Cha-Ching! New Minimum Wage for Federal Contractors Officially Effective on January 1, 2015

27 October 2014 Labor & Employment Law Perspectives Blog

For federal contractors and their subcontractors, the Administration continues to add new requirements and standards they must meet in order to transact with the U.S. Government. Yet another such requirement recently joined the list – this time an increased minimum wage for federal contractor employees working on federal service or construction contracts (but not federal contractors supplying goods).

On October 7, the Federal Register published a new rule requiring federal contractors working on certain types of contracts to pay employees at least $10.10 per hour. The change goes into effect on January 1, 2015 and applies to new contracts and replacements for expiring contracts with the federal government that result from solicitations issued (or to contracts that are awarded outside the solicitation process) on or after that date. The news of the official change did not come as an overwhelming surprise however, given that the new rule implements an executive order signed by the President in February and a Notice of Proposed Rulemaking issued in June. The government predicts that hundreds of thousands of workers will be affected by the change.

The Executive Order covers four major categories of contracts: (1) procurement contracts for construction covered by the Davis-Bacon Act (DBA); (2) service contracts covered by the Service Contract Act (SCA); (3) concessions contracts; and (4) contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public. In addition, the newly published rule contains some (albeit narrow) exclusions, including grants, contracts and agreements with and grants to Native American tribes under Public Law 93-638, procurement contracts for construction under $2,000, and contracts for services exempted from coverage under the SCA or its implementing regulations (except those specifically included in the Rule).

Beyond 2015, the established minimum may again change. The new rule provides for a mechanism to change the minimum contractor wage on or after January 1, 2016. Beginning on that date, the Secretary of Labor will determine the amount of the minimum wage for federal contractors on an annual basis in accordance with the executive order, effectively tying the future rate to inflation.

Agencies and contractors both have obligations with regard to implementation of the new standard. Government agencies must include the new minimum wage language in any contract or solicitation for contract covered by the order. If the contractor violates the rule by failing to pay its workers under the new minimum, the participating agency must withhold payment on the contract. In turn the contractors are required to include the minimum wage provision in all lower tiered subcontracts.

While the Administration’s push to change the minimum wage on a national level continues, it becomes clearer by the day that the President will spend the remainder of this term using executive orders and other non-legislative means to change the law and implement more employee protections and benefits. With the implementation of the new minimum wage rule on January 1, 2015, a whole new category of employers, namely certain government contractors and subcontractors, will be required to pay their workers $10.10 per hour. Companies should also keep abreast of the determinations of the Secretary of Labor who will be able to change the rate, in accordance with the executive order, starting in 2016.

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