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Minimum Wage Climbs to $15 for Federal Service Contractors

On Behalf of | Mar 1, 2022 | Capital Connections

The Department of Labor has taken the final steps to implement a long-coming change to federal contracts for services: a $15 minimum wage. [1] Effective as of January 30, 2022, the Department of Labor’s Final Rule implementing President Biden’s Executive Order 14026 formalizes the wage hike for most federal contractors providing services to the Federal Government.[2] The increase will be mandatory for new federal contracts, as well as for any renewal or extension of existing contracts, and must also be flowed down to subcontractors. In total, approximately 327,300 workers will see an increase in their wages.[3]

Executive Order 14026, signed April 27, 2021, stated that the “Federal Government’s procurement interests in economy and efficiency are promoted when the Federal Government contracts with sources that adequately compensate their workers.”[4] Now, the Department of Labor’s Final Rule has mandated this “adequate compensation” by increasing the hourly minimum wage to employees performing work on or in connection with covered federal contracts from $11.25 to $15.00 per hour.[5]

What Contracts Are Covered?

The increase applies to contracts that were entered into on or after January 30, 2022, as well as to contract renewals, contract extensions, and exercised contract options on or after that date. Going forward, the rate will be adjusted annually, beginning on January 1, 2023, to an amount to be determined by the Secretary of Labor.[6] For contracts awarded between January 1, 2015 and January 29, 2022, the prior minimum wage of $11.25 per hour wage from Executive Order 13658 will continue to apply, as adjusted for inflation. Exec. Order No. 13658, 79 Fed. Reg. 9851 (Feb. 20, 2014).

However, not all contracts are affected by the new rule. Instead, the requirement applies to four specified categories of contracts with covered workers: (1) contracts for services covered by the Service Contract Act (“SCA”); (2) procurement contracts under the Davis-Bacon Act (“DBA”); (3) concessions contracts, not otherwise subject to the SCA; and (4) contracts entered into with the Federal Government in connection with Federal property or lands and related to services for Federal employees or the general public.[7] For these types of contracts, contractors will also be required to flow down the minimum wage payment requirement into any subcontracts or lower-tiered subcontracts.[8]

In short, covered workers whose wages are governed by the Fair Labor Standards Act (“FLSA”), SCA, or DBA, must be paid the minimum wage.[9] Covered workers are those performing work on or in connection with any of the above listed contracts.[10] To perform work “on” a contract means that a worker is directly performing the specific services required in the contract.[11] A worker performs “in connection with” a contract if their work activities are necessary for the performance of a contract, but not specifically called for by the contract.[12] Federal contractors and subcontractors must carefully apply these standards to determine which employees are covered workers, or, more precisely, which employees are performing work on or in connection with a covered contract, to ensure appropriate wage allocation or exemption from the rule.

What Contracts Are Not Covered?

Importantly, the increase does not apply to contracts for the manufacture or furnishing of goods, materials, and supplies to the Federal Government (to the extent those contracts are not otherwise covered by the FLSA, SCA, or DBA). The new requirement is also inapplicable to: (1) grants within the meaning of the Federal Grant and Cooperative Agreements; (2) contracts or agreements with Indian Tribes under Public Law 93-638; (3) procurement contracts for construction that are excluded from the DBA (i.e., under $2,000); (4) contracts for services, unless expressly covered by the Final Rule, that are exempted from coverage under the SCA or its implementing regulations; (5) contracts that result from a solicitation issued before January 30, 2022, but are entered into on or between January 30, 2022, and March 30, 2022. Final Rule, supra note 2, at § 23.40.

The rule also excludes employees that are already exempt from the FLSA, such as apprentices, students, and individuals employed in a bona fide professional capacity.[13] Importantly, FLSA-covered workers that perform less than 20% of their work in connection with covered contracts are exempt from the wage requirement as well.[14] This “less than 20% exception” applies only to employees performing work in connection with, or rather indirectly with, a covered contract. For example, should an employee spend less than 20% of their weekly work hours working indirectly with a covered contractor, the contractor does not need to pay that employee the $15.00/hour wage.

Other Key Changes and Requirements

Executive Order 14026 and DOL’s Final Rule largely build on President Obama’s Executive Order 13658,[15] which raised the federal contractor minimum wage to $10.10, and was scheduled to increase to $11.25 in 2022 due to inflation. However, the EO and Final Rule contain a number of new key provisions. First, the Final Rule eliminates the tipped minimum wage for federal contractors by 2024.[16] Second, the $15.00 minimum wage is promised for federal workers with disabilities, in contrast to the previous policy which allowed employees with disabilities to be paid less than the minimum wage.[17] Third, the rule revokes Section 6 of President Trump’s Executive Order 13838, which previously exempted contracts with seasonal public recreational outfitters on Federal lands from the minimum wage requirements. Now, as of January 30, 2022, the $15.00 per hour minimum wage will apply to such outfitters.[18]

Lastly, federal contractors and subcontractors should be aware of the notice requirements. Contractors must inform all of their workers that qualify for the new minimum wage rate, i.e. workers performing on or in connection with a covered contract, of the applicable wage rate.[19] Such notice requirements may be satisfied by posting the applicable wage determination in a prominent and accessible place in the workplace for SCA or DBA employees or posting a DOL provided poster in a prominent and accessible place at the worksite for employees performing work on or in connection with a FLSA governed contract.[20]

If you have questions about the new minimum wage requirements and its potential impact on your business, please contact the experienced government contract attorneys at Eckland & Blando LLP.

 

[1]     Research and drafting assistance provided by Rachel Lantz.

[2]     29 C.F.R. Part 10, 23 [hereinafter “Final Rule”].

[3]     Id. at p. 67194.

[4]     Exec. Order No. 14026, Executive Order on Increasing the Minimum Wage for Federal Contractors, 86 Fed. Reg. 22835 (Apr. 27, 2021).

[5]     Final Rule, supra note 2. Note that the Final Rule mandates only the minimum wage rate that federal contractors must pay their employees. Thus, if the employee is covered by another federal, state, or local prevailing wage law that requires a higher rate, they must be paid accordingly. Id. at p. 67129.

[6]     Id.

[7]     Final Rule, supra note 2, § 23.30.

[8]     Id.

[9]     Id.

[10]   Id.

[11]   Id.

[12]   Id.

[13]   Id. at 67160.

[14]  Id. at 67164.

[15]   Exec. Order No. 13658, 79 Fed. Reg. 9851 (Feb. 20, 2014).

[16]   Final Rule, supra note 2, at p. 67127.

[17]   Id. at p. 67130, 67189-90.

[18]   Id. at p. 67192-93.

[19]   Id. at § 23.290.

[20]   Id.

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