Proposed rule would boost minimum wage on federal contracts to $15
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Wednesday, August 4, 2021

Proposed rule would boost minimum wage on federal contracts to $15

By Payroll and Entitlements Editorial Staff

The Department of Labor has released a proposed rule that would implement the minimum wage boost for federal contractors that President Biden called for in his April 27, 2021, Executive Order (EO 14026), “Increasing the Minimum Wage for Federal Contractors.” The proposal would set the hourly minimum wage paid to workers performing work on or in connection with covered federal contracts at $15.00 per hour, beginning January 30, 2022. Beginning January 1, 2023, and annually thereafter, the minimum wage would be an amount determined by the Secretary of Labor, according to a notice of proposed rulemaking scheduled for publication in the Federal Register July 22.

About the Executive Order. According to the Labor Department, EO 14026 will:

  • Increase the minimum wage for workers performing work on or in connection with covered federal contracts to $15 per hour beginning January 30, 2022;
  • Continue to index the federal contract minimum wage in future years to an inflation measure;
  • Eliminate the tipped minimum wage for federal contract workers by 2024;
  • Ensure a $15 minimum wage for workers with disabilities performing work on or in connection with covered contracts; and
  • Restore minimum wage protections to outfitters and guides operating on federal lands.

EO 14026 sets forth the federal government’s general position that increasing the hourly minimum wage paid by federal contractors to $15.00 will “bolster economy and efficiency in Federal procurement.” According to the EO, raising the minimum wage “enhances worker productivity and generates higher-quality work by boosting workers’ health, morale, and effort; reducing absenteeism and turnover; and lowering supervisory and training costs.” The EO also contends that these savings and quality improvements will lead to improved economy and efficiency in government procurement.

Implementing regulations. The EO directs the Secretary to issue regulations by November 24, 2021, consistent with applicable law, to implement the EO’s requirements. The DOL’s proposed rule accordingly establishes standards and procedures for implementing and enforcing the EO’s minimum wage protections. The proposed rule incorporates to the extent practicable existing definitions, principles, procedures, remedies, and enforcement processes under the FLSA; the Service Contract Act; the Davis-Bacon Act; and the February 12, 2014 Executive Order, “Establishing a Minimum Wage for Contractors,” as well as the regulations issued to implement that order.

EO’s minimum wage. Proposed 29 CFR 23.220 states that generally, contractors must pay workers the applicable minimum wage under EO 14026 for all hours spent performing work on or in connection with a covered contract. The proposed section also provides that workers performing work on or in connection with contracts covered by the EO must receive not less than the minimum hourly wage of $15.00 beginning January 30, 2022.

To comply with the minimum wage requirement, a contractor would be able to compensate workers on a daily, weekly, or other time basis (no less often than semi-monthly), or by piece or task rates, so long as the measure of work and compensation used, when translated or reduced by computation to an hourly basis each workweek, would provide a rate per hour that is no lower than the applicable EO minimum wage. Whatever the system of payment, it must ensure that each hour of work in performance of the contract is compensated at not less than the required minimum rate. Failure to pay for certain hours at the required rate cannot be transformed into compliance by reallocating portions of payments made for other hours that exceed the specified minimum.

Tipped workers. Under proposed 29 CFR 23.280, for covered tipped workers, the hourly cash wage that must be paid by covered contractors and subcontractor would be at least:

  • Beginning January 30, 2022, a cash wage of $10.50, provided the employees receive sufficient tips to equal the EO’s minimum wage when combined with the cash wage;
  • Beginning January 1, 2023, 85 percent of the EO’s minimum wage, rounded to the nearest multiple of $0.05; and
  • For subsequent years, beginning January 1, 2024, 100 percent of the EO’s minimum wage in effect, eliminating a contractor’s ability to claim a tip credit under EO 14026.

When a contractor is using a tip credit to meet a portion of its wage obligations under the EO, the amount of tips received by the employee would be required to equal at least the difference between the required cash wage paid and the EO’s minimum wage. If the employee does not receive enough tips, the contractor would be required to increase the cash wage paid so that the cash wage in combination with the tips received equals the EO’s minimum wage.

For purposes of EO 14026 and the proposed rule, tipped workers are defined by Section 3(t) of the FLSA, meaning “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”

Comments. The comment period on the proposed rule closes August 23, 2021. Instructions for submitting comments are further detailed in the DOL’s proposed rule notice.

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