DOL Issues Final Rule to Increase Federal Contractor Minimum Wage
On November 24, the Department of Labor (DOL)’s Wage and Hour Division (WHD) issued a final rule implementing President Biden’s Executive Order 14026 (EO), “Increasing the Minimum Wage for Federal Contractors.” The rule increases the minimum wage for federal government contractors for workers who work on or in connection with a covered federal contract to $15 per hour beginning January 30, 2022, and requires the secretary of labor to annually review and determine the minimum wage amount beginning January 1, 2023.
As stated above, the final rule establishes standards and procedures for implementing and enforcing the minimum wage protections of Executive Order 14026. Starting January 30, 2022, all agencies will need to include a $15 minimum wage in new contracts, new solicitations, extensions or renewals of an existing contract, and exercises of an option on an existing contract. Under the EO and final rule, contracts with solicitations issued before January 30, 2022, and entered into, on or between January 30 and March 30, 2022 will be exempt from the wage. If such a contract is subsequently extended or renewed or an option is exercised under the contract, the $15 minimum wage will apply.
According to the EO and as finalized in the rule, the $15 minimum wage requirement only applies to the following contracts:
- Procurement contracts for services or construction;
- Contracts for services covered by the Service Contract Act (SCA);
- Contracts for concessions; and
- Contracts “entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.”
The new minimum wage clause will NOT need to be included in:
- Federal grants;
- Contracts or agreements with Indian Tribes under the Indian Self-Determination and Education Assistance Act;
- Procurement contracts for construction that are excluded from coverage of the Davis-Bacon Act (DBA);
- Contracts for services that are exempt from coverage under the SCA; and
- Contracts for the manufacturing of materials, supplies, articles or equipment to the Federal Government.
The WHD defines a covered worker in the final rule as “any person engaged in performing work on or in connection with a contract covered by the EO, and whose wages under such contract are governed by the [Fair Labor Standards Act (FLSA)], the SCA or the DBA, regardless of the contractual relationship alleged to exist between the individual and the employer.” A worker who performs “on” a covered contract is defined as “any worker who directly performs the specific services called for by the contract’s terms,” and a worker who performs “in connection with” a covered contract is defined as “any worker who performs work activities that, although are not the specific services called for by the contract’s terms, are necessary to the performance of those specific services.”
One exemption to the rule’s minimum wage requirement is provided for FLSA-covered workers performing work “in connection with” covered contracts for less than 20 percent of their working hours in a given workweek.
The final rule also clarifies that certain employees who are exempt from the minimum wage protections under the FLSA are also not entitled to the $15 minimum wage protection of the EO and final rule. In an FAQ page on the EO and final rule, the WHD provides “learners, apprentices, messengers and full-time students employed under certificates pursuant to FLSA sections 14(a) and (b)” as examples of individuals who are excluded from the EO’s minimum wage requirements.
As mentioned above, the secretary of labor will be granted authority to annually review and increase the minimum wage beginning January 1, 2023. The minimum wage will be increased by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers to address inflation.
Additionally, the EO and final rule change compensation for tipped employees working on or in connection with a covered contract. Beginning January 30, 2022, such tipped employees must be paid a wage of at least $10.50 per hour. By January 1, 2024, the tip credit must be eliminated for such employees, and they must earn the same minimum hourly rate that other covered employees are entitled to.
CUPA-HR will keep members apprised of any updates and resources to aid institutions as the new minimum wage final rule becomes effective.