Employment Update: Executive Order 13658 Directs Changes to Minimum Wage for Federal Contractors Starting January 1, 2015
What is Executive Order 13658?
On February 12, 2014, President Obama signed Executive Order 13658, “Establishing a Minimum Wage for Contractors,” as a means to increase the minimum wage for workers providing services pursuant to federal construction and service contracts (the “Executive Order”). In pertinent part, Executive Order 13658 generally requires that the hourly minimum wage paid by contractors to workers performing on or in connection with covered contracts with the federal government be at least (1) $10.10 per hour, beginning January 1, 2015; and (2) an amount determined by the Secretary of Labor, beginning January 1, 2016, and annually thereafter. President Obama further directed the Department of Labor (“DOL”) to issue regulations implementing the new minimum wage for federal contractors, and assigned to the DOL responsibility for investigating potential violations of and obtaining compliance with the Executive Order. On October 7, 2014, the DOL issued its Final Rule, which became effective December 8, 2014.
Which Contracts Are Covered by Executive Order 13658?
The Executive Order and Final Rule generally apply to “new contracts” within any one of the following categories of agreements:
- Procurement contracts for construction covered by the Davis-Bacon Act (“DBA”)
- Service contracts covered by the Service Contract Act (“SCA”)
- Concessions contracts
- Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents or the general public
The minimum wage requirements established by the Executive Order generally apply to workers performing services pursuant to these types of contracts, provided the wages of such workers are governed by the DBA, SCA or Fair Labor Standards Act (“FLSA”). The Executive Order only applies to prime contracts covered by the DBA exceeding $2,000, prime contracts covered by the SCA exceeding $2,500, and procurement contracts (where wages are governed by the FLSA) exceeding $3,000. Under the Final Rule, there is no value threshold requirement for subcontracts awarded under such prime contracts.
How Does Executive Order 13658 Define “New Contract” and “Procurement Contract”?
For the purpose of the Executive Order, the minimum wage requirements only apply to “new contracts.” Under the Final Rule, a “new contract” means one that results from a solicitation issued on or after January 1, 2015, or outside the solicitation process on or after that date. The term includes replacements for expiring contracts. While it does not apply to the unilateral exercise of a pre-negotiated option to renew an existing contract by the federal government, a “new contract” will exist if, through bilateral negotiation, on or after January 1, 2015, the contract is
- Extended (unless the extension is made pursuant to a term within a contract as of December 31, 2014); or
- Amended pursuant to a modification that is outside the scope of the contract.
Pursuant to the Executive Order, a “procurement contract” for construction means a contract for the construction, alteration, or repair (including painting and decorating) of public buildings or public works and which requires or involves the employment of mechanics or laborers, and any subcontract of any tier thereunder.
Are There Any Exclusions Under Executive Order 13658?
The Executive Order generally does not apply to contracts excluded from coverage under the DBA and SCA. Similarly, it does not apply to learners, apprentices, messengers, students or employees who are otherwise exempt from the minimum wage requirements of the FLSA. For contracts that are partially performed outside the United States, the applicability of the Final Rule and related minimum wage requirements are limited to the part of the contract performed within the United States. The Executive Order also does not apply to contracts for manufacturing or furnishing of materials, supplies, articles or equipment to the federal government covered by the Walsh-Healey Public Contracts Act. Additionally, the Final Rule does not apply to FLSA-covered workers performing in connection with covered contracts (i.e., workers who perform work duties necessary for the performance of the contract, but who are not directly engaged in performing the specific work called for by the contract) who spend less than 20 percent of their hours in a particular workweek performing such work.
What is the Anticipated Impact of Executive Order 13658?
Among the numerous impact statistics considered by the DOL, it estimates that the Final Rule likely will affect between 315,902 and 328,552 small contract firms. While the DOL recognizes that this range may be an overestimate because some small contractor firms already pay their workers more than $10.10 per hour, it also acknowledges that these figures do not include the number of subcontractors that may also be affected by the rule.
What Are the Next Steps?
If the Final Rule has implications for your business based on the overview provided above, you should seek the guidance of a qualified professional to discuss implementing the new minimum wage obligations, as well as others aspects of the Final Rule such as handling deductions, overtime payments, worker notice requirements and the inclusion of related clauses in your contracts.