This article was originally published through Business Benefits Group.

If anyone has been following the news, it is no surprise that Government funding expires at midnight on September 30, 2023. Although there is much political wrangling, as of now there is no funding extension passed.  Below are six suggestions for minimizing the financial impact on your work force based on a government shutdown.

1.     It’s Never Too Early to Prepare.

Many contractors are accustomed to working “at risk” during the end of funding periods where the government’s budgets are not finalized, and the contractors run the risk of working with no clear promise of payment for their work. This shutdown could be different for contractors who might experience a complete inability to access government sites and other employees who perform what is considered “nonessential work.”  

Government contractors must still comply with federal and state wage-hour laws, even though their contract work has been put on hold. The federal Fair Labor Standards Act (“FLSA”) requires employers to pay at least the federal minimum wage to non-exempt employees in the U.S. for all hours worked, and overtime for hours worked in a week over 40. The accounting is more complicated, however, for an employee who is exempt from overtime under the FLSA. Exempt employees must be paid a minimum of $684 per week for any week in which the employee performs anything more than de minimis work; however, no pay is required for weeks in which an exempt employee performs no work at all. For example, an exempt employee who responds to emails or telephone calls from home one morning for an hour during the shutdown would be entitled to receive the employee’s usual full salary for that entire week. This would hold true even if the employee did not perform additional work during the rest of the workweek.

If contract funding is on hold, it may be advisable to disable company-provided electronic devices and direct employees to engage in no work throughout the week. Talk to employees about using their accrued paid time off (PTO) during a shutdown, but be sure not to run afoul of any state or local wage/hour laws before mandating use of PTO.

2.     Unemployment and COBRA

Because they are not working through no fault of their own, and irrespective of whether the worker was laid off or just in a holding pattern, government contractor employees may be eligible to claim unemployment benefits during the federal government shutdown. And, if they are still in an employment status, health care benefits are probably still in effect. Make sure to carefully review the terms of your health insurance plan to determine whether, or to what extent, a government shutdown could affect coverage or trigger a COBRA qualifying event.

 3.     Evaluate Staffing and Communicate Decisions Clearly.

Without certainty about the length of any government shutdown, determine whether a reduction in employees’ hours, layoffs or RIFs (Reduction in Force) are necessary. Separating employees, albeit temporarily, shifts the burden to state unemployment agencies to provide some level of financial support during that period. If contractors decide to hold onto their contract workers and continue paying wages and benefits, there is a risk of non-reimbursement. In which case, the contractor bears this cost alone.  

Know that your employees will be concerned about their fate and turning to your leadership for answers. Clear, honest communication with employees is critical and helps avoid many employment disputes. Keep in mind that once the government re-opens, employees will be expected to return to work and resume their duties immediately. In the event of a shutdown, communicate early and often.

4.     Get Advance Direction Where Available.

Maintain close communications with your contracting officers. Follow instructions received now to prepare your business because once a shutdown commences, the contracting officer may be unavailable due to their own furlough status. (Furlough refers to a temporary suspension or layoff of a government employee due to economic conditions or work shortages). Unfortunately, the Federal Acquisition Regulation (FAR) does not specify what actions to take when there is a shutdown, so contracting officers have some discretion to handle different contracts differently. If you have multiple contractors with various agencies, be prepared to receive varying instructions about the work.

5.     Clearly Document Impact on Your Business.

Contractors should carefully document the effect of the shutdown on each of their contracts to calculate any necessary adjustments. Since the Government’s authority to stop work is unilateral and can have severe consequences for a contractor, the equitable adjustment provisions and cost elements are often liberally applied. Although Contractors must always demonstrate an entitlement to the costs, accounting processes and rules may not always be applied for Stop Work Orders since the decisions as to how to handle them are unique to management and generally considered outside the ordinary course of performance. Set up separate charge numbers for employees who will be impacted to maintain good records to analyze and isolate any impact.

Contractors should perform a simple review of their records to identify the areas of their organization which experience financial impact. Items typically reviewed in these situations are:

• Idle time for employees working the project;
• Management costs which can be segregated to implement an orderly business approach to the stop work order internally and in coordination with the Government;
• Any severance pay triggered by the layoffs and/or increases in unemployment taxation rates by virtue of the complying with the order;
• Idle facility costs;
• Remobilization costs once the Stop Work Order is lifted;
• Any overtime which is necessitated by the remobilization;
• A calculation of any unabsorbed overhead which was not borne by other contracts during the stop work period; and
• Any costs of preparing, submitting, and negotiating any requested equitable adjustment, including costs of outside accountants, consultants and/or counsel.

As is the case with all equitable adjustments, the contractor is responsible for substantiating the reasonableness of the amounts requested.

6.     Don’t Delay Equitable Adjustment Submissions.

Retroactive pay exists for furloughed federal employees. What costs, if any, can a contractor receive as a result of the shut down?  The answer is not always clear and will depend, in part, on whether the contractor’s lack of work for the shutdown period was the result of a stop work order or whether it was merely the result of a new contract year which was not yet funded, or an option not exercised.  In both cases, the contractor may be entitled to an equitable adjustment as compensation for the impact of the Government’s unilateral decision to stop work. Generally, requests for equitable adjustment should be submitted within thirty days of the date work on the contract resumes.

If you need assistance in evaluating messaging to employees or in navigating the equitable adjustment and claim process, please reach out to RKW Law Group for help.

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