President Obama Signs Executive Order Raising Minimum Wage For Service And Construction Contracts


Executive Summary:  On February 12, 2014, President Obama signed an Executive Order raising the minimum wage for employees who work on procurement contracts for services or construction to $10.10 per hour.

The $10.10 per hour raise is effective January 1, 2015.  On January 1, 2016, and annually thereafter, covered employers will be required to pay their employees an increased amount to be determined by the Secretary of Labor that is tied into the Consumer Price Index.  The Executive Order applies only to new contracts or "contract-like instruments" where the solicitation for such contracts has been issued on or after January 1, 2015.  The Executive Order requires the U.S. Department of Labor to issue implementing regulations on or before October 1, 2014. 

The Executive Order provides that federal agencies must include language in their new contracts requiring the payment of a minimum wage.  In turn, covered contractors and subcontractors must incorporate this language into their contracts and subcontracts.  The Executive Order applies if the contract or subcontract is a procurement contract for services or construction, is a contract for services covered by the Service Contract Act, and the wages of workers under such contract are governed by the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act. 

Questions related to the Executive Order's coverage, enforcement and penalties remain unanswered.  For example, are all employees of a contractor or subcontractor entitled to receive $10.10 per hour or only employees working on a covered contract?  We will know more after the Department of Labor issues implementing regulations.

Employers' Bottom Line

Employers with federal contracts or subcontracts should review their contracts and subcontracts before January 1, 2015 to determine whether they might be covered by this Executive Order.  Some contracts or subcontracts may state that the Service Contract Act or the Davis-Bacon Act apply.  Seek counsel to determine proactive steps that can be taken to plan for the implementation of the Executive Order in the event your company is subject to the Executive Order.   

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