On June 12, 2014, the U.S. Department of Labor (DOL) issued its proposed rule to implement President Obama’s Executive Order 13658 which raises the minimum wage for workers on federal contracts to $10.10 per hour. The Executive Order applies to new and replacement federal contracts that are awarded based on solicitations issued on or after January 1, 2015. It also applies to contracts that are awarded on or after January 1, 2015 outside the solicitation process.
Federal Contractor Minimum Wage Applies to Four Categories of Contracts
Under the Executive Order, the new minimum wage for federal contractor employees reaches four major categories of federal contracts:
- Procurement contracts for construction covered by the Davis-Bacon Act (DBA);
- Service contracts exceeding $2,500 that are subject to the Service Contract Act (SCA);
- Concessions contracts where the contractor uses federal property (e.g., land or facilities), such as operating restaurants, lodging and souvenir shops in national parks; and
- Contracts in connection with federal property or land and related to offering services for federal employees, their dependents or the general public, such as leasing space in a federal building to operate a child care center.
The proposed rule makes clear that certain contractual arrangements are excluded from the new minimum wage requirement, namely (a) grants; (b) contracts with or grants to an Indian Tribe; (c) procurement contracts for construction that are not subject to the DBA (i.e., for less than $2,000); (d) any contract for services that are exempted from coverage under the SCA (e.g., contracts for public utility services); and (e) employment contracts providing direct services to a federal agency by an individual.
Workers Entitled to the Federal Contractor Minimum Wage
Federal contractors need to know which employees are entitled to the new $10.10 per hour minimum wage. The proposed rule provides that workers who perform work on covered federal contracts will be entitled to the federal contractor minimum wage for all time spent working on covered contract work, provided their wages are governed by the Fair Labor Standards Act (FLSA), the DBA or the SCA. In other words, it applies to employees who are entitled to either the FLSA minimum wage or prevailing wages under the DBA or SCA for all hours worked on covered federal contract projects. The proposed rule also clarifies that the new minimum wage applies to FLSA-covered employees who provide support on DBA and SCA-covered contracts when such support is necessary to the performance of the contract.
Contract Clauses, Annual Wage Setting Process and Enforcement
The proposed rule sets forth the obligations that covered contractors and subcontractors will need to fulfill, such as including the minimum wage contract clause in lower-tiered subcontracts and required recordkeeping. The rule also prohibits employers from retaliating against employees who exercise their rights to receive the federal contractor minimum wage and prohibits taking kickbacks from wages paid to employees on covered contract work.
Each year, beginning January 1, 2016, the Secretary of Labor will evaluate whether the $10.10 per hour minimum wage rate for federal contract work should be revised. Any new rate is to be published at least 90 days before it is to take effect.
The DOL’s Wage and Hour Division (WHD) will utilize its enforcement mechanisms to handle any complaints of a violation of the Executive Order or its implementing regulations. The WHD may conduct an investigation and pursue an informal complaint resolution. It may also seek remedies for a violation, such as payment of back wages, as well as sanctions, such as debarment. Administrative hearings may be used to resolve disputed cases.
Interested Parties May Submit Comments
Anyone interested in submitting comments to the DOL related to its proposed rule implementing the Executive Order establishing a federal contractor minimum wage may do so at http://www.regulations.gov. Comments must be received on or before July 17, 2014. The DOL states it will review the comments received and issue a final rule by October 1 of this year. More information may be found at http://www.dol.gov/whd/flsa/nprm-eo13658.