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Biden Issues EO Increasing Minimum Wage to $15 per Hour for Federal Contractors

On April 27, 2021, President Biden issued Executive Order 14026 requiring contractors to pay a minimum wage of $15.00 per hour beginning January 30, 2022, on contracts entered into, contracts renewed or extended, and options exercised on or after January 30, 2022.
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The new Executive Order is patterned on a February 12, 2014, Executive Order issued by President Obama which affected the same group of workers, and increased the then minimum wage for federal contract employees to $10.10 (a redline is here). Implementing Regulations are due by November 24, 2021.

To Whom Does the Executive Order Apply?

The Order applies to all federal contractor employees working on or in connection with a federal government: procurement contract for services or construction; contract for services covered by the Service Contract Act; concessions contract; or contract in connection with Federal property or lands and related to offering services — and “contract-like instruments” for the same. As noted by the White House Fact Sheet, this includes workers such as cleaning professionals and maintenance workers who ensure federal employees have safe and clean places to work, nursing assistants who care for veterans, military food-service employees, and laborers who build and repair federal infrastructure.

For contractors covered by the Service Contract Act or the Davis-Bacon Act, the Order applies to contracts or contract-like instruments valued at or above the thresholds specified in those statutes — i.e., $2,500 for the Service Contract Act; $2,000 for the Davis-Bacon Act. For procurement contracts where workers’ wages are governed by the Fair Labor Standards Act, the Order applies only to contracts or contract-like instruments that exceed the micro-purchase threshold, as defined in 41 U.S.C. § 1902(a) (i.e., $10,000 for most types of procurement), unless expressly made subject to the Order pursuant to regulations or actions taken under the Order.

In a departure from the approach taken by President Obama, the new Order states that it applies not only to executive agencies but also to independent establishments in the executive branch, including those entities to which the Federal Property and Administrative Services Act applies. The Order will apply to workers providing seasonal recreational services or seasonal recreational equipment rental for the general public on Federal lands, such as river guides and outfitters — a category of employees that previously any been exempted from the minimum wage for Federal workers by an Executive Order issued by President Donald Trump.

The Order does not apply to any contracts (or contract-like instruments) that are expressly excluded by the regulations to be issued pursuant to the Order. Regulations implementing President Obama’s executive order include the following exclusions, all of which are likely candidates to be exclusions under President Biden’s Order: procurement contracts for construction that are not covered by the Davis-Bacon Act; service contracts exempt from coverage of the Service Contract Act; employees who are exempt from the minimum requirements of the Fair Labor Standards Act (e.g., learners, apprentices, or messengers; students; individuals employed in a bona fide executive, administrative, or professional capacity; and FLSA-covered workers performing in connection with covered contracts for less than 20 percent of their work).

The Order also does not apply to grants, contracts, contract-like instruments, and agreements with and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act.

When Does the New Minimum Wage Go Into Effect?

In an approach that may raise contract administration issues, the Executive Order calls for the new FAR clause to be included not only in new contracts entered into on or after January 30, 2022, but also in extensions and renewals of existing contracts and exercises of options on existing contracts occurring on or after January 30, 2022.

Adding the new FAR clause into an existing fixed-price or time-and-materials contract will require a bi-lateral contract modification and should allow an orderly process for updating fixed prices and adjusting hourly rates, as appropriate. To the extent a Government contracting officer asserts the ability to use the change order process to unilaterally amend a contract to include the new FAR clause, the Changes clause should allow the contractor to obtain an equitable adjustment.

Whether or not the new FAR clause has been promulgated, within 60 days of the promulgation of regulations by the Secretary of Labor (which regulations are, as noted above, due November 24, 2021), agencies are required to take steps consistent with the law that covered contracts, including the minimum wage requirement of the Order.

Will the New Minimum Wage Be Indexed For Inflation?

Yes. Starting January 1, 2023, the $15 per hour minimum wage will be increased annually by the annual percentage increase in the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers.

Does the New Minimum Wage Apply to Tipped Workers?

Yes. Minimum wages for tipped workers employed by businesses with federal contracts are also affected. Currently, workers on Government contracts who receive tips must be paid a minimum base of $7.65 per hour – an amount lower than the $10.95 figure because the employer can take a credit for tips actually received by the workers subject to requirement that the employer top off earnings if a worker does not receive a sufficient amount of tips in the workweek to equal the amount of the tip credit. Beginning January 30, 2022, the Order raises that base to $10.50 per hour.

The Order further mandates a phase-out of the tip credit concept for tipped workers. Starting January 1, 2023, the tipped worker minimum wage will be 85 percent of the CPI-adjusted hourly rate of untipped workers; and, starting on January 1, 2024, the minimum wage for tipped workers will be the same as the CPI-adjusted minimum wage for untipped workers.

How Will the Order Be Enforced?

The Order states that it creates no rights under the Contract Disputes Act and that disputes regarding whether a contractor has paid appropriate wages shall be disposed of only as provided by the Secretary of Labor in regulations pursuant to the Order. It is noteworthy that similar language also was included in the earlier order from President Obama, and that the regulations implementing that earlier order acknowledged that the order did not change any rights under the Contract Disputes Act.

The Order requires that Secretary of Labor Martin Walsh institute regulations for the Order by November 24, 2021. The Secretary will continue to have the authority to investigate potential violations of, and obtaining compliance with, the Order.

Takeaways

According to the White House, the Order will ensure that “hundreds of thousands” of federal workers “no longer have to work full time and still live in poverty.” Whether this accurately states the direct effect of the Order is yet to be seen, as the minimum hourly rates established in existing wage determinations for areas of the country with a high number of federal workers already surpass the $15 per hour threshold for all but a handful of labor categories. And, in many cases, contractors pay wages above the minimum wage threshold due to market demands. However, the indirect effects — such as the practical need perceived by many Federal contractors to pay a higher hourly rate to increasingly more experienced and skilled workers — are certain to be more widespread and should be taken into account when repricing an existing contract.

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