The situation: President Biden signed an executive order in April 2021 directing the Secretary of Labor to increase the minimum wage for federal contractors to $ 15 an hour. On July 22, 2021, the Ministry of Labor officially unveiled a draft regulation to put this decree into force.
The result: The public has until August 27, 2021 to comment on the proposed rule. The Ministry will promulgate a final rule no later than November 24, 2021.
Looking forward: While most federal contractors are familiar with the targeted minimum wage requirements, they should be prepared to meet the unique requirements offered by this latter rule. In particular, the proposed rule pegs the minimum wage for federal contractors with inflation and eliminates the sloped minimum wage by 2024.
As previously reported here, in accordance with Executive Order 14026 signed by President Biden on April 27, 2021, the Department of Labor (“DOL” or “Department”) recently issued a notice of regulatory proposal titled “Increase in the Minimum Wage for federal contractors. The Ministry’s proposed regulation establishes a minimum wage of $ 15 for federal contractors effective January 30, 2022, which represents an increase of $ 4.05 per hour from the current minimum wage of $ 10.95 for contractors. It also allows the Minister of Labor to increase the minimum wage each year from 2023. The increased wage rate applies to new supply contracts, including contracts awarded in accordance with Part 12 of the Regulation federal procurement for commercial items and commercial services, for constructions covered by the Davis-Bacon Act, contracts covered by the Service Contracts Act, concession contracts and contracts for services provided to the general public and federal employees on federal lands.
The proposed regulations include significant changes that go beyond President Obama’s 2014 Executive Order 13658, which initially increased the minimum wage for federal contractors. On the one hand, it is phasing out the peak minimum wage for federal contractors – currently set at $ 7.65 per hour – by 2024, enforcing the standard of $ 15 per hour at all levels. It also expressly applies to covered disabled workers whose wages have previously been calculated in accordance with special certificates issued under section 14 (c) of the Fair Labor Standards Act (“FLSA”).
The regulations cast a wide net on federal contractors, affecting more than 300,000 workers in 50 states, the District of Columbia and the US territories, as proposed. The rule as drafted applies to contracts, sub-contracts at all levels, leases, permits and licenses, and also provides that contracts for seasonal recreational services on federal lands are subject to the same minimum wage requirements as other federal contracts. Finally, the proposed rule requires agencies exercising options under existing federal contracts to update the relevant conditions to reflect the minimum wage of $ 15 per hour. This is a change from past practice, when exercising an option in an existing contract did not open the door to an increase in minimum wage requirements for contractors.
Broad as it is, the scope of the proposed rule is not unlimited and will continue to exclude certain contracts, including contracts for the manufacture of materials or equipment for the federal government, grants, contracts with Indian tribes or “any contract expressly excluded” by section 23.40 of the proposed rule.
DOL’s Wages and Hours Division (“WHD”) will be responsible for enforcing the rule and is empowered to respond to complaints from workers, contractors or others regarding an alleged violation. He is also empowered to bring actions on behalf of employees of affected contractors in situations where employees are not cured by payments from their employer. When WHD determines that a contractor has not paid the minimum wage applicable to workers – and when a contractor does not remedy the violation – that contractor may be ordered to pay all unpaid wages to the affected workers or directly to DOL. The Ministry may suspend employers’ access to procurement opportunities for a period of up to three years if they have “disregarded [their] obligations ”under the regulations.
The public has until August 27, 2021 to submit comments on the proposed rule. Comments can relate to any aspect of the regulation, but the proposed rule specifically invites comments regarding:
- Accessibility of notice requirements and processes for employees with disabilities;
- Earnings of federal contract employees;
- Any increase in the state minimum wage that has been announced but not taken into account in the ministry’s analysis;
- Calculations concerning the cost of increasing social charges and unemployment taxes; and
- The benefits of increasing the minimum wage specifically for federal contract workers.
Four key points to remember
- Employers should assess whether they have any employees performing work on or in connection with a covered federal contract that may be affected by a change in law.
- Commercial item contractors should assess the potential impact of the proposed rule on their workforce, particularly if they provide both material or equipment (not subject to the federal contract minimum wage) and services (such as installation, maintenance, training) which are subject to the federal contractual minimum wage.
- Entrepreneurs should be aware of the potential for future minimum wage increases for covered employees on an annual basis.
- Employers should note that the proposed rule is phasing out the tip credit for covered federal workers by 2024 and applying the $ 15 minimum wage to covered workers with disabilities for the first time.