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Government Contractors

Proposed Rule Prohibits Award of Defense Contracts for Companies Who Violate the Fair Labor Standards Act

If your business violated the Fair Labor Standards Act (“FLSA”) within the past five years, your company may be barred from receiving new defense contracts for a period of one year.

The Department of Defense Appropriations Act (H.R. 4870) for fiscal year 2015  is expected to provide funding of $491 billion for FY 2015, which is a modest one percent increase from the prior year enacted budget. Section 10030 of the act is difficult to interpret, but essentially states that any person who has violated the FLSA within five years may not receive a contract using funds available by the act. Fundamentally, this means any business who has violated FLSA could not win a new defense contract using FY 2015 funds. The act is currently before the Senate for consideration.

Although the act is still up for consideration, there are significant implications to this provision for thousands of businesses doing work with the government. Any kind of FLSA violation can result in back wages owed and can be cited as an overall compliance issue by the Department of Labor, even if the wages owed are minimal. ADP identifies that the three most common FLSA violations are identifying exempt versus non-exempt employees, counting and paying employees for every hour worked, and calculating overtime in accordance with the FLSA method. There are numerous exemptions and nuances that can lead to FLSA violations within just these three common examples. For instance, shift differentials, non-discretionary bonuses, promotional bonuses and cost of living adjustments are included in a non-exempt employee’s regular rate of pay. If that employee works overtime, any of those payments need to be calculated into the rate of pay for overtime. Even what seems to be a simple overtime calculation can be complicated, result in FLSA violations and potentially excluded from winning defense contracts for a period of time.

It is unknown whether the act will pass without further revisions, but inclusion of this provision (and possibly inclusion in future acts) could significantly harm businesses with defense contracts.


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