Key Details: President Biden issued Executive Order (EO) 14026 on April 27, 2021. Titled “Increasing the Minimum Wage for Federal Contractors,” this EO aimed to boost the minimum wage for employees performing covered contracts beginning January 30, 2022. The overall goal of this EO is to strengthen both the economy and the efficiency of federal contract procurement. On November 22, 2021, the Department of Labor announced the publication of a final rule to implement EO 14026. This final rule will raise the minimum wage to $15.00 per hour beginning January 30, 2022.
Beginning January 1, 2023, and annually thereafter, the $15.00 per hour minimum wage will be adjusted for inflation by the Secretary of Labor. The publication of the Minimum Wage EO final rule also establishes the standards and procedures for enforcement and compliance. Thus, it is essential for federal contractors to thoroughly review the requirements under both the EO and the final rule to remain compliant.
What Contracts Does This Final Rule Apply To?
- New contracts entered on or after January 30, 2022.
- Current contracts extended or renewed or after January 30, 2022.
- Current contract options that will be exercised on or after January 30, 2022.
- Procurement contracts for construction covered by the Davis-Bacon Act.
- Service contracts covered by the Service Contract Act.
- Concessions contracts.
- Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the public.
It is important to note that this minimum wage EO final rule only applies to these above contracts if the workers under the contract are governed by the Fair Labor Standards Act (FLSA), the Service Contract Act, or the Davis-Bacon Act. Thus, this increased minimum wage does not apply to grants, contracts with Indian Tribes under the Indian Self-Determination and Education Assistance Act, contracts excluded under the Davis-Bacon or Service Contract Act, employees exempt from FLSA minimum wage requirements, or contracts from solicitations issued before January 30, 2022 that are entered into on or between January 30, 2022 and March 30, 2022 and have not yet been renewed to place EO 14026 into effect.
How is this EO Different Than Others?
The Department of Labor’s Wage and Hour Division has prepared a side-by-side comparison of EO 13658 and 14026, along with clarifications related to EO 13838. EO 13658 is the prior executive order concerning federal minimum wages issued by President Obama in 2014 that is superseded by EO 14026. EO 13838 was issued by President Trump in 2018 and made certain adjustments and exemptions to EO 13658. EO 14026 supersedes and rescinds President Trump’s executive order on the subject.
For contractors that have previously been affected or exempted under prior executive orders, crucial differences include:
- The definition of “new contract” – A key difference between EO 14026 and the superseded EO 13658 is that the minimum wage requirements of EO 14026 apply prospectively at the date the contract is extended, renewed, or an option is exercised on or after January 30, 2022. Contractors must be prepared for this immediate renewal adjustment on any potentially covered contract. Given the significant gap between the new and prior minimum wage requirement, contractors not directly impacted by EO 13658 must prepare to comply with the revised minimum wage on renewed contracts, exercised options, or any current opportunities.
- Coverage of recreation service contracts on federal lands – EO 13838 made seasonal recreational services and seasonal recreational equipment rental contracts exempt from EO 13658 coverage. EO 14026 rescinds EO 13838 effectively subjecting these types of contracts to minimum wage requirements as of January 30, 2022. Current coverage under the new (EO 14026) or old (EO 13658) minimum wage standard depends on the date the contract was entered into, but going forward, all new contracts of this type will be subject to new minimum wage standards.
- Geographical coverage – EO 13658 only applied to contracts performed in the 50 States and DC. EO 14026 extends coverage to specified U.S. territories including Guam and Puerto Rico.
How to Plan for the Minimum Wage EO Final Rule
Federal contractors and subcontractors can stay ahead of the upcoming change by:
- Understanding which contracts and employees are covered under the final rule.
- Identifying any contracts, or labor categories related to contracts, where employees are being paid wages below the revised $15.00 minimum.
- Assessing if any existing, covered contracts contain options or extensions that may occur on or after January 30, 2022.
- Analyzing the financial impact this will have on contracts in terms of increased labor costs for existing and renewing contracts with option year pricing and escalation based on wages below the new $15.00 minimum.
- Incorporating the revised wage standards into contract pricing, bids, and proposals going forward with continued awareness of annual Consumer Price Index (CPI) adjustments to the federal minimum wage.
- Preparing for contract modifications to include this higher minimum wage earlier than the final rule requires and any labor force/union negotiations that may seek to update wages prior to statutory requirements.
- Understanding posting and notification requirements. For contracts with employees covered by the Service Contract Act or the Davis-Bacon Act, employers are required to post a notification at the worksite for employees.
Wage and Contract Pricing Updates – Prepare Now
For federal contractors already familiar with wage determination compliance, for example on an SCA covered contract and labor category, it is important to note that the federal minimum wage requirements in EO 14026 will exist simultaneously with wage determinations such that the contractor will be required to pay the higher of the two to covered employees.
Contractors that are used to updating employee pay based on revised wage determinations at the date of contract renewal will potentially need to add a second wage adjustment date to the calendar as, once a contract becomes covered, the minimum wage prescribed by EO 14026 goes into effect immediately upon update (e.g., January 1, 2023) as opposed to the contract renewal date.
Contractors who face significant wage adjustments that have not been accounted for in any allowances or contingencies in contract pricing should begin researching and working with contracting officers to potentially apply for contract pricing adjustments.
One such clause that may be applicable in this scenario is FAR 52.222-43 Fair Labor Standards Act and Service Contract Labor Standards – Price Adjustment (Multiple Year and Option Contracts). Contractors will want to identify if this clause, or a similar clause, is applicable to their specific contract circumstances to begin exploring relief options as soon as possible since adjustments actions like those described in FAR 52.222-43 may have a limited timeframe where contractors can seek adjustments.
Federal contractors should plan on thoroughly reviewing the final rule and additional information provided by the Department of Labor to understand specific requirements. The DOL has also provided this Frequently Asked Questions page to provide further clarifications. Contractors and subcontractors are encouraged to thoroughly review the resources above to remain compliant, understand specific posting requirements, and plan for financial impacts. Like enforcement provisions under other labor and wage laws, compliance violators may be penalized with payment of back wages, reinstatement, and debarment, as appropriate.
For more information on this subject or other topics regarding labor law compliance for government contractors, contact Ryan & Wetmore today.
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