The times rates, they are a changin.

— Bob Dylan (with apologies for the amendment)

By now you should have heard about the impending implementation of President Biden’s Executive Order 14026 (“New EO”) that increases the minimum wages to be paid to employees who work on certain federal contracts.

If you haven’t and want to know more about the details of the order and resultant regulations issued by the Department of Labor (“DOL”) that will be found at 29 CFR part 23, we have blogged about this several times over the last nine months. See here for our first blog about the New EO; click here for a summary of DOL’s proposed rule, and, most recently, here for our discussion of the final rule released in late November.

My purpose today is to suggest some actions that you should be taking now to get ready for the roll out of the new policy for new contracts and exercises of options or extensions for existing contracts. Bear in mind, this isn’t exhaustive. Indeed, I won’t address here the first task that should be on your agenda – to determine whether you have a covered contract and to identify what employees are covered. See the earlier blogs for some discussion of that subject. Rather, I’ll assume that you have a covered contract and that you have employees who are covered.  

Which order? Which rate?

The New EO takes the place of the existing Executive Order 13658 issued during the Obama Administration (“Old EO”). For the time being, both orders will be in effect. For now, existing contracts will  continue to be covered by the Old EO (see 29 CFR part 10 for the particulars). The new regulations will be published as 29 CFR part 23; until then, they can be found in the Federal Register at 86 FR 67126.

If your contract is covered by the Old EO, your minimum wage is $11.25 and $7.90 for tipped employees (effective January 1, 2022).

If your contract is covered by the New EO, your minimum wage is $15.00 and $10.50 for tipped employees.

The rates under both EOs will be updated annually. And the tipped employee rate eventually will be the same as the overall minimum wage rate.

You can find the current version of the minimum wage clause on the acquisition.gov website here. A legacy version of the clause under the Obama EO can be downloaded from a GSA website here.

If you have a service contract covered by the Service Contract Act (“SCA”) or a contract covered by the Davis-Bacon Act (“DBA”), the prevailing wages in the Wage Determination (“WD”) incorporated into your contract supplant the minimum wage but only if they exceed the minimum wage rates under the applicable Executive Order adopted in your contract.

Finally, consider whether state or local minimum wages exceed the contractor minimum wages under the EOs. If they do – that’s the minimum wage that must be paid in that jurisdiction. For now, we don’t know of any state minimum wages that exceed $15 per hour; however, a number of jurisdictions have minimum wages that exceed $11.25 an hour. Be vigilant.

Speaking of Wage Determinations…

DO NOT assume that the wages you have been paying will continue to be compliant. In almost all instances, wages that met the prevailing wage requirements of existing SCA and DBA WDs almost always exceeded the current contractor minimum wage. But some did not – particularly in rural areas. Going forward, MANY WD rates will not satisfy the new minimum wage. In our experience, updates to the prevailing wages lag behind the adoption of new minimum wage rates under state and local laws. This will also be the case under the new minimum wage rate.

Hence, we urge contractors to conduct a thorough, annual review of their WD-based wage rates to make sure they comply with the applicable minimum wage (i.e., the EO rate or state or local minimum wage rates).

Raise your minimum wages now or wait?

Obviously, if you have a contract that presently requires one or the other of the two EO minimum wage rates, there’s no choice—pay the required rate. But what about the situation where you have some contracts that are covered by the Old EO and others that are subject to the New EO. Do you decide to just raise the wages for all of your covered employees regardless of what contract they’re working on (or in connection with)? After all, it’s a simple solution and one never gets in trouble with DOL for doing more than is required.

However, this seemingly simple solution is complicated by another concern. Contractors that have fixed-price contracts are entitled to submit a request for a price adjustment under the current contractor minimum wage clause in the Federal  Acquisition Regulation (“FAR”). See FAR 52.222-55 Minimum Wages under Executive Order, ¶ (b)(3). Such a price adjustment is intended to compensate contractors for the increased cost of paying the minimum wage rates set by the Government. The FAR Council will be issuing new regulations and a new contract clause in the coming weeks to implement the New EO. We would expect that the new clause will also provide for price adjustments.

These price adjustment clauses don’t entitle you to an adjustment premised on the difference between a currently mandated wage rate and the new wage rate you’ll be required to pay. Rather, they entitle you to an adjustment for “increased labor costs,” which generally is viewed as the difference between the new wage rate and the rate you’re actually paying regardless of what’s presently required. Thus, if you’re paying $13.00 per hour for employees working on a contract covered by the Old EO, you may get an adjustment to cover the $2.00 difference you’ll incur when you’re switched from the Old EO to the New EO. You do NOT get an adjustment equal to the $3.75 difference between the Old EO rate ($11.25) and the new rate of $15.00.

Therein lies the complexity you’ll face. If you voluntarily raise your minimum wage rates to $15.00 per hour across the board before you’re required to pay the new rate, you could lose the entire value of the adjustment for those contracts that are not yet subject to the New EO. Unless the cost impact of making across-the-board changes will be minimal in light of the potentially lost price adjustments, I think contractors could face a tough choice about how to proceed.

Posters.

For virtually every labor law, there’s a poster. If you’d like more info about poster requirements, you should consult the DOL website here. We have also blogged about this subject here (posting requirements generally) and here (discussing posting in the remote workplace). The contractor minimum wage executive order requirements are no different. Indeed, there’s a new poster setting forth the rates under the Old EO reflecting the rate increases that went into effect on January 1. You’ll find that here. So far, DOL has not issued a poster for the New EO. Once you have a contract that is subject to the New EO, you should consult the DOL website to obtain a copy of the new poster (if one has been issued). I have yet to puzzle through the workforce relations problems that could surface when employees at the same site see two posters and wonder why they’re paid a lower rate because they work on a contract that’s not covered under the New EO. Ack.

Conclusion

Upping a minimum wage rate sounds simple enough as a general proposition. However, in our world of federal contracting, simple ideas often get kinda complicated. I’ve tried to highlight some of the tasks you need to do as the New EO gets rolled out. This list is not exhaustive, and I urge you to read your contract, read the regulations, and then make your judgments. As always, we’re here to help.