Editorial · June 23, 2014
Federal Contractor Minimum Wage: What the Order Does
The federal contractor minimum wage will start at $10.10 an hour on January 1 of next year. It applies to workers on covered new federal contracts. President Barack Obama set the rate in Executive Order 13658, which he signed on February 12, 2014. A proposed rule from the Department of Labor (DOL) appeared in the Federal Register on June 17. Comments on it are due July 17. Only certain kinds of new contract are covered.
What the order sets
Executive departments and agencies (agencies) are to put a clause in covered new contracts and solicitations, as far as the law permits. Independent agencies are "strongly encouraged" to comply with the order. The clause states, as a condition of payment, that workers are to be paid at least the order's minimum wage. The contractor and its subcontractors must carry the clause into lower-tier subcontracts.
The first rate is $10.10 an hour. For comparison, DOL lists the federal minimum wage for "covered nonexempt employees" at $7.25 an hour. The federal minimum wage rules are in the Fair Labor Standards Act (FLSA).
The Secretary of Labor (the Secretary) will set a new rate for each year after the first. The Secretary must publish it at least 90 days before it takes effect. Each new rate is the current rate raised by the yearly percentage rise in the CPI-W, a price index that tracks urban wage earners and clerical workers. The result is rounded to the nearest 5 cents. A new rate cannot be lower than the current one.
The order has a separate rule for tipped workers. The cash wage their employer pays must be at least $4.90 an hour starting January 1 of next year. It then rises 95 cents a year until it reaches 70 percent of the order's minimum wage. After that it stays at 70 percent, rounded to the nearest 5 cents. If the cash wage plus tips falls short of the order's minimum wage, the employer must raise the cash wage to make up the difference.
The order also covers workers whose wages are calculated under special certificates issued under 29 U.S.C. 214(c). The White House fact sheet says that under current law, certain specialized certificate programs let workers whose productivity is affected by disabilities be paid less than others in the same job.
Which contracts and workers are covered
The order applies only to a new contract or contract-like instrument. It must also be one of four kinds:
- a procurement contract for services or construction;
- a contract for services covered by the Service Contract Act;
- a concessions contract;
- a contract with the government tied to federal property or lands and related to offering services for federal employees, their dependents, or the general public.
A contract only to buy supplies or equipment is not on that list. The wages of the workers on the contract must also be governed by the FLSA, the Service Contract Act or the Davis-Bacon Act. The Service Contract Act sets prevailing wage rules for service employees, and the Davis-Bacon Act sets them for laborers and mechanics on public construction. The order's minimum wage applies to workers while they perform the contract or any subcontract under it.
A contractor must still follow any applicable federal or state prevailing wage law. It must also follow any applicable law or municipal ordinance that sets a higher minimum wage than the order's.
The White House fact sheet names workers who would see raises. They include nursing assistants who care for veterans in nursing homes and concessions workers in National Parks.
Dollar thresholds apply too. For example, for contracts covered by the Service Contract Act or the Davis-Bacon Act, the order applies only at the thresholds in those laws.
The order leaves out grants. It also leaves out contracts and agreements with Indian Tribes under the Indian Self-Determination and Education Assistance Act, and any contracts the Secretary's rules will expressly exclude. Those rules will also define what counts as a new contract.
When the wage starts to apply
The order took effect when it was signed. But it applies to covered contracts whose solicitation is issued on or after January 1 of next year. The Federal Acquisition Regulation (FAR) defines a solicitation as any request to submit offers or quotations to the Government.
The White House fact sheet says the higher wage will apply to new contracts and replacements for expiring contracts. The order says agencies are "strongly encouraged" to take all reasonable and legal steps on new contracts negotiated between its signing and January 1 of next year. The aim is that workers on those contracts earn at least $10.10 an hour as of that date.
What happens next
The order tells the Secretary to issue rules by October 1, 2014, as far as the law permits, with exclusions where appropriate. DOL's proposed rule (79 Federal Register 34568) takes written comments at regulations.gov through July 17.
Where the law permits, the Federal Acquisition Regulatory Council must issue FAR rules within 60 days after the Secretary issues the rules. Those FAR rules are to add the clause to the federal procurement solicitations and contracts the order covers. Agencies have the same 60 days to act on the concessions and federal property contracts listed above and entered into after January 1 of next year. Where the law permits, they are to take steps so those contracts meet the order's wage rules.
The Secretary can investigate possible violations and obtain compliance with the order.
What it means if you bid on federal work
The White House fact sheet says contractors will have time to prepare and price their bids for the higher wage. Our editors would run four checks in that time.
- Compare each hourly rate you would pay on a covered contract with next year's $10.10. For tipped jobs, check that the cash wage is at least $4.90, and plan to make up any gap to $10.10 when tips fall short.
- Plan for a new rate each year, published at least 90 days ahead.
- Read your subcontracts, because the clause has to pass down to lower-tier subcontracts.
- Watch solicitation dates and the order's October 1, 2014 deadline for the Secretary's rules.