By: Paul Davis on November 16th, 2016

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How to Know if Federal Contracting Regulations Apply To You

Risk Management

One of the biggest concerns my clients have when we begin working together is keeping their business out of trouble with the federal government. If this is of concern to you as well, I’m hopeful this article will help provide a bit of clarity for you as you navigate the muddy waters of federal contracting. I’ll be describing a process that I frequently go over with my clients to determine whether their organization is subject to additional regulatory requirements.

Being an organization that contracts with the federal government (in either a for-profit or non-profit capacity), your business is subject to additional (contracting industry-specific) regulations that add to the patchwork of employment laws that exist at the federal, state and local levels. As your business works to execute towards its mission, ensuring compliance with employment laws specific to contracting, is necessary so that your business remains eligible to continue to do business with the federal government.

Before we go in depth about how to approach the investigative process to determine whether employment laws apply to your business, I want to note that it can be difficult enough just trying to determine which federal, state, and/or local laws apply in a given situation.  I recommend that you take a minute to verify what is applicable before you introduce the added regulatory wrinkle of being a federal contractor.

Is Your Organization a Covered Federal Contractor?

Regulations that apply solely to federal contractors do not necessarily apply across all federal contractors, so how do you figure out which laws apply to your organization?

To illustrate this, different regulations have different coverage requirements, so your organization could easily be subject to some contracting-related laws, but not others. As a business leader, your job is to ensure there’s an operating framework in place to determine whether your organization is a ‘covered’ contractor under the terms of each regulation. The following steps can be used to guide you through that process.

4 Steps to Understanding HR Compliance for Federal Contractors

Step 1: Review Your Contracts

The contracts your organization holds dictate the nature of its contracting relationship with the federal government, which then helps inform the applicability of associated employment regulations. Depending on the nature of your role in your business, you may or may not have an intimate familiarity with the contracts that your organization holds and also know which staff they apply to.

When your organization is performing the investigation of its contracts, particular points of interest within the contracts that will help determine what laws your organization is subject to include, but are not limited to:

  • the dollar value of the contract;
  • the coverage dates for the contract;
  • the nature of the goods and/or services being provided as part of the contract;
  • affirmative statements of applicability of employment regulations (e.g. a statement in the contract noting that the work under the contract is subject to the Service Contract Act); and
  • wage determinations (if applicable)
Step 2: Confirm the Size of Your Workforce

Once you’ve inventoried your organization’s federal contracts, you need to do an associated census of your employee population. This is important because a number of federal contracting regulations (such as Executive Order 11246) apply to organizations based on contract dollar value and the size of the business’s employee population. Headcount threshold requirements in employment laws typically have specific guidance regarding how you perform your employee headcount calculation, so be sure to follow the correct guidance when performing your calculations.

Step 3: Review Each Regulation’s Coverage Provisions Against the Data You Collect

After you complete your inventory of current contracts and the size of your employee population, you’re now ready to compare the coverage requirements of specific laws against the demographics of your business. While there are multiple ways you can approach this sort of review, what I’ve found to be most constructive when I’m working with clients on this type of project is to follow a methodical/check-list driven process when reviewing each specific law. I don’t want get too far ahead of myself, but I do want to note that I’ll be providing such a checklist as part of the next article in this series.

Step 4: Planning for New Contracts and New Regulations

Maintaining HR-related compliance as a federal contractor is a tall order, and it’s common to be in a situation of something less than a perfect level of compliance. With so many opportunities for non-compliance, the real trick is to have a system-wide approach to proactively manage compliance before it becomes a problem.

This system-wide approach requires effective communication and information sharing across multiple units within your organization (beyond just HR). For the purpose of this article though, we are just going to explore the standard relationships that HR needs to have within this system in order to be an effective compliance tool for your business.

As a leader of your organization, you are uniquely suited to be able to remove roadblocks which could hinder HR’s ability to have a number of effective working relationships. If the different support departments within your business do not exist in an environment where they are held accountable for working with each other, your organization will be relegated to always playing regulatory catch-up and attempting to put out compliance fires as they flare up.

To effectively manage HR-related compliance as a government contractor, HR must have working relationships with:
  • Internal ‘Business Development’ and ‘Contracts’ Departments:
HR needs to know what sort of federal contracts the organization is bidding on, and the individuals who are bidding on and pricing work need to know what the HR-related impact of winning government contracts is. In short, there needs to be two-way communication between these groups. The individuals who are bidding on and pricing work do not necessarily know all of the particulars regarding current employment laws and the associated impact they can have on pricing. For example, if a bid is submitted by your organization for a federal contract covered by the Service Contract Act (SCA), and HR is not informed during bidding process or upon contract award, it’s unlikely that your organization will be lawfully onboarding and managing the relevant staff.
  • Payroll
Government regulations (such as the SCA) can have very specific guidance for how covered individuals must be treated in regards to their pay and benefits, support organizations (such as Payroll) need to be aware of which employees these regulations apply to. In addition, your Payroll department needs to have the internal subject matter expertise to properly account for contractor-specific payroll situations (like the minutia regarding how health and welfare withholdings must be administered).
  • Internal and/or External Subject Matter Experts
Situations can occur where HR and/or Payroll are notified of an upcoming SCA-covered contract win, and neither HR nor Payroll have the in-house expertise to manage the related administrative compliance. In these instances, the only real option for organizations is to ensure that their internal staff are appropriately trained, or to partner with external firms who specialize in government contracting. For example, due to its (relatively) complicated nature, there are payroll and accounting firms that solely provide administration and expertise to organizations engaging in work covered by the SCA.
  • Project Managers
Project managers (PMs) are uniquely situated to address employee questions and issues on the spot and in real time. It is critical for HR to partner with PMs to ensure that managers are providing accurate information to their staff and that they are managing their staff in a compliant manner. As a leader of your business, you need to ensure that your PMs and HR understand that operating in silos is unacceptable.

What Problems Can Non-Compliance Cause for Government Contractors?

Ignoring the law or claiming ignorance does not remove the requirement that employment law should be followed. Infractions can ultimately have an existential impact on organizations. The federal government is seriously investigating non-compliance, and Executive Order 13673 requires that organizations track and disclose previous labor law violations. Instead of the already crowded regulatory environment for federal contractors becoming easier to navigate, compliance is now more difficult to maintain and your organization needs to proactively communicate non-compliance with applicable labor violations.