The Government pays employees for administrative leave for a lot of reasons; specific Government-wide examples include emergency dismissals, civilians returning from active military duty, voting, or the death of a president. Beyond that, agencies can use administrative leave when such leave is directly related to the agency's mission to enhance the development or skills of the employee, or be as brief as possible and in the interest of the agency. Some past examples have included the Employee Assistance Program, blood donations or agency-approved volunteering (though one wonders if the employee is being paid, is that truly volunteering). Some employees have been placed on administrative leave pending the outcome of an investigation or pending a physical examination. According to OPM (Office of Personnel Management), the Government's HR (Human Resources) Department, administrative leave should never be used for an extended or indefinite period of time or used on a recurring basis.
So what about Government contractors and their use of paid administrative leave? What does FAR (Federal Acquisition Regulations) say about paid administrative leave?
The second of these two questions is easy. FAR is silent on the matter. There is nothing in FAR 31.205-6 (Compensation) or any other cost principle that addresses the subject of paid administrative leave. Paid administrative leave would probably fall under the general category of fringe benefits so that would make such costs allowable as long as they are reasonable.
Contractors should expect to provide some rationale and circumstance for uses of paid administrative leave. If there is a valid reason and it is what a "prudent person in the conduct of competitive business" would normally expect to occur, there there should be no reason for the Government to come along and try to disallow the costs.
If however, the use of paid administrative leave was for some disciplinary action associated with improper conduct by an employee, the allowability would probably be contingent upon the outcome. The costs might initially be charged to the Government pending an investigation, adjudication and final decision. The costs might then become unallowable if the contractor were "at fault" once the situation is fully resolved.
We recommend that contractors develop written policies for the use of paid administrative leave with descriptions for how such payments will be accounted for under different scenarios. Also, if the costs become significant, consider an advance agreement with your administrative contracting office to avoid future conflicts.