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Government Shuts Down: You Are Not Being Paid on Your Contract, Do You Pay Your Employees?


Even though the government shutdown has now ended, suspended work on contracts may cause payment issues to linger in the coming weeks. Employee wages are among the primary issues that are expected to surface. Given the continuing atmosphere of confrontation in Washington, another shutdown may not be out of the question.

First, the good news: government contractors do not have to pay non-exempt, hourly employees who are not working as a result of the government shutdown. Unfortunately, the situation with employees who are exempt  from overtime is more complicated.

To qualify as exempt from overtime under the federal Fair Labor Standards Act (“FLSA”) an employee must be paid on a salary basis of at least $455 per week, regardless of the amount of work performed. This means that while an employer can withhold payment for any full week in which the employee does not work, it cannot withhold payment for any workweek in which an employee performs at least some work. This is consistent with the principle that the exempt employee is being paid an overall salary that is not tied to the number of hours worked, whether in overtime or otherwise. Accordingly, to the extent that an exempt employee must report to work at any time during a work week, even if the employee is only reporting to collect a furlough notice, that employee must be paid for the entire workweek.

Under federal and Maryland law, however, government contractors may require exempt employees to exhaust accrued paid vacation and other leave to cover absences occasioned by the government shutdown.  Contractors may even permit exempt employees to run a negative paid leave balance to cover these absences.  However, if an exempt employee separates from employment before working off  this negative paid leave balance, the negative balance cannot be deducted from the exempt employee’s final paycheck because the deduction was not permissible in the first place.

For the guidance above to apply, government contractors must ensure that their employees do not,  in fact,  work during the government shutdown. This means that employees should not be checking work emails, returning work phone calls or logging in remotely to their work computers in order to work from home. Remember, if an exempt employee performs any work at all during a workweek the employee must be paid for the entire workweek.

None of these payment thresholds apply, however, to non-exempt employees working on an hourly basis. If they perform any work during the workweek, they need only be paid for the actual hours worked. Thus, if a non-exempt employee checked emails for one hour, that employee would be paid only for the hour worked, in contrast to the exempt employee who would be paid for the entire week for doing the same thing.

Accordingly, government contractors may want to shutdown remote access and/or require that smartphones be turned off or left in the office during the government shutdown.

Unique Issues involving foreign workers

Even if a government contractor scrupulously complies with the requirements of the FLSA addressed above, problems may arise with respect to highly skilled foreign workers. When employers sponsor foreign workers for a high-skilled visa, the employment of these workers is governed by the conditions of the visa (in addition to the FLSA).  Unfortunately for government contractors, these visas impose greater requirements than the FLSA with respect to the payment of wages.  Most importantly, if an employer that sponsored a worker’s visa wishes to suspend the payment of wages to that employee, the employer’s only option may be to terminate the individual’s employment (which typically cannot be reversed by a simple reinstatement).  Accordingly, if an employer wishes to continue to employee an individual working under a highly skilled visa, that employer must continue to pay the employee during any furlough occasioned by a government shutdown. Thus government contractors that employ these workers must decide whether to provide these heightened benefits to all employees or treat foreign workers more favorably than citizen workers (possibly resulting in additional problems).

What about employee benefits?

To the extent that employees have exhausted all available paid leave and are no longer being paid as a result of the government shutdown, the issue of whether they remain eligible for benefits under the employers’ health insurance plan may become a problem.  If the reduction of an employee’s hours results in the loss of eligibility for health insurance coverage, the employer must provide COBRA qualifying event notice to them.  These employees (and covered dependents) must be offered the option of COBRA coverage continuation during the period of the government shutdown, (up to the maximum COBRA continuation period.

Unfortunately, these extraordinary measures may become a more common feature of the business of government contracting as the current “resolution” only funds government and extends the debt limit for a few months.