Thursday, March 22, 2012

Weather-Related Closures

Here's a "heads-up" for contractors when authorizing administrative leave due to inclement weather. Most companies would believe that sending employees home or advising them to stay home when inclement weather threatens is the wise thing to do. However, don't be surprised if the Government tries to second-guess your decision and question some costs.

According to current guidance being disseminated to Government auditors, the allowability and allocability of paid administrative leave due to inclement weather must be evaluated on a case-by-case basis in accordance with FAR 31.205-6 (the Compensation cost principle).

Paid absences are allowable to the extent that they are reasonable in nature and in amount and are required by law, employer-employee agreement, or an established policy of the contractor. The issue that auditors are being told to consider is not the reasonableness of the amount paid but whether or not the circumstances warranted the payment of administrative leave.

Some of the factors that auditors are advised to consider in determining cost reasonableness include

  • the severity of the whether conditions
  • whether other businesses and organizations in the same geographical location were closed
  • whether the Federal Government suspended similar operations in the area
Based on these subjective tests, the auditor will assess the reasonableness of the costs. If the costs are determined to be allowable, they should be charged in accordance with the contractor's disclosed or established cost accounting practice for charging paid absences.

Contractors should think about these things before inclement whether (or other natural disasters) threaten. It would probably be update applicable policies and procedures to ensure that any decisions affecting administrative leave are made at the appropriate level and documented.

No comments:

Post a Comment