Wage Increases Proposed for Federal Contractors

WEDNESDAY, SEPTEMBER 1, 2021

Earlier this summer, the U.S. Department of Labor issued a notice of proposed rulemaking to increase the minimum wage for federal contractors.

The proposal would require federal contractors to pay workers at least $15 an hour by 2022 and looks to enforce another recent executive order.

Executive Order Details

Back in April, the White House reported that President Joe Biden had signed Executive Order 14026, “Increasing the Minimum Wage for Federal Contractors,” which aims to promote “economy and efficiency in federal procurement by increasing the hourly minimum wage paid by the parties that contract with the federal government to $15 for those workers working on or in connection with a federal government contract.”

In addition to raising the minimum wage for federal contract workers by $4.05 an hour (the current rate is $10.95), the rule also looks to eliminate subminimum wage rates for federal contract workers with disabilities and workers who customarily receive tips.

Ed Brown, public domain via Wikimedia Commons

Earlier this summer, the U.S. Department of Labor issued a notice of proposed rulemaking to increase the minimum wage for federal contractors.

Ed Brown, public domain via Wikimedia Commons

Earlier this summer, the U.S. Department of Labor issued a notice of proposed rulemaking to increase the minimum wage for federal contractors.

Although the prior rule applied only to new and renewed federal contracts, the new proposal would apply the $15 minimum wage to existing contracts when agencies opt to purchase additional supplies or services. As specified in the proposed rule, the DOL defines applicable contracts as “all contracts and any subcontracts of any tier thereunder, whether negotiated or advertised, including any procurement actions, lease agreements, cooperative agreements, provider agreements, intergovernmental service agreements, service agreements, licenses, permits or any other type of agreement, regardless of nomenclature, type or particular form, and whether entered into verbally or in writing.”

The DOL further specifies that eligible workers include apprentices.

Other updated procedures and enforcements in the EO 14026 include:

• Increasing the minimum wage for workers performing work on covered federal contracts to $15 an hour starting on January 30, 2022, however, beginning January 1, 2023, and annually thereafter, the amount would be determined by the Secretary of Labor;
• Continuing to index the minimum wage for federal contract workers to keep pace with inflation;
• Eliminating the tipped minimum wage for federal contract workers by 2024;
• Establishing a $15 minimum wage for workers with disabilities who perform work on covered contracts; and
• Restoring minimum-wage protections to outfitters and guides who operate on federal lands.

“Our proposed regulations to implement President Biden's executive order will ensure taxpayer dollars uphold the dignity of work and provide a living wage to workers on federal contracts, including cleaning, maintenance, nursing and food service workers whose efforts are critical to the nation's pandemic recovery,” said Wage and Hour Division Acting Administrator Jessica Looman.

The executive order directs the Secretary to issue regulations by Nov. 24, consistent with applicable law, to implement the order’s requirements. The proposed rule was published in the Federal Register on July 22. The comment period for the proposed rulemaking reportedly closed last week on Aug. 27.

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Other Related DOL Reports

At the beginning of the year the DOL announced a final rule meant to clarify the status of independent contractors under the Fair Labor Standards Act.

The DOL’s Final Rule includes the following clarifications:

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• Reaffirms an “economic reality” test to determine whether an individual is in business for themselves (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
• Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for themselves:
• The nature and degree of control over the work.
• The worker’s opportunity for profit or loss based on initiative and/or investment.
• Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an integrated unit of production. The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
• Provides six fact-specific examples applying the factors.

The rule took effect on March 8.

In June, the Labor Secretary Marty Walsh revealed that the Department of Labor would again be reviewing the current overtime threshold under the Fair Labor Standards Act. Walsh reportedly noted that the current threshold, which is just under $36,000 and was finalized in 2019, is “definitely” too low.

Reportedly, the department will include in its review whether regular, automatic updates to the threshold are necessary, which Walsh supports.

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According to a DOL official, no changes are slated to be made to the FLSA’s duties test and no time frame has been established for any automatic updates to the overtime eligibility threshold beyond what is already included in the final rule.