When the government shuts down, many federal workers go without paychecks, whether they are deemed essential and required to show up or whether they’re furloughed for the duration of the shutdown.
Such employees are by law entitled to back pay once a funding agreement is reached, but independent contractors who sell goods or services to the U.S. government are not similarly protected.
Dan Koh, the former chief of staff at the Labor Department under President Biden, recently said on his podcast, called “The People’s Cabinet,” that contract workers employed by companies that have agreements with the government are hurt in a shutdown.
According to Koh, that’s because there’s no guarantee such workers will be paid once the government reopens. But even federal workers who are entitled to receive back pay can suffer during a shutdown, as many of them live paycheck to paycheck, he added.
“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 told CBS News. “If you have to pay your subway fare, for gas, if something breaks in your home, and you’re not getting paid, it places extreme stress on government employees,” he said.
Who gets paid and who does not?
Federal workers, including both furloughed and excepted government employees, receive back pay under a federal law guaranteeing that they’ll eventually be made whole. The Government Employee Fair Treatment Act of 2019 states that workers who are furloughed due to a lapse in federal funding, as well as excepted workers who are considered essential and required to work without being paid, all receive back pay “at the earliest date possible after the lapse in appropriations ends, regardless of scheduled pay dates.”
By contrast, workers and businesses that contract with the government are not similarly guaranteed delayed compensation.
Roughly 620,000 people, or about 28% of federal workers, are projected to be furloughed during the shutdown, according to an Oxford Economics analysis of government data. Additionally, millions of private sector workers who are supported by federal grants and contracts could see their pay be affected by the shutdown, according to the economic advisory firm.
The group estimates that the government supports up to an additional 10 million private workers through federal grants and contracts.
In 2024, the federal government spent about $755 billion on contracts for a wide variety of goods and services, according to the U.S. Government Accountability Office.
“The government is the largest buyer of goods and services, so when they are not paying, it’s not ripples, it’s waves,” Aron Beezley, co-leader of the Government Contracts Practice Group at Bradley, a national law firm, told CBS News.
Personnel needed to process payment
Some federal contracts are fully funded, meaning that the federal government has allocated money to a given job, and it’s likely to continue.
“If your contract is fully funded by the previous year’s appropriations, your contract will go forward, generally speaking,” he told CBS News.
But even then, companies can expect snags in getting paid on schedule during a shutdown. That’s because government personnel tasked with processing contractor invoices might not be at work.
“When you submit invoices during a shutdown, the system the government uses to pay contractors requires human involvement. Invoices need to be reviewed, and a lot of times a contractor has questions for the folks who process invoices,” Beezley explained.
As a result, contractors with fully funded contracts can encounter practical impediments to receiving payments they are owed.
“If nobody is home to process the invoice, it can be challenging to get paid, which can create cash flow issues, particularly for small businesses,” Beezley said.
Partially funded contracts
A company with an incrementally funded government contract may find itself in a more precarious financial position. Under such contracts, the government pays a business for the work it does as a job progresses.
“During a shutdown, the funds might not be there for a contractor, and in such situations, those contractors are looking at whether they need to stop working or keep going, and try to get the government to pay them later,” Beezley said.
Even when contractors want to continue doing their jobs, they might be impeded by small practical obstacles.
“Say a person who unlocks a government facility in the morning has been furloughed and a contractor shows up Monday morning and can’t get into the facility — that impacts their performance,” Beezley said.
Federal agencies have the discretion to terminate such contracts, at which point a company can decide whether or not to continue paying workers, or assign them to another job.
“Most contracting companies out of goodness of heart don’t keep paying janitors,” Koh said. “So in effect, most of them aren’t getting paid.”
Attempts at legislation
In 2023, Sen. Tina Smith, a Democratic Senator for Minnesota, introduced legislation to secure 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, providing food service, security, and doing custodial work,” Smith said in a statement at the time. “These are often low-wage jobs that mean workers are living paycheck to paycheck. In the past, these workers haven’t received back pay at the end of a government shutdown like the thousands of government employees. And it’s time we right that wrong.”
The bill failed to advance.
Small businesses
As far as ripple effects go, businesses in places like Washington, D.C., Virginia and Maryland, that depend on government workers’ patronage could start feeling a pinch if the shutdown drags on for more than a few weeks. Without cash in their pockets, such workers are expected to pull back on their discretionary spending, according to economists.
“If a shutdown is prolonged, there will be repercussions for businesses in certain areas with a large number of federal workers, if they aren’t being paid,” Nancy Vanden Houten, lead U.S. economist at Oxford Economics told CBS News. “Areas that rely on the government workforce to spend at their business could be vulnerable.”
