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March 24, 2014
President Obama raises contractors’ minimum wage requirements

by Susan Schoenfeld, JD, Senior Legal Editor

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As promised in his State of the Union address, President Obama signed an Executive Order to raise the minimum wage for federal contract workers to $10.10 per hour by January 1, 2015. The increase from the current minimum wage rate of $7.25 per hour represents a 39 percent raise for employees of covered government contractors performing work on covered contracts.

Future adjustments for the minimum wage will annually be indexed to reflect changes in the Consumer Price Index (CPI), starting on January 1, 2016.

The new minimum wage for contractors will apply only to covered contracts and “contract-like instruments” (still undefined) that are the result of solicitations issued on or after January 1, 2015.

For contractors covered by the Service Contract Act or the Davis-Bacon Act, the Order appears to apply only to contracts or contract-like instruments at the thresholds specified in those statutes.

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 by law (41 U.S.C. Sec. 1902(a)), unless the contract is expressly made subject to the Order pursuant to regulations or actions taken under the Order.

The Order does not apply to grants; contracts and agreements with and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act; or any contracts or contract-like instruments expressly excluded by the regulations issued pursuant to the Order. Although the Order applies only to executive agencies, independent agencies are "strongly encouraged" to comply with the Order.

Tipped workers

The Executive Order also includes provisions to make sure that tipped workers earn at least $10.10 overall, through a combination of tips and an employer contribution. Employers are currently required to pay a minimum base wage of $2.13 per hour, a base that has remained unchanged for over 20 years, and if a worker’s tips do not add up to the minimum wage, the employer must make up the difference.

Under the Executive Order, employers are required to ensure that tipped workers earn at least $10.10 an hour. The Executive Order requires that employers pay a minimum base wage of $4.90 for new contracts and replacements for expiring contracts put out for bid after January 1, 2015. That amount increases by 95 cents per year until it reaches 70 percent of the regular minimum wage, and if a worker’s tips do not add up to at least $10.10, the employer will be required to pay the difference.

Disabled workers

Under current law, workers whose productivity is affected because of their disabilities may be paid less than the wage paid to others doing the same job under certain specialized certificate programs. Under this Executive Order, all individuals working under service or concessions contracts with the federal government will be covered by the same $10.10 per hour minimum wage protections.

Many questions remain regarding the application of the Order to contractors and their contracts. In order to address those questions, the Order mandates that the Secretary of Labor issue regulations implementing the Order by October 1, 2014.

To see a copy of the Executive Order, go to the White House website at www.whitehouse.gov/the-press-office/2014/02/12/executive-order-minimum-wage-contractors.

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