On October 1, 2014, the U.S. Department of Labor announced that it would publish a final rule implementing the provisions of President Obama's Executive Order 13658 to raise the minimum wage for employees of federal contractors, which the President announced in his State of the Union Address in January. Generally, the rule will raise the federal minimum wage for employees on new federal contracts to $10.10 per hour. The new minimum wage will take effect on January 1, 2015, for all federal government contracts (and related subcontracts) that result from a solicitation issued on or after January 1, 2015, or are awarded outside the solicitation process on or after January 1, 2015. This includes both new contracts and replacements for expiring contracts. Replacements for expiring contracts will be considered new if, through bilateral negotiation, on or after January 1, 2015: (1) the contract is renewed; (2) the contract is extended, unless the extension is made pursuant to a term in the contract as of December 31, 2014, providing for a short-term limited extension; or (3) the contract is amended pursuant to a modification that is outside the scope of the contract.
The final rule applies to four major categories of federal government contracts and subcontracts: (1) all contracts for construction covered by the Davis-Bacon Act; (2) contracts for services covered by the Service Contract Act; (3) concessions contracts, such as contracts to furnish food, lodging, automobile fuel, souvenirs, newspaper stands and/or recreational equipment on federal property; and (4) contracts to provide services, such as child care or dry cleaning, in federal buildings for federal employees or the general public. The rule affects nearly 200,000 American workers, and it was published in the Federal Register on October 7, 2014.
Existing contracts containing lower wages will be honored, but contractors will be required to adjust their future bids to accommodate higher wages. The final rule will cover workers who are currently making less than $10.10 per hour, such as military base workers, dishwashers, food servers and construction workers. Many of these employees work for private employers in government buildings.
Among the final rule's key requirements are the following:
- Covered contractors and subcontractors must pay covered workers at least the $10.10 minimum wage for all hours worked on or in connection with covered contracts, and they must comply with new pay frequency and recordkeeping obligations outlined in the rule. For example, if a covered contractor during any workweek is not exclusively engaged in performing covered contracts, or it has workers who spend a portion but not all of their hours worked in the workweek performing work on or in connection with such contracts, it is necessary for the contractor to identify accurately in its records, or by other means, those periods in each such workweek when the contractor and each such worker performed work on or in connection with such contracts.
- Covered contractors and subcontractors have to include the Executive Order contract clause in any covered lower-tier subcontracts.
- Covered contractors and subcontractors are required to notify all workers performing work on or in connection with a covered contract or subcontract of the applicable minimum wage rate. The notice will be posted at http://www.dol.gov/whd/ and the Wage Determinations OnLine website at www.wdol.gov.
- Covered contractors and subcontractors are prohibited from retaliating against any worker for exercising his or her rights under the Executive Order or the implementing regulations.
- Covered contractors and subcontractors are prohibited from taking kickbacks from wages paid to workers on covered contracts or subcontracts.
- The rule indexes the minimum wage to inflation, adjusted annually on January 1. The Secretary of Labor will publish the new minimum wage rate in the Federal Register at least 90 days before it takes effect.
The final rule also contains limited exclusions from coverage for certain workers, such as those who are employed in a bona fide executive, administrative or professional capacity and who are therefore exempt from the Fair Labor Standard Act's minimum wage and overtime requirements. Non-exempt workers performing work solely "in connection with" covered federal contracts (i.e., other than work directly called for by the contract or subcontract) are also excluded from coverage of the Executive Order if they spend fewer than 20 percent of their work hours in a particular workweek performing such work. For example, a foreman hired under a federal contract who devotes less than 20 percent of his or her work hours to laborer or mechanic duties would be excluded from the new minimum wage provision.
What This Means for Employers
The new rule raising the minimum wage for certain federal contractors is further evidence of the Obama administration's interest in raising minimum wages generally, and the administration's apparent willingness to take unilateral action through the issuance of Executive Orders and regulations in areas where Congress will not act. President Obama has already stated that he believes the general federal minimum wage should be raised.
Contractors and subcontractors may have new obligations under the final rule, and they should consider consulting with legal counsel to make sure that they are complying fully. Contractors should also be alert for further developments related to this new minimum wage requirement, including posting of the DOL notice to be provided to employees, and annual adjustment of the required minimum wage.