As he suggested during his 2014 State of the Union address, President Obama intends to “lead by example” to increase the minimum wage by urging businesses to raise employee wages and by increasing minimum wages payable to federal contractors. 

The President’s Executive Order 13658 (Order), signed on February 12, 2014, will raise the minimum wage for workers on certain federal government contracts to $10.10/hour effective January 1, 2015. The Order applies to new federal contracts and “contract-like instruments” solicited on or after January 1, 2015, if wages are covered by the Fair Labor Standards Act, the Service Contract Act or the Davis-Bacon Act and if the contract is:

1. “a procurement contract for services or construction;”
2. “a contract or contract-like instrument for services covered by the Service Contract Act;”
3. “a contract or contract-like instrument for concessions …; or”
4. “a contract or contract-like instrument … with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents or the general public.”

Order, Sec. 7(d)(i)(A)-(D).  The Executive Order does not apply to grants. 

The $10.10 minimum wage will be required in all covered contracts through the insertion of a FAR clause into new contracts and contractors must “flow down” the clause into their subcontracts. Government contractors may see the new wage clause inserted into solicitations for contracts to be signed after January 1, 2015, to ensure contractors will pay the new rate as soon as the requirement takes effect.

The Order further provides for annual increases (and no decreases) to this minimum wage beginning January 1, 2016, as determined by the Department of Labor, based on increases in the Consumer Price Index. Additionally, the Order raises the minimum hourly cash wage for covered tipped employees to $4.90 from their current $2.13/hour rate, and these minimums also are subject to annual increases.

Implementing regulations will be issued by the Secretary of Labor by October 1, 2014; the Federal Acquisition Regulatory Council is required to issue FAR clauses within 60 days following the Department of Labor’s issuance of regulations.

Federal contractors and subcontractors should begin assessing whether the terms of the Order will apply to them, and they should prepare to comply with the Order for their own employees and by flowing down the FAR clause (once drafted) to subcontractors as appropriate. 

In the interim, construction companies and service providers to the federal government should keep in mind the minimum wage requirements for contractors and subcontractors that already exist under the Davis-Bacon Act and the Service Contract Act.