Department of Labor Announces Proposed Rules to Raise the Minimum Wage for Federal Contract Workers; Federal Contractors Should Consider Making Their Voice Heard During the Notice and Comment Period

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In response to President Obama's Executive Order earlier this year, the Department of Labor has issued a Notice of Proposed Rulemaking (NPRM) to establish standards and procedures for raising the minimum wage paid to employees of federal construction and service contractors to $10.10 per hour beginning January 1, 2015 and then increased on a yearly basis beginning January 1, 2016. Federal contractors have until July 17, 2014 to comment on the proposed regulations that could have a large impact on contractors' operations.

The proposed rules clarify that the terms "contracts" and "contract-like instruments" as used in the Executive Order apply to "all contracts for construction covered by the Davis-Bacon Act; contracts for services covered by the Service Contract Act; concessions contracts, such as contracts to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment on Federal property; and contracts to provide services, such as child care or dry cleaning, in Federal buildings for Federal employees or the general public." The Order applies to new contracts and replacements for expiring contracts that result from solicitations on or after January 1, 2015.

The Order is incredibly narrow and noticeably excludes contracts for goods (the manufacturing or furnishing of materials, supplies, articles, or equipment to the federal government) from the new minimum wage requirements. The proposed rules also make it clear that the minimum wage increase does not apply to grants. Furthermore, the rules clarify that the new minimum wage need not be paid for ALL hours worked—just all hours spent performing work on covered contracts.

While the Administration maintains that increasing the minimum wage will increase employee morale (and it certainly will increase the morale of those receiving a wage increase), we are concerned about the following scenario. If an employee making $8.00 an hour is suddenly making $10.10 an hour, will an employee who was previously making $10.50 an hour and received no raise in response to the Executive Order and its implementing regulations feel slighted? Contractors should be aware of these potential unforeseen issues and consider examining their entire wage scale in preparation to comply with these new rules. Furthermore, as many federal contractors pay their employees well in excess of $10.10 per hour, these new rules could prove to be a non-factor in their operations.

We strongly encourage all contractors to read the proposed rules, determine if the rules will apply to them, and participate in the public comment process by submitting a comment by July 17!

 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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