Federal Contractor $15 Minimum Wage Rule Finalized; Takes Effect January 30, 2022

Jackson Lewis P.C.

The DOL today published the Final Rule implementing the $15 per hour minimum wage for federal contractor workers who work on or in connection with covered contracts, which President Biden authorized by in Executive Order 14026.   Building on former President Obama’s Executive Order 13658, President Biden in April 2021 issued the Order and the DOL published a Proposed Rule in July 2021.

The Order applies to “new contracts” on and after January 30, 2022.  However, the term “New Contract” has been expanded and applies to:

  • Extensions or renewals of existing contracts or contract-like instruments; and exercises of options on existing contracts or contract-like instruments on or after January 30, 2022.

Thus, the federal government may exercise an option in an “old” contract not subject to the $15 rate which would make the contract subject to the new $15 wage requirement.

Contracts resulting from solicitations issued before January 30, 2022 and entered into on or between January 30, 2022 and March 30, 2022 are exempted.  “However, if such a contract is subsequently extended or renewed, or an option is subsequently exercised under that contract, …” the $15 wage will apply.

Recall, also, that the $15 minimum wage applies only to certain types of contracts:

  1. Procurement contracts for construction covered by the Davis-Bacon Act(DBA), but not the Davis-Bacon Related Acts;
  2. Service Contract Act (SCA) covered contracts;
  3. Concession contracts;

Concession contract means a contract under which the federal government grants a right to use federal property, including land or facilities, for furnishing services. The term concessions contract includes but is not limited to a contract the principal purpose of which is to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment, regardless of whether the services are of direct benefit to the Government, its personnel, or the general public;

4. Contracts related to federal property and the offering of services the general public, Federal employees, and their dependents.

In contrast to Executive Order 14042 requiring COVID vaccines for federal contractors, procurement contracts for services – distinguished from SCA contracts – are not covered for purposes of the $15 minimum wage.  In addition, the Final Rule specifically carves out the following:

  • Contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the Federal Government;
  • Grants;
  • Contracts or agreements with Indian Tribes under the Indian Self-Determination and Education Assistance Act;
  • Contracts excluded from coverage under the SCA or DBA specifically excluded in the implementing regulations;
  • Other contracts specifically excluded. See Final Rule Section 23.40.

Similarly, not all federal contractor workers or employees are entitled to the $15 wage.  Rather, federal contractors must so compensate “workers.”  That term means:

  • Any person (employee, independent contractor or apprentice in a registered program) engaged in performing work on or in connection with a covered contractor or subcontract; and,
  • Whose wages under such contract are governed by the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act, other than individuals employed in a bona fide executive, administrative, or professional capacity.

Moreover, a contractor need not pay the $15 wage to any worker whose wages are governed by the FLSA (but not the DBA) who only works “in connection with” a covered contract fewer than 20% of their workweek in any particular week.

As with the COVID vaccination executive order, the scope of workers working “in connection with” a covered contract is broad:

  • A worker performs “on” a contract if the worker directly performs the specific services called for by the contract.
  • A worker performs “in connection with” a contract if the worker’s work activities are necessary to the performance of a contract but are not the specific services called for by the contract.

The $15 wage is mandatory, however, only when a covered worker is performing work on or in connection with a covered contract, not for all work if the employee does not work on or in connection with the contract at all times

“The contractor must pay each worker performing work on or in connection with a covered contract no less than the applicable Executive Order minimum wage for all hours worked on or in connection with the covered contract…”

Keep in mind also that tipped employees are treated separately pursuant to Section 23.280 of the Final Rule.

Some federal contractors may not have any covered contracts/subcontracts or any workers earning less than $15 per hour on covered contracts.  Thus, determining covered contracts and current wages for workers is the place to start.

Written by:

Jackson Lewis P.C.

Jackson Lewis P.C. on:

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