Federal Contractor Minimum Wage Update: DOL Issues Final Rule

As previously reported here, on February 12, 2014, President Barack Obama issued his controversial and long anticipated Executive Order 13658 requiring contractors on new federal contracts to pay a minimum wage of $10.10 per hour by January 1, 2015. On October 1, 2014, at the President’s directive, the Department of Labor promulgated the final rule raising the minimum wage for federal contract workers.

The 338-page directive provides guidance and sets standards for employers regarding what contracts are covered by the Executive Order and which of the contractor’s workers are covered. The rule also establishes obligations that contractors must fulfill in order to comply with the new minimum wage provisions, including record-keeping requirements. The final rule further provides guidance about where to find the required rate of pay for all workers, including tipped employees and workers with disabilities.

The final rule makes clear that the new minimum wage requirement applies to all contracts for construction covered by the Davis-Bacon Act (DBA) and for services under the Service Contract Act (SCA). The DBA applies to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works. DBA contractors and subcontractors must pay their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area. Because of the type of work that Davis-Bacon covers, most (but not all) contractors covered by the Act are already paying workers above the $10.10 per hour threshold.

The final rule will have a slightly greater impact on those contractors covered by the Service Contract Act. The SCA covers contractors and subcontractors performing services on federal contracts in excess of $2,500 in the areas of concessions contracts, such as contracts to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and recreational equipment, as well as contracts to provide services, such as child care or dry cleaning, on federal property for federal employees or the general public. While it is true that the SCA has a prevailing wage requirement similar to Davis-Bacon, the wages for these employees are generally lower than construction workers. Thus, the Service Contract employees — particularly in traditionally low paying fields — will see the greatest impact from the final rule.

Covered employers must notify all workers of the applicable minimum wage rate under the Executive Order. According to the final rule, an employer subject to the DBA or SCA may meet this requirement by posting — in a prominent and accessible place at the worksite — the applicable wage determination under those statutes. For non-DBA or SCA employers, the employer must post in a prominent place a Department of Labor notice regarding the minimum wage. The notices may also be posted electronically to the employer’s website.

Additionally, the final rule establishes an enforcement process that the Department of Labor (DOL) will use to penalize contractors who fail to meet the new minimum wage standards. The Wage and Hour Division of the DOL has jurisdiction to investigate complaints. The identity of the complainant shall not be disclosed during the course of the investigation. The final rule also contains an anti-retaliation provision similar to that in the Fair Labor Standards Act and other federal wage statutes. The anti-retaliation provision protects workers who complain about non-compliance either to the DOL or internally to their employer or potential employer.

The final rule goes into effect on January 1, 2015 for new contracts and will apply to roughly 24,000 businesses with federal contracts, employing about 28 million workers, according to DOL figures. As noted, most of these employees already earn at least $10.10 per hour, so the impact may not be as widespread as it may have seemed at first. The DOL estimates that roughly 200,000 workers stand to benefit from the regulations.

Arent Fox will continue to monitor developments in the area of minimum wage laws and orders. If you have any questions, please contact the authors of this post, or the Arent Fox attorney who regularly handles your matters.