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DOL Issues Proposed Rule Increasing Minimum Wage for Federal Contractors

By Allen Smith  6/12/2014
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A wide range of employees of federal contractors and subcontractors will benefit from a proposed rule to implement a raise in the minimum wage for contractor and subcontractor employees to $10.10 per hour, according to Cecilia Muñoz, White House domestic policy council, during a press teleconference on the June 12, 2014, proposed rule.

From military bases and national parks to nursing homes, contractor employees are going to have a better shot at getting by, not to mention getting ahead, she suggested.

“No person working a full-time job should live in poverty,” remarked Secretary of Labor Thomas Perez. He shared anecdotes from two employees at a McDonald’s in the Smithsonian’s National Air and Space Museum. One said with the raised minimum wage she would be able to buy gifts for relatives and the other said she would be able to pay her phone and electric bills on time.

Paying a fair wage is the fair, right and smart thing to do, Perez remarked. The proposed rule will affect approximately 183,800 workers. It is estimated to cost federal contractors $100 million a year.

Perez urged Congress to follow the president’ s lead and raise the minimum wage for workers in the private sector, which would affect 28 million employees. He observed that many states and localities are raising the minimum wage, most recently Vermont, which he said the administration is encouraging states and localities to do.

And Perez noted that the raised minimum wage for federal contractors will take effect with contracts issued on or after Jan. 1, 2015.

Executive Order Implemented

The proposed rule implements Executive Order 13658, which the president announced on Feb. 12, 2014. The executive order boosted the minimum wage for federal contractors, and called on the Labor Department to issue regulations to implement the new federal contractor minimum wage.

Boosting wages lowers turnover, increases morale and will lead to higher productivity overall on federal contracts, the Labor Department said in a release accompanying the proposed rule.

The proposed rule will not just affect teenagers, Muñoz remarked, saying that the average age of people earning the minimum wage is 35. They often work full time, one-third of them have children, and half of the jobs are filled by women. Raising the minimum wage will help chip away at the pay gap between men and women, she observed.

Business Opposition

Some employers and business groups are opposed to a raise in the minimum wage, however, saying it would be particularly difficult for small businesses and franchisees.

“Some companies that are federal contractors with only a small portion of their work may ask whether they want to continue to do work with the federal government,” Daniel Davis, an attorney with Proskauer in Washington, D.C., told SHRM Online. Others may reorganize their workforce and seek people with better qualifications who can do the work of two people, so a contractor might reduce the number of people working on a federal contract from 20 to 10, Davis added.

Ultimately, increased labor costs may be passed back to the federal government, as higher wages could result in higher bids for federal contract work, he noted.

Covered Contracts

The proposed rule clarifies that the Executive Order minimum wage applies to:

  • All contracts for construction covered by the Davis-Bacon Act. The act mandates a prevailing wage, which varies across the nation from city to town, Davis remarked. With the rise in minimum wage for contractors, if the prevailing wage is lower than $10.10 per hour, the construction workers must be paid at least $10.10.
  • Contracts for services covered by the Service Contract Act, which also has a prevailing wage.
  • Concessions contracts, such as contracts to furnish food, lodging, automobile fuel, souvenirs, newspaper stands and/or recreational equipment on federal property.
  • Contracts to provide services, such as child care or dry cleaning, in federal buildings for federal employees or the general public.

Contracts that Aren’t Covered

The proposed rule outlines exclusions from coverage for the following types of contractual agreements:

  • Grants.
  • Contracts and agreements with and grants to Indian tribes.
  • Procurement contracts for construction not subject to the Davis-Bacon Act—that is, procurement contracts for construction under $2,000.
  • Any contracts for services, except for those expressly covered by the proposed rule, that are exempt from coverage under the Service Contract Act. For example, the act exempts contracts for public utility services from its coverage. It also exempts employment contracts for direct services to a federal agency by an individual.
  • Contracts for the manufacturing or furnishing of materials (e.g., timber), supplies (e.g., pencils), articles or equipment to the federal government. Those are subject to the Walsh-Healey Public Contracts Act.

The public will comment on the proposed rule for a month, Perez noted. A final rule will be issued by Oct. 1, 2014. The amount of the minimum wage will, as of Jan. 1, 2016, be determined by the Labor Department secretary.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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