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Federal Rule Complicates Paid Sick Leave

Starting in January a new layer of complexity will be added to payroll management for contractors and subcontractors of the federal government.

The U.S. Department of Labor recently proposed a new rule designed to implement a paid sick leave requirement for the employees of all federal government contractors and subcontractors that will go into effect on Jan. 1, 2017.

Some estimates say that the new federal requirement will impact an estimated 437,000 employees.

The sick leave requirement was one of several President Obama Executive Orders issued last year imposing long-sought employment measures on federal contractors that he could not obtain for all employers with a Republican-led Congress.

Paid sick leave laws have proliferated throughout the country over the last several years, initially passed by city governments. The growing welter of different local and state sick leave formulas and legal definitions adds enormously to the complexity and costs of managing payroll systems.

Under the federal contractor and subcontractor rule, covered employees – both exempt and nonexempt –  can accrue up to 56 hours (seven days) of paid sick leave per year. They will be allowed to carry over accrued, unused sick leave from year to year, subject to a 56hour annual accrual cap.

As proposed, an employee may use paid sick leave for physical or mental illness, injury, or a medical condition, as well as to obtain diagnosis, care, or preventive care from a healthcare provider.

In addition, an employee can use the leave to obtain the same care for a child, parent, spouse, domestic partner, or any other individual “related by blood or affinity” in the equivalent of a family relationship.

Coverage also includes domestic violence, sexual assault or stalking; if the time absent from work is for health care or to obtain additional counseling, seek relocation, seek assistance from a victim services organization, take related legal action, or assist an individual related to the employee in engaging in any of these activities.

After Jan. 1 each employee will receive one hour of paid sick leave for every 30 hours they work on what DOL defines as “covered contracts.” This is where they perform work directly on or “in connection with” the federal contract and similarly covered subcontracts.

Expanding Work Definition

Defining what is considered work performed “in connection with” a covered contract is where it starts to get tricky. This is because in many cases employees may work some hours on activities other than those that directly fulfill the requirements of the contract that won’t apply to leave accrual.

DOL says this connection will apply when an employee performs work that is deemed necessary to the performance of a contract, but is not directly engaged in performing the specific services called for by the contract itself.

This means that an employer with one or more federal contracts will not have to include all of its employees in the formula, or even all of the work of employees who do work on these contracts.

As a result, the employer will have to keep records that adequately segregate non-covered from covered work activities, creating additional complications.

While employees will accrue sick leave for “hours worked” on federal contracts as defined by the proposed rule, those who perform less than 20% of their work during a week in connection with a covered contract are not entitled to accrue any sick leave for that week.

Oddly, the proposal also defines “hours worked” as including time spent in paid time-off status – such as paid vacation time – and even including paid sick leave itself.

Employers also may front load leave by providing 56 hours of paid sick leave at the beginning of the year, freeing them from having to track ongoing accrual. However, if an employee accrues 56 hours, he or she cannot rack up any additional leave until using up some of their already accrued leave.

The good news: If a contractor already has a paid sick leave policy, it will meet the federal requirement as long as it offers employees at least the same rights and benefits as the federal mandate.

If the paid sick leave is used for an absence resulting from domestic violence, sexual assault or stalking, the documentation would be from the appropriate individual or organization, containing the minimum information needed to establish a need for the employee to be absent from work.

A contractor will only be allowed to require certification for absences of three or more consecutive days. This is to be issued by a healthcare provider if the leave is used for the physical or mental illness, injury or medical condition of the employee, including diagnoses, care or preventive care. It also can be required when an employee obtains care for child, parent, spouse, domestic partner, or any other individual related by blood or affinity.

Obamacare Work- Around Challenged

Not long after the Democrat-controlled Congress rushed to enact Obamacare in 2009 it was discovered that the new law offered a big loophole.

The law applied to employers of more than 50 full-time employees, defined as each one working more than 30 hours a week.

Employers immediately began looking for ways to employ as few full-time employees possible, and to maximize those working under the 30-hour limit.

In reaction, the federal government declared that it is illegal for an employer to maintain a part-time workforce expressly to avoid Obamacare.

This seemed a bit silly because all the employer had to do was make sure not to say this was its purpose for keeping workers limited to less than 30 hours. But evidently someone forgot to tell this to the management at Dave & Busters, the nationwide chain of restaurants and entertainment complexes.

A class action lawsuit has been filed in New York state against Dave & Busters alleging that its curtailment of working hours resulted in discrimination “for the purpose of interfering with the attainment” of healthcare coverage.

The court said that the suit can proceed because it found sufficient evidence that employees’ participation in the company health insurance plan was discontinued because the employer acted with “unlawful purpose” in realigning its workforce to avoid Obamacare costs.

The employees suing say the company held meetings at which managers explained the law would cost the company $2 million, and employee hours were being reduced to avoid that cost.

“Employers should remain cautious and conservative when it comes to making public statements to employees or the media,” warns attorney David Barron with the law firm of Cozen O’Connor.

Chemical Industry Sees Mixed Results

The Chemical Activity Barometer slipped 0.1% in February following flat performance in January and two months of revised gains in November and December 2015.

CAB remains up 1.5% over this time last year, as measured on a three-month moving average (3MMA), the American Chemistry Council reported. The CAB is considered a leading economic indicator for the overall economy.

This represents a decline of 50% from activity of a year ago when the barometer logged a 3.0% year-over-year gain from 2014. On an unadjusted basis the CAB rose only 0.1% following two consecutive monthly declines. (AA, 2-15-16, P. 4).

The CAB consists of four primary components covering a variety of indicators: production; equity prices; product prices; and inventories.

Reported separately, the U.S. Chemical Production Regional Index rose by 0.5% in January measured on 3MMA. Production was mixed with gains in the output trend of plastic resins, organic chemicals, consumer products, chlor-alkalis, other inorganics and other specialties; offset by declines in the output trend in manufactured fibers, fertilizers, pesticides, coatings, adhesives and industrial gases.

Compared to January 2015, U.S. chemical production was ahead by 2.4% on a year-over-year basis, an improving trend. Chemical production remained ahead of year-ago levels in all regions.

ACC also said the Specialty Chemicals Market Volume Index fell in January 0.5% on a 3MMA after a 0.1% decline in December. The overall specialty chemicals volume index was off 2.7% year-over-year, also on a 3MMA basis.

Weakness in 2015 was centered in oilfield chemicals and a few other segments that, combined, weighed on overall volumes. Of 28 specialty chemical segments, only 10 grew in January, and none saw large gains (over 1%) in market volumes.

U.S. Manufacturing Size Is Underrated

Researchers say the U.S. government has gotten it wrong about the size of the manufacturing segment, which is closer to making up one-third of the economy than the one-tenth it’s normally assigned.

In all, manufacturing’s total impact on the economy is 32% of GDP, according to the MAPI Foundation, the research arm of the Manufacturers Alliance for Productivity and Innovation.

The Commerce Department measures the segment’s overall impact by assigning a multiplier effect to the proportion of GDP that manufacturing represents, adding its impact on other industries resulting from increases in its economic activity.

The researchers say manufacturing’s government-assigned multiplier effect of 1.4 is far too low.

“Intuitively, we should know this. Contemporary Americans are surrounded by and completely reliant on thousands upon thousands of manufactured goods, whether we’re working, eating, driving, flying, sleeping, playing or relaxing,” MAPI points out. “Judging by the sheer volume of stuff in our lives, how could manufacturing represent only a tenth of the economy?”

Research by MAPI Foundation Chief Economist Dan Meckstroth shows manufacturing’s total value chain actually accounts for about one-third of GDP – three times the impact the official data suggests.

Manufacturing’s multiplier is 3.6, nearly three times estimates, he says. “We find that every $1.00 of manufacturing value-added generates $3.60 of value-added elsewhere across the economy.”

One problem with the government figure is that it excludes firms’ activities that are not exclusively manufacturing, such as private warehousing, management, and research and development.

The data also captures only the creation of upstream value, including processing raw materials and intermediate inputs, along with the production process. The manufacturing value stream is much broader, including activities in the upstream supply chain and downstream sales chain of manufacturing goods sold to final demand, MAPI points out.

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