Overview
This section prescribes the mandatory assessment of unpaid wages and liquidated damages when a contractor violates overtime standards, while also establishing a hierarchy for the distribution of withheld funds and procedures for the waiver of penalties.
Key Rules
- Mandatory Assessment: Contractors must pay affected employees unpaid wages and pay the Government liquidated damages for every day an employee worked over 40 hours without proper overtime compensation.
- Inflation-Adjusted Penalties: The rate for liquidated damages is determined by 29 CFR 5.5(b)(2) and is adjusted for inflation by the Department of Labor by January 15th each year.
- Priority of Payments: If withheld funds are insufficient to cover all liabilities, available money must first be used to pay laborers and mechanics their owed wages before any funds are applied to liquidated damages.
- Waiver Authority:
- Agency heads may waive or reduce liquidated damages of $500 or less if the violation was inadvertent despite the exercise of due care.
- For damages exceeding $500, the Agency head may only recommend a waiver or reduction to the Secretary of Labor.
Practical Implications
- Financial Risk: Because liquidated damages are assessed per employee per day, costs can escalate rapidly; contractors must ensure their timekeeping and payroll systems are robust enough to prevent "inadvertent" errors.
- Restitution Focus: The regulation prioritizes making the worker "whole" over the collection of government penalties, ensuring that labor protections take precedence during the settlement of disputes.