As we advised previously, President Obama announced during his State of the Union address that he would raise the minimum wage for federal construction and service contractor employees from US$7.25 to US$10.10 an hour.1 On February 12, 2014, the President signed an executive order establishing this rate beginning January 1, 2015.2

Here are additional details of the President’s plan that federal contractors should be aware of:

  • „„ Although the new minimum wage would not be effective until January 1, 2015, agencies currently negotiating new contracts and contract-like instruments are “strongly encouraged” to take “all steps that are reasonable and legally permissible to ensure that individuals working pursuant to those contracts” will be paid the new minimum wage. Accordingly, contractors preparing to submit bids or assessing potential federal contracting opportunities should begin determining, as soon as possible, how the change will affect their proposals.
  • „„ In addition to the US$10.10 minimum wage for non-tipped workers, tipped workers must be paid US$4.90 an hour under the order, provided the tips they receive increase their wages to the US$10.10 minimum.
  • „„ The new minimum wage is not static. The order requires that the wage rate be increased yearly as determined by the Secretary of Labor based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (the tipped worker wage will increase under a different formula).
  • „„ While the executive order does not indicate how contract renewals are to be affected by this change, the order compels executive departments and agencies, “to the extent permitted by law,” to include in future contracts a clause specifying the new minimum wage as a condition of payment. Thus, if a contract being renewed can be substantively altered, the executive order appears to compel the contracting agency to modify the contract to reflect this new requirement.
  • „„ The Secretary of Labor is expected to issue implementing regulations by October 1, 2014. Within 60 days thereafter, the Federal Acquisition Regulatory Council is expected to update the FAR to comply with the new requirements
  • Finally, the executive order also “strongly encourage[s]” independent agencies to comply with the new minimum wage.