In the past two months, three important changes took place that will affect the federal workplace. First, in early February, President Obama signed an Executive Order raising the minimum wage for federal contractors from $7.25 to $10.10. On the heels of that Executive Order, in March, the President signed a memorandum directing the Department of Labor (“DOL”) to “propose revisions to modernize and streamline” the existing Fair Labor Standards Act’s overtime regulations. Finally, three days ago, the DOL’s new federal contract affirmative action regulations took effect—a development we first analyzed in this alert. Below, we summarize these three events and how each could affect your federal contracting business.
I. Obama’s Executive Order Regarding Federal Contractor’s Minimum Wage
With the March Executive Order, President Obama raised the minimum wage for federal contractors. How will this new Executive Order affect your federal contracts? Below, we highlight the critical questions and answers regarding the scope and substance of this new Executive Order.
- When does the Executive Order go into effect? The Executive Order goes into effect on January 1, 2015. Only new contracts entered into after this date will be affected because the Executive Order is not retroactive. Nevertheless, until January 1, 2015, federal agencies are “strongly encouraged” to take all permissible and legal steps to ensure that federal contractors are paid at least $10.10 per hour.
- What federal contracts will be affected? The Executive Order only affects new contracts and subcontracts for services, construction, and concessions. The Executive Order does not apply to federal contracts/subcontracts for goods.
- How will the minimum wage be calculated in the future? Beginning January 1, 2016, and annually after that, the Secretary of Labor will determine the new minimum wage which will be increased by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The new minimum wage will be published at least 90 days before it takes effect.
- How many federal contractors will this Executive Order affect? Likely, less than half a million employees. Why? Service and construction contracts are governed by two specific laws – the Service Contract Act and the Davis-Bacon Act – and both require the government to pay at least the prevailing wages in any given area. In Washington, DC, the only job categories with official prevailing wages under $10.10 are related to laundry ($9.88) and waitressing ($9.70). The effect will be larger in geographic regions where prevailing wages are lower. These two laws also require contractors to honor existing union contracts, which normally require higher than prevailing minimum wage.
- How will this Executive Order be implemented? The Secretary of Labor will issue regulations by October 1, 2014 to implement the requirements of this Order. Within 60 days of when the Secretary issues these regulations, the FAR Council will issue regulations to provide for a new contract clause to be included in federal procurement solicitations and contracts.
- President Obama Directs Department of Labor Secretary to Propose Changes to Overtime Regulations
On March 13, 2014, the President signed a memorandum directing the Secretary of Labor to “propose revisions to modernize and streamline the existing overtime regulations.” The Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (“FLSA”) proscribes rules regarding minimum wage, child labor, and overtime. Employees who are paid at least $455 per week ($23,660 per year), and whose duties fall within certain exemptions, are not entitled to overtime pay. The most common type of exemptions are called “white collar exemptions” and apply to executive, administrative, and professional employees. Non-exempt employees are entitled to at least 1.5 times their regular rate for every hour they work in excess of 40 hours per week.
Most likely, the revised DOL regulations will make more employees eligible for overtime by both substantially raising the $455 minimum salary for exempt status and revising the “job duties” requirements for employees who currently qualify for the white collar exemption. The last time the minimum salary for exempt status was increased was in 2004 by President Bush — from $250 to $455. President Obama’s memorandum, signed a month after his Executive Order raising the minimum wage for federal contractors, seems clearly aimed at making it easier for employees to get overtime. Changes in overtime exemptions will have a significant effect on employees and employers. The effect, however, will not be felt for months, given the review process required by the Administrative Procedures Act. We will continue to keep you abreast of the developments regarding changes in overtime regulations as they arise.
III. New Affirmative Action Obligations for Disabled and Veteran Workers
On March 24, 2014, the Department of Labor’s Office for Federal Contract Compliance Programs’ (“OFCCP”) final rule regarding Section 503 of the Rehabilitation Act and the Vietnam Veterans’ Readjustment Assistance Act of 1974 took effect. The final rule requires contractors to meet hiring benchmarks for protected veterans and disabled workers. The target for protected veterans can be either the percentage published by OFCCP (currently 8%) or the company’s own benchmark based on state-specific data published by OFCCP and the company’s own experience. The target set for disabled workers is 7%. To meet these hiring benchmarks, the final rule also requires contractors to survey their workforce by inviting current employees to self-identify their disability and/or veteran status every 5 years.