On Feb. 12, 2014 President Obama signed Executive Order 13,658 to raise the minimum wage for workers on federal service and construction contracts from the current $7.25 to $10.10 per hour.  On June 12, 2014 the United States Department of Labor announced proposed implementation of the Executive Order with respect to all new and renegotiated federal contracts starting Jan. 1, 2015.

This increased minimum wage would apply to the approximately 200,000 employees working for government contractors and subcontractors, and is another salvo in the President’s push for an increase in the federal minimum wage in the private sector nationwide. 

The Office of Management and Budget is reviewing the proposed rule which is expected to be published in the Federal Register in the near future.  Once published the public will have 30 days to submit comments. The final version of the rule is scheduled to be issued by October 1.

The proposed rule would apply to all construction contracts covered by the Davis-Bacon Act; service contracts covered by the Service Contract Act; concessions contracts to furnish food and lodging on federal property; and contracts to provide child care and dry cleaning, in federal buildings.  It would require government agencies to ensure that all contractors and subcontractors with whom they do business pay their employees at least $10.10 per hour starting in 2015. The amount of the minimum wage would be adjusted each year to account for inflation. 

The proposed rule would also eliminate under government contracts and subcontracts the right of employers to pay workers with disabilities who are in specialized certificate programs, less than other workers.

The proposed rule also contains special provisions for tipped employees working on federal contracts and subcontracts.  Beginning in January 2015, tipped workers would have to be paid a minimum hourly wage of $4.90 (in addition to the amount they earn in tips)…more than double the current federal tipped minimum wage of $2.13 per hour. Starting in 2016, the new $4.90 minimum for tipped workers would increase by 95 cents per year until it equals 70 percent of the minimum wage for non-tipped workers under government contracts.

In addition to all of the usual penalties including back pay, liquidated damages and attorneys’ fees, employers in violation of federal contract requirements also face debarment from being able to perform federal contracts.

Simultaneously with the announcement of the proposed rule, the Labor Department issued guidance to federal agencies on steps they should take now to begin implementing the increased minimum wage before the final rule is issued, so workers on federal contracts and sub contracts would be able to receive the anticipated wage increases as soon as possible after Jan. 1, 2015.

More information about the proposed rule and the joint guidance to federal agencies is available at http://www.dol.gov/whd/flsa/nprm-eo13658/.