How Would a Government Shutdown Affect Employers?

By Maggie Roddy posted 09-22-2023 09:06 AM


A divided Congress threatens to trigger a federal government shutdown on October 1, 2023, if 12 appropriation bills required to fund the government are not passed before the start of the new fiscal year. Without funding, federal agencies will cease all non-essential functions, creating a domino effect on federal employees, federal contractors, and private employers that rely on governmental services.  

Federal Employees 

During a shutdown, non-essential federal employees are furloughed without pay, while essential federal employees, like air traffic controllers and law enforcement, are required to work but do not receive pay. A 2019 law requires all federal employees to receive retroactive pay and leave accrual once the shutdown ends. Notably, federal employees cannot use paid leave and cannot volunteer to work. Federal employees can file for unemployment, but they generally must return any funds received once backpay is awarded.  

Active-duty military may also go without pay during the shutdown. During previous shutdowns, troops have received pay because lawmakers pass a special bill prior to the shutdown allowing military paychecks. Congress has not yet passed a bill ensuring military pay for this potential shutdown, though such a bill has historically been passed just hours before the shutdown begins  

Federal Contractors  

While some contracts can continue during a government shutdown, specifically those that are fixed price or funded by appropriations that don’t expire at the end of the fiscal year, most federal contracts are impacted because government contracting officers are unable to requisition work without funds. Without funding allowing work to continue, the contractor must stop work or may not be paid if the work is continued.  

Consequently, federal contractors, like federal employees, are often furloughed during a government shutdown. However, unlike federal employees, they are not guaranteed backpay. Any backpay that is received comes from the company, not the government. Note also that the requirements pursuant to the Fair Labor Standards Act (FLSA) and other state wage and hour laws continue without exception.  

Additionally, no new contracts can be awarded or modifications can be issued, government facilities used by contractors may be closed, and invoices will not be paid 

Federal contractors should remain in touch with their contracting officer to receive instructions regarding a work stoppage. Contractors should also communicate with their subcontractors. If subcontractors continue work on a contract that has been told to stop work, the contractors will be responsible for amounts that cannot be recovered from the government.  

Private Businesses  

Private employers will also be impacted by a government shutdown. Some federal services that businesses rely on, like passport renewals necessary for business travel or citizenship or work authorization applications for employees, may be delayed or stopped. Likewise, employers in the process of receiving small-business loans will be impacted as the Small Business Administration (SBA) will be unable to make new loans. Additionally, as most federal employees will be furloughed, private businesses may be unable to receive necessary federal support  

Business travel could also be impacted. In the 2019 government shutdown, many Transportation Security Administration (TSA) agents did not report to work because of the lack of pay, causing substantial flight delays and terminal closures. 

Employers Council is monitoring the government shutdown and will send out updates when available. If you have any questions about how a shutdown could affect your organization, please email our Member Experience Team.