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marcfgov

Overtime for Salaried employees on a T&M Contract

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This topic was discussed back in 2002!  I am wondering if anyone has more current data.

My company has a T&M contract with the Federal Government to provide information technology services and an issue has come up regarding the use of exempt (salaried) personnel, the hours they work, and how those hours are billed. All of the personnel performing under the contract are exempt from the Fair Labor Standards Act (FLSA) and routinely work more hours than what would be considered a typical workday (8 hours). Since our employees are exempt from FLSA, they do not receive additional compensation for the extra hours that they work. In accordance with DCAA guidance, our employees record all hours worked on their timesheets.

Our prime contractor reached out today and they suggested that there’s no FAR that allows for us charging time & half for overtime pay for non-exempt employees. Instead, he suggested that overtime premium needs to be baked into our T&M bill rates and not show up as a separate 1.5 X standard pay rate.  I tend to agree, but my CEO has a different take!  No Costs/No Billings, but the costs are not unallowable and we could record them to OH Rate.

 CEO's stance is that under a T&M contract we can bill the government for all hours worked in direct support of the contract (within the stated ceiling price, of course), regardless of whether any extra hours worked results in increased costs to the company or not. Our customer’s view is that since we are not incurring additional costs as a result of the extra hours worked by exempt personnel, we should cap our billings at the number of full-time hours available in a given billing period. A simple example for a one-person contract: if the month of June ’18 has 160 full-time hours available (20 business days x 8 hours/day) and our employee ends up working 200 hours (20 business days x 10 hours/day), our customer wants us to cap our billing at 160 hours. He says were entitled to 200 hours, given the nature of a T&M contract (it purchase hours worked, not costs incurred). They say they’ll reject the invoice if it’s for more than 160 hours. Again, I tend to agree, but any words as to the best way to handle this situation so I don't GET FIRED? (not really, but any assistance would be appreciated).

Thanks,

Mark

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First, has your CEO read para. (a)(8) of the contract clause at FAR 52.232-7? and para. (i)(1)(i)(E) of the clause at FAR 52.212-4 with its Alt. I?

Assuming he has, he errs in suggesting that you need to bake overtime premiums into your overhead rate -- you are not incurring any overtime costs, so there are no incurred costs to add to the overhead pool.

However, he is right in asserting that your company should invoice for hours worked at the fixed hourly rates established in the contract.  Given your example, and barring something else in the contract that opines otherwise, and providing all the hours are properly chargeable to the labor category, you should invoice for 200 hours. All of that money is a free money windfall to your company; you are not required to pay any of it to your employees.  If your federal agency customer wants you to limit your billings to 160 hours, then you need to limit your hours worked to 160 hours.  Or, your federal agency customer can establish a fixed-price contract and deal with uncompensated overtime procedures.

This is my opinion.  You should not rely on my opinion, but should make your own decision.

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2 hours ago, marcfgov said:

Since our employees are exempt from FLSA, they do not receive additional compensation for the extra hours that they work. In accordance with DCAA guidance, our employees record all hours worked on their timesheets.

Yes, this is correct. The DCAA CAM suggests several options for dealing with the difference between the amounts of direct labor recorded versus actual wages paid. You should read it.

 

2 hours ago, marcfgov said:

Our prime contractor reached out today and they suggested that there’s no FAR that allows for us charging time & half for overtime pay for non-exempt employees. Instead, he suggested that overtime premium needs to be baked into our T&M bill rates and not show up as a separate 1.5 X standard pay rate.

Your prime is ill-informed and doesn't understand how T&M (sub)contracts work. I would suspect that you don't actually bill time-and-a-half but, instead, you bill for overtime hours as recorded at the contractual T&M billing rates. In fact, I'm surprised your prime has the information to distinguish between "standard" straight time hours and "overtime" hours, since all hours should look the same on the billing.

2 hours ago, marcfgov said:

 CEO's stance is that under a T&M contract we can bill the government for all hours worked in direct support of the contract (within the stated ceiling price, of course), regardless of whether any extra hours worked results in increased costs to the company or not.

Your CEO is correct and there is at least one legal decision that supports that position.

2 hours ago, marcfgov said:

... our customer wants us to cap our billing at 160 hours. He says were entitled to 200 hours, given the nature of a T&M contract (it purchase hours worked, not costs incurred). They say they’ll reject the invoice if it’s for more than 160 hours.

Assuming your contract has the standard 52.232-7 payment clause, your customer is ill-informed and the position conflicts with at least one legal decision.

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I would bcareful about answering this question.

I believe that Mark is employed by a subcontractor to a government prime contractor. Some parts of his post look like they were cut and posted.

Mark's third paragraph says:

10 hours ago, marcfgov said:

Our prime contractor reached out today and they suggested that there’s no FAR that allows for us charging time & half for overtime pay for non-exempt employees. Instead, he suggested that overtime premium needs to be baked into our T&M bill rates and not show up as a separate 1.5 X standard pay rate.  I tend to agree, but my CEO has a different take!  No Costs/No Billings, but the costs are not unallowable and we could record them to OH Rate.

What is the issue between Mark's company and whoever? Is it whether his company can bill for hours worked in excess of 40 by exempt employees? Is it whether to bill at time and a half per hour for those hours? Is it both?

7 hours ago, here_2_help said:

Your prime is ill-informed and doesn't understand how T&M (sub)contracts work.

If Mark works for a subcontractor, how do you know what the subcontract terms say? They might not be the same as those in the government's T&M clauses. The terms in his contract may not provide for payment for overtime hours worked by exempt employees.

7 hours ago, here_2_help said:

I'm surprised your prime has the information to distinguish between "standard" straight time hours and "overtime" hours, since all hours should look the same on the billing.

The prime might be monitoring performance closely, like the government is supposed to do.

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Suppose that the question is as follows:

Under standard FAR T&M type contract terms, can a contractor or subcontractor bill the customer for hours worked by salaried FLSA exempt employees in excess of 40 per week, even though the workers themselves received no additional compensation for those hours?

Based on the plain language of FAR 52.232-7, the answer is seemingly obvious.

Quote

The Government will pay the Contractor as follows upon the submission of vouchers approved by the Contracting Officer or the authorized representative:

(a)(3) The hourly rates shall be paid for all labor performed on the contract that meets the labor qualifications specified in the contract. Labor hours incurred to perform tasks for which labor qualifications were specified in the contract will not be paid to the extent the work is performed by employees that do not meet the qualifications specified in the contract, unless specifically authorized by the Contracting Officer.

See also FAR 52.212-4, Alt. I, paragraph (i):

Quote

(i) Payments. (1) Work performed. The Government will pay the Contractor as follows upon the submission of commercial invoices approved by the Contracting Officer:

(i) Hourly rate.

(A) The amounts shall be computed by multiplying the appropriate hourly rates prescribed in the contract by the number of direct labor hours performed. Fractional parts of an hour shall be payable on a prorated basis.

(B) The rates shall be paid for all labor performed on the contract that meets the labor qualifications specified in the contract. Labor hours incurred to perform tasks for which labor qualifications were specified in the contract will not be paid to the extent the work is performed by individuals that do not meet the qualifications specified in the contract, unless specifically authorized by the Contracting Officer.

That's the pertinent language, except for the ceiling price limitation. The contractor is entitled for payment for every hour worked.

The language is remarkably plain and simple. So why Mark's question?

It may because there is confusion about what the question is. Is it a matter of being paid for the +40 hours or its it a matter of being paid at time-and-a-half? I don't know. But even that shouldn't have posed a problem since, as ji20874 pointed out, the answer is in FAR 52.232-7(a)(8). See also FAR 52.212-4, Alt. I, (i)(1)(i)(E)(1). 

But I have a theory. When I was a young contract specialist and went to someone with a question like the one I wrote above, the standard response was: What does the contract say? And I was directed to find and read the applicable contract clause, interpret it based on its plain language, and return with my answer and my reasoning. What happened next depended on whether or not I had read and interpreted correctly in accordance with the plain language of the contract.

I have a theory that newbies are not taught how to read and interpret contracts (and regulations). They end up believing that some answer exists outside of the four corners of the contract (or the regulation). (Which may be the case if the contract does not address the issue or is vague, ambiguous, or exceedingly complex.) So some of them come to sites like Wifcon and Ask A Professor or NCMA, or they look for "guidance," or they want "case law."

Aside from my doubts about what Mark's question really is, I think that the answer to my phrasing of the question is straightforward and apparent from the face of the applicable payment clauses.

Newcomers simply must be taught the basics, including basic concepts, principles, and terminology. They shouldn't have to come to sites like this to get answers.

See Payments for Labor under Time-and-Materials and Labor-Hour Contracts: Are They Based on Incurred Costs?, The Nash & Cibinic Report, September 2012, discussing the ASBCA's decision in GaN Corp., ASBCA 57834, 2012 WL 2997037 (July 17, 2012).

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4 hours ago, Vern Edwards said:

But I have a theory. When I was a young contract specialist and went to someone with a question like the one I wrote above, the standard response was: What does the contract say? And I was directed to find and read the applicable contract clause, interpret it based on its plain language, and return with my answer and my reasoning. What happened next depended on whether or not I had read and interpreted correctly in accordance with the plain language of the contract.

I have a theory that newbies are not taught how to read and interpret contracts (and regulations). They end up believing that some answer exists outside of the four corners of the contract (or the regulation). (Which may be the case if the contract does not address the issue or is vague, ambiguous, or exceedingly complex.) So some of them come to sites like Wifcon and Ask A Professor or NCMA, or they look for "guidance," or they want "case law."

 

This is a great observation!

I was raised the same way -- What does the contract say?  I think of myself as a competent contract specialist because, for every question that has arisen in my practice, I always read and interpret the contract and the text of the pertinent clauses.  If anyone else is not competent, it is because he or she doesn't read and interpret.  I'm afraid to ask, but how many contract specialists have never read any of their own contracts?

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9 hours ago, Vern Edwards said:

See Payments for Labor under Time-and-Materials and Labor-Hour Contracts: Are They Based on Incurred Costs?, The Nash & Cibinic Report, September 2012, discussing the ASBCA's decision in GaN Corp., ASBCA 57834, 2012 WL 2997037 (July 17, 2012).

The fact that one of the government's arguments in the cited case was almost exactly what Marc said the prime's position was makes me think that the 52.232-7 language is not as well understood as Vern's 2nd post would indicate. (Yes, that is the legal decision to which I was referring in my 1st post.) If the interpretation of the language is "seemingly obvious" then I hope the government attorneys were sanctioned and otherwise disciplined for putting a contractor through unnecessary litigation and associated stress. I hope the CO who so completely misinterpreted the clause requirements had their warrant pulled.

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Thank you for your responses.  I’ve come here for assistance four times since I became a member of this group in 2010.  I am a faithful follower of the topics and posts. I researched and went through the blogs before I posted my question.  And I read and respect all the answers and guidance.  

Yes, some of the copy and paste came from the post I found on this site from 2002. I apologize if I came off as a newbie, ignorant or lazy by asking if there was clarification from the 2002 post .  I’ve read the contract, as I do  before I ask for help  I acknowledge that what I dont know is encyclopedic .

Vern,you have always been gracious in providing guidance.   Based on my interpretation of your guidance, I’m going with the fact that this is a T&M contract, bill for hours worked ,do not bill the time 1/2 

also, based on the responses, I believe that my question irritated more than intrigued an answer. Again for that I apologize again. I will move on.  I promise  no more questions from me.  

As for the true newbies, please be a little less harsh and provide guidance vs assuming the are lazy and are just looking for an answer   Some are, but like me back in 2010 I was here to learn  

Not a newbie, respectfully submitted,

Mark

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1 hour ago, marcfgov said:

Thank you for your responses.  I’ve come here for assistance four times since I became a member of this group in 2010.  I am a faithful follower of the topics and posts. I researched and went through the blogs before I posted my question.  And I read and respect all the answers and guidance.  

Yes, some of the copy and paste came from the post I found on this site from 2002. I apologize if I came off as a newbie, ignorant or lazy by asking if there was clarification from the 2002 post .  I’ve read the contract, as I do  before I ask for help  I acknowledge that what I dont know is encyclopedic .

Vern,you have always been gracious in providing guidance.   Based on my interpretation of your guidance, I’m going with the fact that this is a T&M contract, bill for hours worked ,do not bill the time 1/2 

also, based on the responses, I believe that my question irritated more than intrigued an answer. Again for that I apologize again. I will move on.  I promise  no more questions from me.  

As for the true newbies, please be a little less harsh and provide guidance vs assuming the are lazy and are just looking for an answer   Some are, but like me back in 2010 I was here to learn  

Not a newbie, respectfully submitted,

Mark

I sincerely apologize if I upset you. I hope you will continue to post questions because, obviously, these are issues that need to be addressed.

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1 hour ago, here_2_help said:

I sincerely apologize if I upset you. I hope you will continue to post questions because, obviously, these are issues that need to be addressed.

I’m sorry I over reacted.  After further review, I took things too literally.  You all are have always been here to help.   I really couldn’t find anything and was frustrated , as always you all did provide the guidance I was looking for. Looking for a “mulligan”,  ok?  

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Vern, Here_to_Help, et.al.,  (Please read)

OK, so it appears that I did make a "newbie" mistake.  The internet is a wonderful tool, but you only get a response to "what you ask", and it clouds out everything else and my question was "confusing" my searches.  I completely skipped the one authoritative  document, the FAR, for my search and well DUH,  I "missed the forest for the trees."

Gosh, I do feel stupid; boy those crow feathers are hard to get down! (no, really).  With that over with, this contract was novated in an acquisition, during the novation process, it changed from a CPFF to a T&M and in re-writing the contract, the handling of OT was completely left out.  All our T&M contracts include the clause.  MOD was completed before the novation; we completely missed it, assuming that it included the language for the handling of OT. 

Gentlemen, yes 52.232-7, (a), (8) plainly lays out the obvious and specifical answer to my question.

"(8) Unless the Schedule prescribes otherwise, the hourly rates in the Schedule shall not be varied by virtue of the Contractor having performed work on an overtime basis. If no overtime rates are provided in the Schedule and overtime work is approved in advance by the Contracting Officer, overtime rates shall be negotiated. Failure to agree upon these overtime rates shall be treated as a dispute under the Disputes clause of this contract. If the Schedule provides rates for overtime, the premium portion of those rates will be reimbursable only to the extent the overtime is approved by the Contracting Officer."

So, thank you "Gods of wisdom and guidance in all things GovCon" (I am not being a smart @%#.).  You provided an answer and guided me back on track to where I should be researching.  

I think the response to my boss is simple unless we request a MOD to include OT rate, we can only bill the Scheduled rates for hours performed (following any additional guidelines).

Again, please forgive my last "emotional outburst" email.  It was out of character for me, and disrespectful of the time and patience you took to answer my question.

As always thank you,

Humbly,

Mark

 

 

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On 9/15/2018 at 3:30 PM, marcfgov said:

I’m sorry I over reacted.  After further review, I took things too literally.  You all are have always been here to help.   I really couldn’t find anything and was frustrated , as always you all did provide the guidance I was looking for. Looking for a “mulligan”,  ok?  

We're good.

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21 hours ago, marcfgov said:

I think the response to my boss is simple unless we request a MOD to include OT rate, we can only bill the Scheduled rates for hours performed (following any additional guidelines).

Will you want to charge the OT rate for hours worked by exempt employees in excess of 40?

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