What Does The Proposed Federal Minimum Wage Mean For My Business?

On July 22, 2021 the U.S. Department of Labor proposed a rule titled “Increasing the Minimum Wage for Federal Contractors”[1] formalizing the Biden Administration’s Executive Order 14026. The rule calls for federal contractors to pay their workers $15/hour and tipped workers $10.50/hour beginning on January 30, 2022. Both classifications of workers can expect future increases under the rule starting in 2023, with non-tipped workers granted increases in the minimum wage based off the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, and tipped workers provided increases relative to the non-tipped workers wage rate. In 2023 tipped workers will receive 85% of the nontipped workers’ rate, and in 2024 onward tipped workers will receive the same wage rate as non-tipped workers.

The rule is intended to cover a wide variety of employment relationships. The text of the executive order and DOL rule notably refrain from referring to those covered as employees and instead use the term workers. The rule defines “worker” as “as any person engaged in performing work on or in connection with a contract covered by the executive order, and whose wages under such contract are governed by the FLSA [Fair Labor Standards Act], the SCA [Service Contract Act], or the DBA [Davis-Bacon Act], regardless of the contractual relationship alleged to exist between the individual and the employer.” id at 38823. The rule also includes workers employed under special federal certifications under 29 U.S.C. §214, including disabled workers and students. However, workers who meet the FLSA’s executive, administrative or professional capacity exceptions are excluded from the rule’s coverage.

The rule is applicable to all new contracts, but employers with existing contracts may have more time before this rule is in effect for their businesses. For example, existing contracts that are covered by the Obama Administration’s Executive Order 13658 employers will be able to continue to pay those rates ($10.95/hour for regular employees and $7.96/hour for tipped employees) until the existing contract is renewed or extended. The DOL notes that language is to be added to the rule clarifying this relationship.

Further, for employers with contracts through the Davis-Bacon Act (DBA) it is important to note the order applies only to DBA-covered prime contracts that exceed the $2,000 value threshold specified in the DBA. Similarly, for employers with contracts through the Service Contract Act the order only applies to contracts that exceed the $2,500 threshold for prevailing wage requirements.

The comment period for this rule closed on August 27, 2021 and the rule is not yet final. The order itself requires the Secretary to issue regulations by November 24, 2021, so additional information should be coming soon. In the interim, employers should stay tuned for any updates, the rule’s finalization, and make plans for how to implement this change.

First, employers with existing contracts should confirm if they will be covered under the proposed rule. Next, covered employers should undergo the appropriate analyses and assessments to ensure they are able to meet the increased rates of pay efficiently and accurately. For employers without current contracts but seeking contracts with the federal government in the future, now would be a good time to review how this change may impact your bidding strategy.

For further information concerning preparing your business for the increased minimum wage for federal contractors, contact Emily Coombs Waddell or a member of Verrill’s Labor and Employment Practice Group.