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Biden Department of Labor Proposes $15 Minimum Wage for Federal Contractors

In Short 

The Situation: President Biden signed an executive order in April 2021 directing the Secretary of Labor to raise the minimum wage for federal contractors to $15 per hour. On July 22, 2021, the Department of Labor formally unveiled a proposed regulation to carry that order into effect. 

The Result: The public has until August 27, 2021, to comment on the proposed rule. The Department will promulgate a final rule no later than November 24, 2021.  

Looking Ahead: While most federal contractors are well-acquainted with targeted minimum wage requirements, they should be prepared to meet the unique requirements proposed by this latest rule. In particular, the proposed rule pegs the minimum wage for federal contractors to inflation and eliminates the tipped minimum wage by 2024.

Overview 

As previously discussed here, pursuant to Executive Order 14026 signed by President Biden on April 27, 2021, the Department of Labor ("DOL" or "Department") recently published a notice of proposed rulemaking titled "Increasing the Minimum Wage for Federal Contractors." The Department's proposed regulation sets out a $15 minimum wage for federal contractors beginning on January 30, 2022, which represents an increase of $4.05 per hour from the current minimum wage for contractors of $10.95. It also permits the Secretary of Labor to increase the minimum wage each year beginning in 2023. The increased wage rate applies to new procurement contracts—including contracts awarded pursuant to Federal Acquisition Regulation Part 12 for commercial items and commercial services—for construction covered by the Davis-Bacon Act, contracts covered by the Service Contract Act, concessions contracts, and contracts for services provided to the general public and federal employees on federal lands. 

Notable Changes 

The proposed regulation includes significant modifications that go beyond President Obama's 2014 Executive Order 13658, which initially raised the minimum wage for federal contractors. For one, it phases out the tipped minimum wage for federal contractors—currently set at $7.65 per hour—by 2024, applying the $15 per hour standard across the board. It also expressly applies to covered workers with disabilities whose wages were previously calculated pursuant to special certificates issued under section 14(c) of the Fair Labor Standards Act ("FLSA").  

Applicability  

The regulation casts a broad net over federal contractors, affecting more than 300,000 workers across 50 states, the District of Columbia, and U.S. territories as proposed. The rule as drafted applies to contracts, subcontracts at all tiers, lease agreements, permits, and licenses, and also provides that contracts for seasonal recreational services on federal land are subject to the same minimum wage requirements as are other federal contracts. Finally, the proposed rule requires agencies exercising options under existing federal contracts to update relevant terms to account for the $15 per hour minimum wage. This is a change from past practice, when exercising an option in an existing contract did not open the door to increased minimum wage requirements for contractors.  

Broad though 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 contracts expressly excluded" by section 23.40 of the proposed rule.  

Enforcement  

DOL's Wage and Hour Division ("WHD") will be tasked with enforcing the rule, and is empowered to act on complaints from workers, contractors, or other individuals regarding an alleged violation. It is also empowered to bring actions on behalf of affected contractors' employees in situations where employees are not made whole by their employer's payments. Where WHD determines that a contractor has failed to pay the applicable minimum wage to workers—and where a contractor fails to remedy the violation—that contractor may be ordered to pay all unpaid wages to affected workers or directly to the DOL. The Department may suspend employers' access to contracting opportunities for up to three years where they have "disregarded [their] obligations" under the regulation. 

Comments 

The public has until August 27, 2021, to submit comments on the proposed rule. Comments may concern any aspect of the regulation, but the proposed rule specifically seeks input regarding: 

  • The accessibility of notice requirements and processes for disabled employees;
  • The earnings of federal contract employees;
  • Any state minimum wage increases that have been announced but not factored into the Department's analysis;
  • Calculations regarding the cost of increased payroll and unemployment taxes; and
  • The benefits of increasing the minimum wage specifically for federal contract workers.

Four Key Takeaways 

  1. Employers should evaluate whether they have employees who perform work on or in connection with a covered federal contract who may be affected by a change in law. 
  2. Commercial item contractors should assess the potential impact of the proposed rule on their workforce, particularly if they provide both materials or equipment (not subject to the federal contract minimum wage) and services (such as installation, maintenance, training) that is subject to the federal contract minimum wage.
  3. Contractors should be aware of the potential for future increases in the minimum wage for covered employees on an annual basis.
  4. Employers should note that the proposed rule phases out the tip credit for covered federal workers by 2024 and applies the $15 minimum wage to covered disabled workers for the first time.

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