Labor Department Issues Final Rule to Establish a Minimum Wage for Federal Contractors

On October 1, 2014, the United States Department of Labor issued a Final Rule to establish a minimum wage of $10.10 per hour for certain federal contractors beginning January 1, 2015. The rule implements a February 12, 2014 Executive Order signed by President Obama “Establishing a Minimum Wage for Contractors.” The Final Rule is published in the October 7, 2014 Federal Register.

The Final Rule establishes the minimum wage paid by certain federal contractors to its workers of $10.10 per hour. The Final Rule does not apply to all federal contracts but applies only to:

1. Procurement contracts for construction covered by the Davis-Bacon Act;
2. Service contracts covered by the Service Contract Act;
3. Concession contracts such as: contracts to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment; and
4. Contracts in connection with federal property or lands and relating to offering services for federal employees such as childcare or dry cleaning on federal property.

The minimum wage requirement of $10.10 per hour applies to new contracts or replacements for expiring contracts with the federal government that result from solicitations issued on or after January 1, 2015, or to contracts that are awarded outside the solicitation process on or after January 1, 2015. The minimum wage will be evaluated and potentially adjusted each year. Beginning January 1, 2016, and each year after that, the Labor Secretary will determine the minimum wage rate based on the consumer price index for urban wage earners and clerical workers.

The Final Rule requires the minimum wage requirement to be a provision in the contracting federal agencies’ contracts with contractors. Contractors must include the minimum wage provisions in any covered lower tier subcontracts as it appears in Appendix A of the Final Rule. Contractors must also notify all covered workers of the applicable minimum wage rate under the Labor Department rules. The Final Rule also contains a mechanism for the Wage and Hour division of the Labor Department to investigate complaints and specifies penalties for violations, including the payment of back wages and debarment.

The Final Rule contains other miscellaneous provisions. The Final Rule requires that contractors maintain certain records regarding minimum wages paid to workers. It contains anti-retaliation provision protecting any worker who has filed a complaint under the rule. It also provides that a worker may not waive his or her rights to prevailing wages.

The coverage of the Final Rule is somewhat limited in scope and does not include every federal contractor. In the case of construction contracts covered by the Davis-Bacon Act, the prevailing wage rate required by Davis-Bacon will often exceed the new minimum wage. Nevertheless, contractors involved in construction projects or those that provide services or concessions or on government property should thoroughly review new contract proposals to determine whether the minimum wage requirement is included. Businesses that are affected by the new rule should include the minimum wage in estimates and bids for federal government work.