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    Home/FAR Navigator/22/22.3/22.302

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    Up to 22.3
    SectionUpdated April 16, 2026

    FAR 22.302—Liquidated damages and overtime pay.

    Plain-English Summary

    FAR 22.302 explains how liquidated damages are handled when overtime pay violations are found under the labor standards statute. It covers four main subjects: payment of back wages to affected employees, assessment of liquidated damages to the Government, the rate and annual inflation adjustment for those damages, the order in which withheld funds must be applied when there is not enough money to cover everything owed, and the limited authority of an agency head to reduce, release, or recommend waiver of liquidated damages in certain cases. It also addresses what happens after the contracting officer determines the amount due and the contractor makes the required payments. In practice, this section matters because it sets the financial consequences for failing to pay required overtime, protects workers’ wage rights first, and gives agencies a structured process for collecting and distributing withheld funds. Contractors need to understand that overtime violations can trigger both employee wage liability and separate Government liquidated damages, while contracting officers must calculate, assess, and administer those amounts correctly.

    Key Rules

    Back wages and damages owed

    If an overtime computation shows underpayments, the responsible contractor or subcontractor must pay the affected employee the unpaid wages and also pay liquidated damages to the Government. The obligation is separate: one payment compensates the worker, and the other is a civil monetary consequence owed to the Government.

    Liquidated damages rate

    The contracting officer must assess liquidated damages at the rate specified in 29 CFR 5.5(b)(2) for each affected employee for each calendar day the employee was required or permitted to work more than 40 hours in a workweek without receiving required overtime pay. The amount is tied to the regulatory rate in effect, not a discretionary estimate.

    Annual inflation adjustment

    The Department of Labor adjusts the civil monetary penalty for inflation no later than January 15 each year under the Federal Civil Penalties Inflation Adjustment Act. Users must check the current rate rather than relying on an older dollar amount.

    Priority of withheld funds

    If withheld funds do not cover both unpaid wages and liquidated damages, the contractor or subcontractor must first pay laborers and mechanics the wages they are owed. Only after wages are paid, or prorated if available funds are insufficient, may remaining funds be applied to liquidated damages.

    Limited relief authority

    If the agency head finds the assessed liquidated damages are incorrect, or that the violation was inadvertent despite due care, the agency head may reduce or release liquidated damages of $500 or less, or recommend that the Secretary of Labor reduce or waive amounts over $500. This is a limited exception, not a general waiver authority.

    Post-determination disbursement

    After the contracting officer determines the liquidated damages and the contractor makes the appropriate payments, any remaining withheld amounts must be disbursed according to agency procedures. The section does not allow indefinite retention of excess funds.

    Responsibilities

    Contracting Officer

    Determine the amount of liquidated damages, assess them at the applicable regulatory rate, and ensure remaining withheld funds are disbursed according to agency procedures after required payments are made.

    Contractor

    Pay affected employees any unpaid overtime wages, pay liquidated damages to the Government, and make the appropriate payments once the amounts are determined.

    Subcontractor

    If responsible for the violation, pay affected employees unpaid wages and pay liquidated damages as required, just as a prime contractor would.

    Agency Head

    Review cases where the assessed liquidated damages are incorrect or where the violation was inadvertent despite due care, and reduce, release, or recommend waiver of liquidated damages within the limits stated in the rule.

    Department of Labor

    Adjust the civil monetary penalty for inflation annually, which affects the liquidated damages rate used under this section.

    Federal Agency Holding Funds

    Apply withheld funds in the required order, first to wages owed to laborers and mechanics and then to liquidated damages, prorating if necessary when funds are insufficient.

    Practical Implications

    1

    This section makes wage repayment the first priority, so contractors cannot use withheld funds to satisfy Government damages before paying workers what they are owed.

    2

    The liquidated damages amount is not static; contracting officers and contractors must verify the current DOL-adjusted rate each year to avoid using an outdated figure.

    3

    A violation can create two separate liabilities at once: unpaid overtime wages to employees and liquidated damages to the Government, which can significantly increase the financial exposure.

    4

    Relief from liquidated damages is limited and depends on specific findings by the agency head; contractors should not assume that inadvertent errors will automatically be excused.

    5

    Accurate overtime tracking and prompt correction of payroll errors are critical, because the damages are assessed per affected employee and per calendar day, which can quickly multiply the total amount owed.

    Official Regulatory Text

    (a) When an overtime computation discloses underpayments, the responsible contractor or subcontractor must pay the affected employee any unpaid wages and pay liquidated damages to the Government. The contracting officer must assess liquidated damages at the rate specified at 29 CFR 5.5 (b)(2) per affected employee for each calendar day on which the employer required or permitted the employee to work in excess of the standard workweek of 40 hours without paying overtime wages required by the statute. In accordance with the Federal Civil Penalties Inflation Adjustment Act of 1990 ( 28 U.S.C. 2461 Note), the Department of Labor adjusts this civil monetary penalty for inflation no later than January 15 each year. (b) If the contractor or subcontractor fails or refuses to comply with overtime pay requirements of the statute and the funds withheld by Federal agencies for labor standards violations do not cover the unpaid wages due laborers and mechanics and the liquidated damages due the Government, make payments in the following order— (1) Pay laborers and mechanics the wages they are owed (or prorate available funds if they do not cover the entire amount owed); and (2) Pay liquidated damages. (c) If the head of an agency finds that the administratively determined liquidated damages due under paragraph (a) of this section are incorrect, or that the contractor or subcontractor inadvertently violated the statute despite the exercise of due care, the agency head may- (1) Reduce the amount of liquidated damages assessed for liquidated damages of $500 or less; (2) Release the contractor or subcontractor from the liability for liquidated damages of $500 or less; or (3) Recommend that the Secretary of Labor reduce or waive liquidated damages over $500. (d) After the contracting officer determines the liquidated damages and the contractor makes appropriate payments, disburse any remaining assessments in accordance with agency procedures.

    Back to 22.3FAR Navigator
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