particular sites and annual, and also provide an annual certification of compliance status to the US Government or prime customer.
This plan includes an awareness program for site employees, restrictions on recruitment, housing and wage plans, that only permits use of recruitment companies with trained employees and compliant recruitment fees, arrangement and wages, along with a procedure to monitor those agents and recruiting agencies to ensure compliance. Finally, contractors need to have a mechanism in place, and process in place to inform the appropriate US Government contracting officer, if a contractor learns of any allegations that its employees have violated the FAR provision on trafficking, or if the contractor disciplines an employee for violating the policy. These notification and disciplinary obligations apply with equal force to subcontractors and their employees. And FAR 52.222-50 must be included in all subcontracts unless an exception applies.
Just take a look at FAR 52.222-50 which lists the remedies an agency may pursue for any contractor violation of the human trafficking restrictions, including termination, payment withholding and debarment. Once again, this is not an area to play fast and loose. E-Verify is a DHS employment eligibility verification program intended for use to ensure that a federal contractor's employees are authorized to work in the United States. Contractors can use the government's E-Verify portal www.everify.gov to confirm employee eligibility. Based on US Government contracts and subcontracts where a contractor performs, it is critical using E-Verify to uniformly validate an employment eligibility of all contractor employees who work in the United States. The standard FAR clause, 52.222-54, employment eligibility verification and regulations found at FAR 22-18 contain further guidance on E-Verify.
The E-Verify requirement does not apply to contracts for work performed entirely outside the US, or contracts for the performance of less than 120 days, or for performance under COTS, commercially available off-the-shelf products or incidental services. However, contractors must flow down this clause in nearly all subcontracts or supplier orders to be performed in the United States. Keep in mind, there could be certain exemptions that apply. But the key here is to understand that this DHS employment eligibility verification program obligation may require you as a contractor to take additional steps to verify that your employees are eligible to perform work under a Federal Government contract. As I mentioned earlier, the paid sick leave rules as of January 2017, now apply to federal service contracts awarded by the Federal Government.
The added obligation of federal paid sick leave further complicates compliance with acts such as the Service Contract Act. For subcontracts to be covered under the paid sick leave rules, the prime contract must contain FAR 52.222-62. And keep in mind, coverage under this rule extends not just to a contractor's employees, but also to a contractor's independent contractors, and to FLSA exempt personnel that may not be covered by the SCA. So along as 20% of their services is in connection with covered contracts measured work week by work week. This obligation also extends to employees covered by CBAs.
But keep in mind, the rules for application are pretty complicated. So we'll recommend consulting your legal counsel on that one. The requirement for paid sick leave is that covered personnel must be granted at least one hour of sick leave for every 30 hours worked on or in connection with a covered contract or covered work, along with corresponding health and welfare benefits. Annual accrual can be capped at 56 hours or seven days, but unused accrued hours rollover from year to year and do not count toward the following years accrual limit. Most importantly, this benefit is in addition to the SCA obligations to provide health and welfare benefits, which for some companies can include sick leave benefits. Stated differently, this obligation is in addition to any SCA health and welfare benefit obligations.
And companies can't double count paid sick leave as satisfying both the SCA fringe benefit requirement and separate paid sick leave requirement. Similar to the SCA FAR 52.222-62 applies record keeping requirements to all employees, all covered employees, including and also notice obligations for posting. But the bottom line is what this really means is, paid sick leave just adds to the complex web of compensation and benefit obligations for contractors performing under covered contracts. Couple this obligation with COVID leave, and PTO, and FMLA, Family Medical Leave Act leave, it's quite a bit to navigate and to ensure that you're satisfied each of these laws and maintain the required records for each law, just in case you get audited. The federal minimum wage is also another obligation, as I mentioned earlier, that's imposed by executive order.
While the date ranges over the appropriate minimum wage rate in Congress, state legislators and elsewhere, the issue is more defined and settled for federal contractors. There is, and has been a federal minimum wage since 2015, and it's going up even higher in 2022. In 2015 President Obama signed an executive order requiring federal contractors to pay at least $10.10 per hour to certain employees working on federal contracts. The obligation took effect as of January 1, 2015, for any solicitation issued after January 1 2015. And this obligation not only applied to workers performing directly on SCA contracts, but also those that were working at least 20% of their time in connection with these contracts through other duties necessary to the performance.
Keep in mind, the scope of the impact of the original 2015 rule was somewhat limited. Because for many of these contracts, if they were subject to the Service Contract Act already, many of these positions were probably above the 10.10 minimum wage per hour. But some lower wage positions certainly were impacted by this new rule. Fast forward to 2021, and President Biden's recent executive order, which seeks to raise the federal minimum wage to $15 per hour. The current minimum wage is $10.95, up from the 10.10 that was originally put out in 2015, but also adjusted on an annual basis.
This change will have a significant impact on a number of service jobs covered under the Service Contract Act. Moving from 10.95 to $15 can affect dozens and dozens of categories on a particular wage determination. Regulations implementing this executive order are not due out until late 2021, but we expect that they will mirror those already adopted following the 2015 federal minimum wage order. And as I said, have a significant impact on the wage rates in areas such as lower wage or rural areas, where the current wages are likely significantly below $15 an hour. But for right now, all I can say is stay tuned and make sure this one's on your radar screen for the fall, when regulations come out and ultimate implementation, which will occur in January of 2022.
So as we wrap things up, we spent a lot of time talking about the Federal Government contracting statutes, regulations, and EOs that impose specific obligations. But it would be remiss of me not to briefly mention a few other areas that we like to call traditional employment law, that can impact a federal contractor's performance under a federal contract. First non-compete and NDA issues. Navigating non-compete issues with federal agencies and competitors can be a dicey proposition. Particularly true when a contractor is seeking to enforce a non-competition agreement in a way that will deprive a federal agency from having the services of that employee, where the agency desires the services of that employee.
And of course, contractors need to understand how state law that governs the non-compete, may limit or restrict reinforcement of the non-compete. And as for NDAs, we see these appear frequently when parties try to team together or simply work together toward a mutual beneficial goal. Trust me, when things go awry in the relationship, this is when your NDA may be tested, or when you're wishing you had one in place, particularly where your former teammate jumps ship to go to work for a competitor and takes your information. Perhaps confidential pricing information or other information with them. Having a strong enforceable NDA that may be governed by state law is critical.
And we've mentioned a lot about discrimination under EEO 11246, but it also would be important to mention the fact that there are always a more general application discrimination rules under Title VII. These intersect somewhat and in many ways the coverage is very similar in terms of the protected classes. Keep in mind though, that the Federal Government many times will use its power to regulate federal contractors in ways that differ over commercial contractors, particularly in terms of the scope of coverage under Title VII versus EO 11246. Of course the Supreme Court just recently weighed in on some of these issues in June 2020, but nevertheless, it's important to keep in mind, that the distinctions possibly between Title VII coverage and EO 11246.
So where does this leave us in terms of employment issues under government contracts and how to manage them? Well, hopefully by now you have a bit of a checklist of some of the different Federal Government contracting labor and employment statutes and regulations that might apply. But now what? Well, I mean, given the complexity of these obligations and the interwoven nature of many of them like the SCA and paid sick leave, having detailed policies and procedures as well as the government contracts compliance program that contains guidance in these areas is essential. Really this myriad of obligations for varied sources really requires a holistic approach.
And it requires that many of your functions, business development, contract, finance, accounting, HR, legal, all work together to design a system that complies with the substantive and reporting obligations. There really is no substitute here for written policies and procedures that can be implemented effectively and are easy to understand from your employees. Just like other areas of government contracts that government contractors need to navigate, federal labor and employment law is highly regulated, interwoven, complex, and fraught with significant penalties for non-compliance. By now that should be apparent given the topics we covered over the last hour. And I hope this session has been helpful to provide at least a lay of land in this area. Best of luck.