Uncompensated Overtime - FAR Amendment to Clarify Government Policy

The issue of uncompensated overtime has long been a Government concern. Although the Government does not encourage the use of uncompensated overtime (see FAR 31.115-2(a)), contractor employees often work uncompensated overtime and when the uncompensated overtime is not factored into the calculation of hourly rates (or salaries), the contractor earns a windfall if it bills out (or negotiates) all hours, compensated and uncompensated, at rates that do not reflect uncompensated hours.

FAR Part 37 prescribes policies and procedures that are specific to the acquisition and management of service contracts. Service contracts include such activities as (i) maintenance, overhaul, repair, servicing rehabilitation, salvage, and modernization, (ii) routine recurring maintenance or real property (iii) housekeeping and base services, (iv) advisory and assistance services, (v) operation of Government-owned equipment, real property, and systems, and (vi) etc.

Last week, the FAR Councils modified this section by adding two new definitions and a general policy concerning uncompensated overtime. The two new definitions read:

Adjusted hourly rate (including uncompensated overtime) is the rate that results from multiplying the hourly rate for a 40-hour work week by 40, and then dividing by the proposed hours per week which includes uncompensated overtime hourrs over and above the standard 40-hour work week. For example, 45 hours proposed on a 40 hour work week basis at $20 per hour would be converted to an uncompensated overtime rate of $17.78 per hour ($20.00 * 40/45 = $17.78).

Uncompensated overtime means the hours worked without additional compensation in excess of an average of 40 hours per week by direct charge employees who are exempt from the Fair Labor Standards Act. Compensated personal absences such as holidays, vacations, and sick leave shall be included in the normal work week for purposes of computing uncompensated overtime hours.

A provision (subparagraph (d)) has also been added to the General Policy at FAR 37.115-2 and reads:

Whenever there is uncompensated overtime, the adjusted hourly rate (including uncompensated overtime(, rather than the hourly rate, shall be applied to all proposed hours, whether regular or overtime hours.

These changes were for the purpose of clarifying the existing regulations, not to make any changes in the policy for uncompensated overtime. But its a good reminder for contractors that they need to develop timekeeping and labor distribution systems that track and account for uncompensated overtime.

Click here for additional details on the FAR change.