The Secretary of the U.S. Department of Labor (DOL), Thomas Perez, recently issued the final rule raising the minimum wage for workers on federal service and construction contracts to $10.10 per hour. The final rule enacts Executive Order 13658, “Establishing a Minimum Wage for Contractors,” signed by President Barack Obama on February 12, 2014. The executive order makes the wage increase effective January 1, 2015.

Following publication of the proposed rule on June 17, 2014, the DOL received more than 6,500 comments. Comments favoring the increase came from groups such as the AFL-CIO, while opposition came from groups such as the U.S. Chamber of Commerce. The final rule amends the Code of Federal Regulations and “establish[es] standards and procedures for implementing and enforcing the minimum wage protections of Executive Order 13658.”

The final rule states that a contract clause regarding the minimum wage requirements must be included in lower-tier subcontracts, not just the prime contract awarded by the federal government. Note that the minimum wage is applicable only to “new contracts.”

A contract is a new contract if the solicitation for the contract was published on or after January 1, 2015. Existing contracts are also new contracts if, through bilateral negotiation on or after January 1, 2015, (1) the contract is renewed; (2) the contract is extended, unless the extension is made pursuant to a term in the contract as of December 31, 2014, providing for short-term limited extension; or (3) the contract is amended pursuant to modification that is outside the scope of the contract. A subcontract is not a new contract unless the prime contract under which the subcontract is awarded results from a solicitation offered on or after January 1, 2015.

Under the rule, employers are still permitted to make the usual deductions from wages for withholding taxes, withholding in accordance with court orders, voluntary assignment by workers to representatives (e.g. union dues), and the reasonable cost of lodging and other facilities.

Federal contractors should also be aware that, “[t]o the extent a lower-tier subcontractor fails to pay its workers the applicable […] minimum wage even though its subcontract contains the required contract clause, an upper-tier contractor may still be responsible for any back wages owed to workers.”

While the new rule does not create a private right of action for employees, it does contain a provision prohibiting employers from retaliating against employees for filing complaints or testifying regarding violations of the minimum wage requirements.

Finally, federal contractors should note that they are required to make their covered employees aware of the new minimum wage. The rule provides a poster that federal contractors can use to satisfy this requirement.

The final rule is slated for publication in the Federal Register on October 7, 2014.

Ballard Spahr's Labor and Employment Group routinely assists employers with issues related to federal contractor compliance and can assist in making the transition to the new minimum wage. 

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