Government Shutdown: The Hidden Toll on Contract Workers

As the specter of a government shutdown looms, the implications extend far beyond the immediate impact on federal employees. While many federal workers are guaranteed back pay, independent contractors who provide essential services to the government find themselves in a precarious position, often left without financial recourse during these turbulent times.

The Unseen Consequences of a Shutdown

When the government shuts down, federal employees, whether deemed essential or furloughed, face the immediate challenge of going without paychecks. Although they are entitled to back pay once funding is restored, independent contractors lack similar protections. Dan Koh, former chief of staff at the Labor Department under President Biden, highlighted this disparity on his podcast, “The People’s Cabinet.” He noted that contract workers often “get screwed” during shutdowns, as there is no guarantee they will receive compensation once the government reopens.

Koh emphasized the financial strain on federal employees, many of whom live paycheck to paycheck. “Even if you are entitled to back pay, a lot of people can’t go even a couple of days without their regularly scheduled paycheck,” he explained to CBS News. This financial uncertainty can lead to significant stress, particularly for those who rely on their income for daily expenses.

Who Gets Paid and Who Doesn’t?

Under the Government Employee Fair Treatment Act of 2019, federal workers-including both furloughed and essential employees-are guaranteed back pay after a lapse in funding. This law ensures that they will be compensated “at the earliest date possible” once appropriations are restored. However, independent contractors and businesses that work with the government do not enjoy the same protections.

According to an analysis by Oxford Economics, approximately 620,000 federal workers, or about 28% of the workforce, are expected to be furloughed during a shutdown. Additionally, millions of private sector workers supported by federal grants and contracts may also see their pay affected. The firm estimates that the government indirectly supports up to 10 million private workers through these contracts.

In 2024, the federal government allocated around $755 billion for contracts covering a wide range of goods and services, making it the largest buyer in the market. “When they are not paying, it’s not ripples, it’s waves,” said Aron Beezley, co-leader of the Government Contracts Practice Group at Bradley, a national law firm. The financial repercussions of a shutdown can thus extend far beyond the federal workforce.

The Payment Processing Bottleneck

While some federal contracts are fully funded, meaning that the government has already allocated money for specific jobs, contractors may still face delays in receiving payments during a shutdown. Beezley explained that the government’s payment system requires human involvement for processing invoices. If the personnel responsible for this task are furloughed, contractors may find it challenging to get paid on time.

“Even if your contract is fully funded, you can encounter practical impediments to receiving payments,” Beezley noted. This situation can create cash flow issues, particularly for small businesses that rely on timely payments to meet their operational costs.

The Risks of Incrementally Funded Contracts

Contractors with incrementally funded contracts face an even more precarious situation. These contracts allow the government to pay businesses as work progresses, but during a shutdown, funds may not be available. “Contractors are left to decide whether to stop work or continue in hopes of getting paid later,” Beezley explained.

Even if contractors wish to continue their work, they may encounter logistical challenges. For instance, if a government employee responsible for unlocking a facility is furloughed, contractors may be unable to access the site, hindering their ability to perform their duties. Federal agencies also have the discretion to terminate contracts during a shutdown, leaving companies to decide whether to continue paying their workers.

Legislative Efforts to Address the Gap

In 2023, Senator Tina Smith of Minnesota introduced legislation aimed at securing back pay for federal contract workers facing layoffs during a potential shutdown. “Contractor employees perform jobs that are critical to the operation of our government,” Smith stated. “These are often low-wage jobs that mean workers are living paycheck to paycheck.” Unfortunately, the bill did not advance, leaving many contract workers without the protections afforded to their federal counterparts.

The Broader Economic Impact

The ramifications of a government shutdown extend beyond the immediate financial struggles of federal employees and contractors. Businesses in regions heavily reliant on government workers, such as Washington, D.C., Virginia, and Maryland, could experience significant downturns if the shutdown persists. Economists warn that without cash flow, federal employees may curtail discretionary spending, impacting local businesses that depend on their patronage.

Nancy Vanden Houten, lead U.S. economist at Oxford Economics, noted, “If a shutdown is prolonged, there will be repercussions for businesses in certain areas with a large number of federal workers.” The interconnectedness of government employment and local economies underscores the far-reaching consequences of a shutdown.

Conclusion

As the threat of a government shutdown looms, the implications for federal employees and independent contractors are profound. While federal workers are guaranteed back pay, the lack of similar protections for contract workers raises critical questions about equity and fairness in the workforce. The financial strain on these workers, coupled with the potential ripple effects on local economies, highlights the urgent need for legislative solutions that address the vulnerabilities faced by all those who contribute to the functioning of the government. As discussions continue, the plight of contract workers remains a pressing issue that demands attention and action.