Executive Summary: The U.S. Department of Labor issued final regulations on October 1, 2014 to implement Executive Order 13658, Establishing a Minimum Wage for Contractors.  President Obama signed the Executive Order on February 12, 2014.  The Executive Order raises the hourly minimum wage that covered contractors pay to workers performing work on covered federal contracts to $10.10 per hour, effective January 1, 2015.  Beginning January 1, 2016 and annually thereafter, the Secretary of Labor will determine the amount of the minimum wage on covered contracts.  The Executive Order applies only to new contracts and 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.  Below are highlights of the final rule.

What contracts are covered?

Four major categories of contracts are covered:

  • procurement contracts for construction covered by the Davis-Bacon Act (DBA);
  • service contracts covered by the Service Contract Act (SCA);
  • concessions contracts, including any concessions contract excluded from the SCA by the Department of Labor’s regulations at 29 CFR § 4.133(b); and
  • contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.

The wages of workers under such contracts must be governed by the DBA, the SCA, or the Fair Labor Standards Act (FLSA).  Below are answers to basic questions pertaining to the Executive Order.

What is the threshold for coverage under EO 13658?

The Executive Order applies only to prime contracts covered by the DBA that exceed $2000 and prime contracts covered by the SCA that exceed $2500.  For procurement contracts where workers’ wages are governed by the FLSA, the Executive Order applies only to contracts that exceed $3000.  Importantly, there are no value thresholds for subcontracts awarded under such prime contracts.

What is a “new contract”?

The Executive Order applies only to new contracts with the federal government.  A new contract is a contract resulting from a solicitation issued on or after January 1, 2015, or a contract that is awarded outside the solicitation process on or after January 1, 2015.  The term includes both new contracts and replacements for expiring contracts.  It may also include amendments or modifications to existing contracts.

Which groups of employees are covered by EO 13658?

Workers whose wages under covered contracts are governed by the FLSA, the SCA, or the DBA are entitled to the Executive Order minimum wage.  Generally these include employees who are entitled to the minimum wage under the FLSA; service employees who are entitled to prevailing wages under the SCA; and laborers and mechanics who are entitled to prevailing wages under the DBA.

Tipped employees under the FLSA also are covered. The hourly cash wage that must be paid to tipped employees working on covered contracts or subcontracts is $4.90 per hour beginning on January 1, 2015, subject to an increase each year thereafter.

Does the final rule exclude any employees from coverage under the EO?

Yes.  Among others, the final rule provides that learners, apprentices, messengers, and full-time students employed under special certificates pursuant to the FLSA are not entitled to the Executive Order minimum wage.  Individuals employed in a bona fide executive, administrative, or professional capacity, as defined by the FLSA, also are exempt from coverage.

What must a covered contractor or subcontractor do to comply with EO 13658?

Contractors and subcontractors must include a contract clause in any covered contract or subcontract, as well as in lower-tier subcontracts.  The clause must specify as a condition of payment that the minimum wage to be paid to workers performing work on covered federal contracts is (1) $10.10 per hour beginning January 1, 2015 and (2) beginning January 1, 2016, and annually thereafter, an amount determined by the Secretary of Labor in accordance with the Executive Order.  In addition, covered contractors and subcontractors must also display a poster supplied by the Department of Labor which may be posted electronically.

Employers’ bottom line:

The final rule and comments to the final rule exceed 300 pages. The DOL has published a Fact Sheet that provides some guidance on the final rule. We recommend as a first step that employers examine their existing contracts and subcontracts to determine whether they may be covered by EO 13658.  Following that assessment, employers may wish to seek counsel for assistance in complying with the Executive Order.