Executive Summary: On February 12, 2014, President Obama signed Executive Order 13658 raising the minimum wage for the employees of some federal contractors and subcontractors to $10.10 per hour, effective January 1, 2015. On June 17, 2014, the U.S. Department of Labor published a Notice of Proposed Rulemaking (NPRM) and proposed regulations in the Federal Register related to the Executive Order. The Executive Order directs the Secretary of Labor to issue regulations on or before October 1, 2014. Comments to the Notice of Proposed Rulemaking must be received on or before July 17, 2014.
The NPRM requires that covered contractors and subcontractors pay their employees working on federal contracts or subcontracts $10.10 per hour beginning January 1, 2015. Each year after that, the Secretary of Labor is authorized to propose higher hourly rates based on data in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Employees who receive tips of more than $30 per month must be paid $4.90 per hour effective January 1, 2015. The Executive Order covers only contracts or solicitations for contracts that are issued on or after January 1, 2015. In addition, it covers contracts of $2,000 or more for construction covered by the Davis-Bacon Act (DBA), and contracts of $2,500 or more that are covered by the Service Contract Act (SCA). The DBA applies to federal contracts to construct, alter, or repair public buildings. The SCA applies to federal contracts that furnish services through the use of service employees. Generally speaking, service employees are individuals engaged in the performance of a contract made by the federal government the principal purpose of which is to furnish services to the United States. The SCA does not apply to a contract for the carriage of freight or personnel by vessel, airplane, bus, truck, express, railway line or oil or gas pipeline where published tariff rates are in effect.
One of the following conditions must exist in order to trigger coverage under Executive Order 13658: (1) The contract must be a procurement contract for construction covered by the DBA; (2) the contract must be a contract for services covered by the SCA; (3) the contract must be a contract for concessions, including any concessions contract excluded from coverage under the SCA by Department of Labor regulations; or (4) the contract must be entered into with the federal government in connection with federal property or lands and be related to offering services for federal employees, their dependents, or the general public and the wages of workers under such contract are governed by the Fair Labor Standards Act, the SCA, or the DBA. The Executive Order applies to contracts with the federal government requiring performance in whole or in part within the United States.
The proposed regulations require a covered contractor to include language requiring subcontractors to comply with the Executive Order. If the contractor pays a wage that is subject to the DBA or the SCA that is less than the new minimum wage, then the contractor must pay the new wage. Conversely, if the contractor pays a wage that is higher than the new minimum wage, then the higher wage must be paid.
The Executive Order imposes recordkeeping obligations. Covered contractors and subcontractors must maintain pay records for three years that include the name, address, and social security number of each individual; the individual's pay rate; the number of daily and weekly hours worked; and any deductions made.
Any worker, contractor, labor organization, trade organization, contracting agency, or other person or entity that believes the Executive Order has been violated may file a complaint with the Wage and Hour Division of the U.S. Department of Labor. Remedies include orders that back wages be paid, suits for underpayment of wages, and debarment of the contractor or subcontractor from federal contracts or subcontracts for a period of up to three years. The regulations contain an anti-retaliation provision that prohibits an employer from discharging or in any other manner retaliating against any worker because the worker filed a complaint or was involved in any proceeding under or related to the Executive Order. Appropriate relief includes employment, reinstatement, promotion, and the payment of back wages.
Employers' Bottom Line
Employers with federal contracts or subcontracts should review their contracts and subcontracts before January 1, 2015. They should ascertain whether they have contracts or subcontracts that are subject to the Service Contract Act or the Davis-Bacon Act. If so, they may have to meet the obligations imposed by Executive Order 13658.