The Wage and Hour Division of the U.S. Department of Labor (“DOL”) published its final regulations to implement Executive Order 13658, “Establishing a Minimum Wage for Contractors,” which was signed by President Obama on February 12, 2014. The new minimum wage will increase to $10.10 per hour under new contracts and replacement contracts with the federal government, if the contract results from a solicitation issued on or after January 1, 2015.

The new minimum wage requirement will apply to contracts and subcontracts covered by the Service Contract Act (SCA), the Davis-Bacon Act or contracts with the federal government in connection with federal property or lands and related to offering services for federal employees, their dependents or the general public (each individually a “Covered Contract”). The workers who perform work on or in connection with a Covered Contract will be entitled to the new minimum wage unless the worker is an exempt employee under the Fair Labor Standards Act (“FLSA”), such as a bona fide executive, administrative or professional employee. Apprentices, learners or messengers whose wages are calculated pursuant to special certificates are excluded from the minimum wage requirement, as are students.

The category of workers who work “in connection with a Covered Contract” (not “on the Covered Contract”) is limited to those who are covered by the FLSA minimum wage requirements and (1) perform duties necessary to the performance of the contract, (2) are directly engaged in performing the specific work called for by the contract and (3) spend more than 20 percent of their hours worked in a particular workweek performing in connection with such contracts.     

In addition to the new wage requirement, contractors and subcontractors will have additional burdens: First, they must include the minimum wage clause in their Covered Contracts and shall also require, as a condition of payment, that the subcontractors include the clause in any lower-tier subcontracts. The prime contractor and any upper tier contractor will be responsible for the subcontractor or lower tier subcontractor’s compliance, regardless of whether the contract clause is included in the subcontract. Second, they must maintain records containing the following information for three years: 1) name, address and social security number of each worker; 2) worker’s occupation(s) or classification(s); 3) the rate or rates of wages paid; 4) the number of daily and weekly hours worked by each worker; 5) any deductions made; and 6) the total wages paid. The records must be made available to the DOL for inspection and the workers must also be permitted to participate in interviews conducted by the DOL.

Failure to comply with the new regulations can subject a contractor to suspension or cancellation of the contract and debarment. If a wage deficiency is found, the contracting agency may on its own initiative or on request from the DOL, withhold contract funds (or funds under another contract) in a sufficient amount to satisfy the deficiency.

As contractors and subcontractors prepare to bid on new solicitations or negotiate replacement contracts on or after January 1, 2015 they should identify those workers who will be eligible for the new minimum wage and take steps to implement the new contract provisions and recordkeeping requirements.