President Barack Obama is expected to announce during his State of the Union address, scheduled for the evening of January 28, 2014, that he is raising the minimum wage for workers on new federal contracts to $10.10 per hour. The President plans to raise the minimum wage by issuing an Executive Order. It is expected the rate increase will apply only to contracts issued after the effective date of the Executive Order.

The federal minimum wage of $7.25 per hour has not been raised since 2009. President Obama has pledged to push Congress to increase the minimum wage for all workers to $10.10, and to index it to inflation thereafter. 

According to a fact sheet released by the Administration, the Executive Order wage increase will cover workers who are performing services or construction work and are getting paid less than $10.10 an hour. Workers covered include janitors, construction workers, and military base workers who wash dishes, serve food and do laundry. 

Many service and construction contracts already are subject to federal prevailing wage laws (under the Davis-Bacon Act for construction and the Service Contract Act (SCA) for services) that often, but not always, require payment of wage rates in excess of $10.10 per hour as determined  by the U.S. Department of Labor. Under the Executive Order, contractors presumably would have to pay the higher of the prevailing wage rate or the new federal contract minimum wage rate for federal contract employees. We will provide further information once the Executive Order is available and such issues as coverage, the effective date of the new minimum wage, and the interplay between the Executive Order and the prevailing wage laws are clearer. 

The Administration’s fact sheet states that “higher minimum wage for federal contract workers will provide good value for the federal government and hence good value for the taxpayer. Boosting wages will lower turnover and increase morale, and will lead to higher productivity overall. Raising wages for those at the bottom will improve the quality and efficiency of services provided to the government. When Maryland passed its living wage law for companies contracting with the state, there was an increase in the number of contractors bidding and higher competition can help ensure better quality.”