As we mentioned in our January issue, the issue of minimum wage is on the forefront of a number of local legislation and regulatory initiatives across the country, and President Obama’s recent Executive Order raising minimum wage for workers of federal contractors now extends those efforts to the federal context.

An Executive Order signed by President Obama on February 12, 2014, increased the minimum wage for non-tip earning workers of federal contractors and subcontractors to $10.10 per hour as of January 1, 2015 – an increase of 39 percent from the current minimum wage of $7.25 per hour. In successive years, the minimum wage will increase in accordance with the Consumer Price Index. The hourly cash wage earned by tip-earning workers will also increase to $4.90 per hour by January 1, 2015, from the current $2.13, with a similar yearly increase of the lesser of $0.95 cents or the amount necessary for the cash wage to equal 70% of the minimum wage of non-tip earning workers.

Only federal contractors soliciting or receiving new contracts on or after January 1, 2015, for  procurement of services or construction, services covered by the Service Contract Act, concessions, and services in connection with federal property or lands, will be subject to the new minimum wage. The new minimum wage will not apply to all employees, but rather only to employees “in performance of the contract.” Regulations implementing the detailed requirements of the new minimum wage are expected to be issued by the U.S. Secretary of Labor by October 2014. New solicitation provisions and contract clauses reflecting the increase will be published within 60 days thereafter - that is, by December 1, 2014.

The announcement follows that of 13 other states and 4 cities raising state and local minimum wages in 2014. Employers who are parties to federal contracts or subcontracts should factor the new minimum wage requirement into future contract bids and begin brace themselves for increased minimum wage costs as of January 2015. It is essential that employers immediately assess their wage and payroll practices to ensure compliance with the new minimum wage rates. Federal contractors in particular should analyze and prepare budgets, payroll, benefits, and for some, collective bargaining obligations to ensure compliance with the Executive Order by its January 2015 effective date.