New Year-New Rates-Same Old Confusion

Consider this a gentle reminder. Last September, my colleague alerted you to a hike in the federal contractor minimum wage rates. Those rates went into effect this past Monday on New Year’s Day.

And so it’s now time for federal contractors to revisit their payrolls to verify their wage rates are where they should be. Bear in mind that there are a patchwork of federal, state and, local laws that establish minimum wages depending on where you are and what type of work is being performed.

Let’s start with the contractor minimum wage rates applicable to employees who work on or in connection with covered federal contracts. There are two Executive Orders (“EO”) that mandate a minimum wage rate. The newer of the EOs (no. 14026) issued by President Biden in 2021 now covers most employees since it has been implemented since January 30, 2022 in new contracts or into existing contracts when options have been exercised.

For contracts covered by President Biden’s Executive Order, the new minimum wage is $17.20 for all covered employees (there’s no longer a lower rate for tipped employees).

For the time being, a small number of existing contracts continue to be covered by President Obama’s Executive Order 13658. For those contracts, the new minimum wage is $12.90 and $9.05 for tipped employees.

DOL has published a new poster that you have to post setting forth the rates under the Old and new EOs reflecting the rate increases that went into effect on January 1. You’ll find the poster for the Biden EO here. The poster for the Obama EO is here. For more info on posting requirements, see our blog here (bear in mind that posters change, so the links to posters in that blog may not be current).

You may have noticed that I italicized the phrase “in connection with.” I emphasized that language because the contractor minimum wage (like the federal contractor sick leave requirements) applies not just to personnel who work on a contract but also to those whose work is necessary to the performance of the contract. Those folks (e.g., clerks who process payroll or invoices) must be paid the minimum wage during hours when they are working “in connection with” covered contracts. More on that can be found in our blog 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.

One should not assume that current SCA or DBA rates exceed the new contractor minimum wage. Higher rates predominate under SCA Wage Determinations (“WD”) in many urban areas. However, the reverse can be true in rural localities particularly for unskilled or entry-level labor categories. WDs released last year identified the below-minimum rates with a triple asterisk (***). Until new WDs are issued in 2024, you can’t count on those triple asterisks. A number of WD rates that were sufficient in 2023 will fall below the new minimum rate. The FAR Council should be publishing a new contract clause in the coming weeks with the new rate; however, unlike WDs, the posted rate always is incorporated by reference in the FAR minimum wage clause.

Contractors that have fixed-price contracts may be entitled to submit a request for a price adjustment under the contractor minimum wage clause in the Federal Acquisition Regulation (“FAR”). See FAR 52.222-55 Minimum Wages under Executive Order 14026 (JAN 2022), ¶ (b)(3). Such a price adjustment, which only may be submitted after the new wage rate increases, is intended to compensate contractors for the increased cost of paying the minimum wage rates set by the Government. And just to keep everyone on their toes – a price adjustment for the minimum wage is different from one under the SCA price adjustment clause (FAR 52.222-43). It’s conceivable that you might have multiple price adjustments in the coming year.

Of course, after all this, you also have to consider whether state or local minimum wages exceed the contractor minimum wages under the EOs or SCA/DBA rates. If they do – that’s the minimum wage that must be paid in that jurisdiction regardless of the federal rates. For now, most state and local minimum wages are less than the federal contractor rate. However, the rates are higher in some localities. For example, the highest rate in Seattle is $19.97 per hour. In Denver, the top rate is $18.29 an hour. The rate is $18.07 in San Francisco, and it’s $17.55 in San Jose.

Our bottom line here is to remind all federal service and construction contractors to make sure they are paying wage rates that exceed the minimum rates applicable to employees who are working on or in connection with covered federal contracts.