Proposed rule issued on minimum wage increase for federal contractors

Déjà vu!

As we previously reported, President Biden signed Executive Order 14026 on April 27, to increase the minimum wage for some federal contractors. The U.S. Department of Labor has now issued proposed regulations to implement this Executive Order.

President Biden’s Executive Order increases the contractor minimum wage to $15 an hour, but its other terms are almost identical to those of an Executive Order issued in 2014 by President Obama (Executive Order 13658). Namely, the Biden Order applies to

  • Davis-Bacon Act construction contracts
  • Service contracts covered by the Service Contract Act
  • Contracts for concessions
  • Contracts in connection with federal property related to offering services to federal employees, their dependents, or the general public

Thus, it is not surprising that the new proposed regulations are generally consistent with the regulations that implemented President Obama’s Executive Order.  

Significant differences

There are, however, a few notable differences between the Obama regulations and the Biden proposed regulations.

Unlike the Obama Order, the Biden Order specifically applies to workers with disabilities whose wages are based on special certificates issued pursuant to section 14(c) of the Fair Labor Standards Act. Thus, if the wage rate in the special certificate is less than $15 (or the applicable minimum wage, as it automatically increases each year), contractors would have to increase the pay for those disabled employees to comply with these new regulations. 

The proposed rule would also expand geographic coverage beyond the 50 states and the District of Columbia to include contracts performed in U.S. territories. This would include Puerto Rico, the Virgin Islands, areas covered by the Outer Continental Shelf Lands Act, American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Wake Island, and Johnston Island. 

The proposal would also extend coverage to independent agencies of the federal government. Although expressly excluded from the Obama Order, independent agencies were previously “strongly encouraged” to include the contract clause in their agreements. The proposed rule seeks to include these agencies because the Biden Order does not expressly exclude them. Examples of independent agencies include the Equal Employment Opportunity Commission, the Central Intelligence Agency, and the Federal Labor Relations Authority. (A complete list of independent agencies is available here).

Contractors with workers performing on or in connection with a contract covered by both the Obama and Biden Orders would be required to pay the higher minimum wage of the Biden Order.

Assuming the proposed regulations become final, the new contract clause may be included by reference with the following language:  “Executive Order 14026 (Increasing the Minimum Wage for Federal Contractors), and its implementing regulations, including the applicable contract clause, are incorporated by reference into this contract as if fully set forth in this contract.” This reference should also include a citation to the web page that contains the entire contract clause.

The proposed rule also points out that the Biden Order rescinded President Trump’s Executive Order exempting contracts for recreational services on federal land. Thus, as of January 30, 2022, contracts in connection with seasonal recreation services or seasonal recreation equipment rental on federal lands will again be subject to the contractor minimum wage requirement. 

Compliance pointers

Contractors who are currently covered by the Obama Order should carefully review the requirements of the existing regulations as well as the proposed rule and begin preparing to comply with the final rule, which is expected by this November. The window of time between the final rule and the effective date (January 30, 2022) would be relatively small, so if covered contractors have not already determined which workers are performing work “on or in connection” with a covered contract, they should start doing so now. 

Covered contractors should also recognize that, although the effective date would be January 30, 2022, the new minimum wage rate would not automatically apply to all covered contractors on that date. The new wage rate would not affect each individual contractor until it had a new or revised contract that incorporated this new contract clause. Contractors who are able to track their different contracts should monitor those agreements and any new solicitations very closely to see whether the new clause is included. For contractors who have numerous contracts or are not able to track when the new clause may become effective for them, it may be easier to assume that the proposed effective date of January 30, 2022, applies. 

Our Affirmative Action Alert blog focuses on the latest news and topics affecting federal contractors and subcontractors and their compliance with affirmative action and other employment-related laws and regulations.  With breaking news, quick updates, and headlines on the Office of Federal Contract Compliance Programs and affirmative action issues, this blog is a great resource for in-house counsel, HR managers, and other compliance professionals.  Our blog is a companion to Constangy’s Affirmative Action newsletters, which address significant legislative, regulatory, and administrative proposals and changes.  Subscribe to both to stay current on these important topics!


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