On September 15, 2017, the U.S. Department of Labor (DOL) announced an increase in the minimum wage rate to be paid to workers performing on or in connection with federal contracts covered by Executive Order 13658, "Establishing a Minimum Wage for Contractors."

Beginning January 1, 2018, the minimum wage covered contractors are required to pay covered workers under the Executive Order will be raised from $10.20 per hour to $10.35 per hour. For tipped employees, the minimum wage would be raised from $6.80 per hour to $7.25 per hour. If the worker does not receive enough tips to produce the full amount, then the employer must pay the worker additional wages to bring him or her up to $10.35. Both the Executive Order and implementing regulations call for DOL to conduct annual re-determinations of these rates (https://www.gpo.gov/fdsys/pkg/FR-2017-09-15/pdf/2017-19668.pdf).

Notification to Covered Employees and Subcontractors

Contractors are required to notify all workers performing on or in connection with a covered contract of the applicable minimum wage rate under the Executive Order. Contractors with employees covered by the Fair Labor Standards Act who are performing on or in connection with a covered contract may satisfy the notice requirement by displaying the poster available from DOL in a prominent or accessible place at the worksite.

In addition, the contractors must provide notice to anyone with whom they enter into a lower-tier contract and must include in contracts and covered subcontracts the minimum wage clause found in the regulations. The contractor must require, as a condition of payment, that the subcontractor include the minimum wage clause in any lower-tier subcontracts. The prime contractor and any upper-tier contractor are responsible for making sure that all workers performing work on or in connection with covered contracts are paid the minimum wage.

Background

On February 12, 2014, President Obama signed Executive Order 13658, “Establishing a Minimum Wage for Contractors.” This Order establishes a minimum wage to be paid to workers performing on or in connection with a covered contract with the federal government.

Types of Contracts Covered

The contractor minimum wage is limited to "contracts and contract-like instruments" awarded, renewed, extended or modified through bilateral negotiation on or after January 1, 2015. Additionally, only the following types of contract or contract-like instruments will be covered:

  1. Prime contracts for procurement related to construction covered under the Davis-Bacon Act (DBA) whose monetary value exceed $2,000;
  2. Prime contracts for providing services covered under the Service Contract Act (SCA) whose monetary value exceed $2,500;
  3. Prime contracts for procurement covered under the Fair Labor Standards Act (FLSA) whose monetary value exceed $3,000;
  4. Concessions contracts regardless of monetary value; and
  5. Contracts in connection with federal property or lands and related to offering services to federal employees, their dependents, or the general public.

Types of Activity Covered

If a company is determined to have a covered contract with the federal government, it is obligated to pay the contractor minimum wage to the following employees whose work is "covered" under the final rule:

  1. Employees who are entitled to the minimum wage under FLSA section 6(a)(1), employees whose wages are calculated pursuant to special certificates issued under FLSA section 14(c), and tipped employees under FLSA section 3(t);
  2. Service employees who are entitled to prevailing wages under the SCA; and
  3. Laborers and mechanics who are entitled to prevailing wages under the DBA.

The above employees will be considered "covered" if they perform "work on or in connection with" a covered contract. An employee will be deemed to perform work "on" a covered contract if he or she "directly performs specific services called for by the contract's terms." An employee will be deemed to perform work "in connection with" a covered contract if he or she performs "work activities necessary to the specific services called for by the contract's terms."

Excluded Contracts and Employees

The following are excluded from the minimum wage regulations:

  • Grants within the meaning of the Federal Grant and Cooperative Agreement Act;
  • Contracts with, agreements with, and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act;
  • Procurement contracts for construction not covered by the DBA; and
  • Contracts for services that are exempted from the SCA.

With respect to excluded employees, except for workers who are otherwise covered by the DBA or the SCA, the minimum wage requirements do not apply to those who are not entitled to minimum wage under the FLSA. Some of the excluded employees are:

  • Learners, apprentices, and messengers;
  • Students; and
  • Individuals employed in bona fide executive, administrative, or professional capacity.

The regulations also exclude from their requirements FLSA-covered workers performing “in connection with” covered contracts less than 20 percent of their work hours in a given workweek. This exclusion does not apply to workers “performing on” a covered contract whose wages are governed by the FLSA, SCA, or DBA. A worker will be considered to be performing on a covered contract if he or she is directly engaged in the performance of specified contract services or construction. For example, all laborers and mechanics working on the construction of a public building will be regarded as performing on a covered contract, and thus entitled to the minimum wage. On the other hand, excluded employees would be those who do not perform the construction due to the nature of their non-physical duties and/or because they are not present on the site of the work, such as a janitor performing cleaning duties off-site.

In order for a contractor to exclude employees, it must maintain records showing the hours worked by those employees, or provide other proof showing the hours worked in connection with the covered contract.

Enforcement Procedures

Complaints may be filed with DOL’s Wage and Hours Division (WHD) by any person or entity that believes a violation of the Executive Order or its implementing regulations has occurred. The regulations contain a mechanism for WHD investigations and informal complaint resolution, as appropriate; they also specify remedies and sanctions for violations of the Executive Order and its implementing regulations, including the payment of back wages and debarment.

Additional Resources

A copy of the executive order, frequently asked questions, and the required poster can be found on DOL's web page.

The information in this article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.