Raising Minimum Wage for Federal Contract Workers: What to Expect

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In June the US Department of Labor (DOL) formally proposed a new rule (79 FR 34568) that implements Executive Order 13658 to increase the federal minimum wage for contract workers to $10.10 an hour beginning in January 2015. The new rule has significant implications for employers who have workers that perform work under covered federal contracts or subcontracts.

Essentially the rule covers all employees who provide services on contracts and/or subcontracts that meet two specific criteria. First, the contract must be one of the following types:

• a procurement contract for construction covered by the Davis-Bacon Act (DBA),
• a service contract covered by the Service Contract Act (SCA),
• a concessions contract, even if it is not covered by the SCA,
• a contract in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public

Secondly, wages paid to the employees under contract must be governed by the Fair Labor Standards Act (FLSA) or the wage provisions of the DBA or the SCA.

The purpose of raising the federal minimum wage, as stated by President Obama, is to “increase efficiency and cost savings in the work performed by parties that contract with the federal government.” The President added that “higher wages increase morale and decrease turnover, resulting in greater efficiency”.

Nevertheless, there will likely be considerable repercussions for employers. When analyzing the possible effect of the federal wage increase, the DOL found that in 2015 almost 184,000 employees will receive a wage increase. That means employers will need to cover $100.2 million is additional wages. These increased labor costs will be passed back to the federal government and may very well result in higher bids for federal contract work.

Employers should be vigilant about checking whether their contracts will be subject to the terms of the new rule. The rule provides employers with extensive details about the scope of coverage for the new minimum wage and establishes new recordkeeping obligations and other requirements. The Administrator of the Wage and Hour Division (WHD) has enforcement power for the rule.

Concerned employers should provide comments in response to the proposed rule implementing the federal minimum wage to the DOL at www.regulations.gov. Keep in mind that the comment period is very brief, as everything must be received on or before July 17, 2014. The DOL expects to review comments and issue a final rule by October 1, 2014. Due to the potentially significant impact this rule could have on employers, federal contractors should monitor this issue for potential developments.