What Service Contractors Need to Know About the Executive Order Raising the Minimum Wage

 

Merle M. DeLancey Jr. and Stephanie M. Harden

Merle DelanceyStephanie Marie ZechmannStarting January 1, 2015, a minimum wage of $10.10 per hour will apply to certain federal government contracts issued or awarded after that date. This alert provides key details about this new minimum wage that service contractors need to know.

Which Contracts Are Covered?

On February 12, 2014, President Obama signed Executive Order 13658, which instructed the Secretary of Labor to raise the minimum wage on federal construction and service contracts to $10.10 per hour beginning in 2015 and, beginning in January 2016, to an amount set by the Secretary on an annual basis. The Department of Labor issued a final rule implementing this new minimum wage in October 2014. See 79 Fed. Reg. 60,633 (Oct. 7, 2014).

The Department of Labor’s final rule generally extends to the following four categories of “contracts” and “contract-like instruments”:

  1. Procurement contracts for construction services covered by the Davis-Bacon Act (DBA);
    2. Service contracts covered by the Service Contract Act (SCA);
    3. Concession contracts, including any concession contract excluded from the SCA by the Department of Labor’s regulations at 29 C.F.R. § 4.133(b); and
    4. Contracts in connection with federal property or lands related to offering services for federal employees, their dependents, or the general public.

The minimum wage requirements only apply to “new contracts” with the federal government—the term “new contracts” is defined as those that result from solicitations issued on or after January 1, 2015 or contracts that are awarded outside of the solicitation process on or after January 1, 2015. If a contract entered into before this date is extended, the extension will be considered a “new contract” for purposes of the regulation, unless it was a short-term limited extension made pursuant to a term already in the contract as of January 1, 2015.

The new minimum wage does not apply to contracts below certain dollar amounts. For prime contracts covered by the DBA, the new minimum wage only applies to contracts that exceed $2,000. For prime contracts covered by the SCA, the contract must exceed $2,500. For contracts where wages are governed by the Fair Labor Standards Act (FLSA), the Executive Order only applies if the contract exceeds $3,000. There is no minimum dollar threshold for subcontracts.

Certain types of contracts are excluded from the regulations, including: grants within the meaning of the Federal Grant and Cooperative Agreement Act; contracts, agreements, and grants with Indian Tribes under the Indian Self-Determination and Education Assistance Act; contracts for construction that are excluded from coverage of the DBA; and contracts for services that are exempt from coverage under the SCA, unless expressly covered by the Executive Order and the Department of Labor regulations.

Which Workers Are Covered?

Workers who perform on or in connection with contracts covered by the Executive Order are entitled to the new federal contractor minimum wage if their wages under the contract are governed by the FLSA, SCA, or DBA. The Department of Labor’s final rule defines the term “worker” as any person engaged in performing work on or in connection with a contract covered by the Executive Order, and whose wages under such contract are governed by the FLSA, SCA, or DBA, other than individuals employed in a bonafide executive, administrative, or professional capacity, regardless of the contractual relationship alleged to exist between the individual and employer.
November 25, 2014

Significantly, the new minimum wage will apply to an employee covered by the FLSA who is supporting a covered service contract even if the employee is not a “service employee” for purposes of the SCA. Similarly, an employee who is covered by the FLSA and performs work in connection with a DBA-covered contract, but is not covered by the DBA, will still be covered by the new Executive Order. Therefore, contractors should closely examine their current pay policies to make sure they comply with the new regulations.

What About Department of Labor Wage Determinations?

The new Executive Order creates a legal obligation independent of those created by other statutes, such as the SCA, DBA, and FLSA. Therefore, if the minimum wage required by the Executive Order is higher than a prevailing wage rate or SCA wage determination, the contractor must pay the minimum wage required by the Executive Order. Conversely, if another statute requires a higher wage, that wage must be paid. Compliance with one applicable wage law will not excuse noncompliance with another.

What Service Contractors Should Know

Under the new regulations, contractors and subcontractors holding covered contracts must take the following steps:

  • Include the Executive Order contract clause in any covered lower-tiered subcontract;
  • Notify all workers performing on or in connection with a covered contract of the applicable minimum wage rate under the Executive Order;
  • Pay all covered workers at least the Executive Order minimum wage (currently $10.10 per hour) for all hours worked on or in connection with covered contracts; and

Comply with pay frequency and recordkeeping requirements as set forth in the regulations.