DoL Rule Increases Minimum Wage to $15 for Many Federal Contractors

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[co-author: Whitney Alston]

Through a proposed rule published on July 22, 2021, the Department of Labor is implementing Executive Order 14026. The new rule and Executive Order will require federal service, construction contractors and subcontractors to increase hourly wages to $15 per hour for a broad range of employees.

TAKEAWAYS

  • A contractor’s responsibility for compliance with the minimum wage increase flows down to all covered subcontractors.
  • Contractors should expect an adjustment to the minimum wage each year to account for inflation.
  • The proposed rule defines the term contract very broadly to include contracts and various types of contract-like instruments.

As we have reported previously, on April 27, 2021, President Joseph Biden signed an Executive Order to begin raising the minimum wage many Federal contractors and subcontractors must pay their workers to $15 per hour and $10.50 per hour to tipped workers, on new contracts, contract options and extensions, or contract-like instruments, beginning January 30, 2022. The proposed rule defines the term contract-like instruments broadly to include lease agreements, cooperative agreements, service agreements, licenses, permits or any other type of agreement.

This Executive Order applies to Federal contracts and subcontracts for services, construction, concessions or services in connection with Federal properties or lands, but only if the contract is governed by the Fair Labor Standards Act (FLSA), Service Contract Act (SCA), or Davis Bacon Act (DBA). Federal contractors and subcontractors for the manufacturing or furnishing of materials, supplies, articles, or equipment are not covered by the Executive Order. The proposed wage increase builds upon and supersedes Executive Order 13658 issued by President Barack Obama on February 12, 2014, which established a $10 per hour minimum wage.

The proposed rule creates an exception for the situation where a solicitation issued prior to January 30, 2022, and the contract is entered into on or between January 30, 2022, and March 30, 2022. In that situation, agencies are strongly encouraged, but not required, to ensure that the minimum wage rates are paid under a new contract. However, the proposed rule’s exception does not cover the more likely situation, where a solicitation is issued before January 30, 2022, but the contract is issued many months later, well after March 30, 2022.

Within 60 days of the issuance of the final regulation by the Department of Labor, the Federal Acquisition Regulatory Council (FARC) is expected to amend the Federal Acquisition Regulation (FAR) to implement a contract clause to be included in all Federal contracts and solicitations subject to the Executive Order. Because the Executive Order and proposed regulation do not address how contractors will recover their increased costs caused by the $15 minimum wage for existing contracts beginning January 30, 2022, the FAR coverage will need to address that issue. In the meantime, contractors should be prepared to give the contracting agency timely notice of their intention to file a claim either under the Changes clause or one of the Service Contract Act price adjustment clauses, FAR 52.222-43 or FAR 52.222-44, if applicable, to recover the increased contract costs.

The Department of Labor may annually increase the minimum wage established in the Executive Order beginning January 1, 2023. The proposed FAR contract clause is anticipated to include a provision that will require contracting agencies to ensure contractors are compensated for any increase in labor costs resulting from the annual inflation increases in the Executive Order 14026 minimum wage, beginning on January 1, 2023. The proposed rule states that contractors shall be compensated “only for” increases in labor costs resulting from an annual inflation increase.

If the Department of Labor determines a contractor has been underpaying workers, among other actions, it may initiate suit in any court of competent jurisdiction to collect the underpayments. The collected underpayments will, to the extent possible, be paid to the affected workers.

Comments on this proposed rule are due by September 13, 2021. The final regulation implementing the requirements of the Executive Order should be issued by November 24, 2021.

[View source.]

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