On February 12, 2014, President Obama signed Executive Order 13658, which raises the minimum rate of pay for federal contractors to $10.10 per hour. The rate is subject to increases each year in relation to increases to the Consumer Price index. This bold action by the president came after he was unable to convince Congress to raise the federal minimum wage for all workers, which remains $7.25 per hour for the time being.
New Rate Applies to Contracts as of January 1, 2015
The $10.10 rate goes into effect for new contracts and replacements of expiring contracts as of January 1, 2015. It covers procurement contracts for services or construction as well as certain “contract-like instruments” and lower tier subcontracts. Federal contractors will be notified of this obligation by a specific clause that federal agencies will be required to include their contracts. Federal contractors will, in turn, be required to “flow down” the clause in their covered subcontracts. Compliance with the clause will be enforced by the Department of Labor.
Questions Remain—Regulations to Come
Important questions remain, starting with: What in the heck is a “contract-like instrument?” Also unclear is whether the new minimum rate of pay will apply to all employees of federal contractors or just those who are assigned to work on federal contracts. These and other questions are likely to be answered by Department of Labor regulations due to be issued by October 1, 2014. Hopefully, the regulations will also explain how the requirement will be enforced and what penalties may be imposed when violations are established.
What to Do Between Now and Then
Those that are planning to do business with the federal government next year should begin considering how this new requirement may affect their projected labor costs and operations. Special considerations may be needed for those with employees working under collective bargaining agreements. This will be no easy task given the uncertainties described above. And, although the new rate will only be required in contracts after January 1, 2015, the Executive Order “strongly encourage[s]” agencies to negotiate a higher minimum rate of pay into contracts that are signed between now and the end of the year. Prudent federal contractors will be on the lookout for this.
If you have questions regarding this topic, please contact Jon Bumgarner at 317.977.1474 or jbumgarner@wp.hallrender.com or your regular Hall Render attorney.
