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Final Rule for Federal Contractor Minimum Wage

October 6, 2014

The U.S. Department of Labor’s Wage and Hour Division (WHD) released its final rule implementing Executive Order 13658 (EO), which establishes a minimum wage of $10.10 per hour for direct federal prime contractors and subcontractors at all tiers. That $10.10 minimum wage must be adjusted annually for inflation. The new minimum wage will take effect on direct federal agency contracts entered into on or after Jan. 1, 2015. Federally-assisted contractors are not affected. The final rule will be published in the Federal Register on Oct. 7.

WHD incorporated a significant number of AGC recommendations the association submitted in comments to the proposed rule. In the final rule—pursuant to AGC’s recommendation—WHD:

  • Provides additional clarification and examples of covered contracts and contract-like instruments;
  • Provides additional clarification and examples of covered workers and covered work;
  • Excludes subcontracts for construction materials, supplies and equipment;
  • Excludes Fair Labor Standards Act (FLSA)-covered workers who spend less than 20 percent of their time working on or in connection with a covered contract;
  • Includes additional outreach efforts to notify contractors of minimum wage increases to the passive notice methods proposed;
  • Clarifies the standard for debarment under the rule as that within the Federal Acquisition Regulation (FAR) debarment process;
  • Requires contracting agencies, if appropriate, to ensure the contractor is compensated only for the increase in labor costs resulting from the annual inflation increases in the EO minimum wage beginning on Jan. 1, 2016; and
  • Clarifies how the EO applies to “indefinite delivery, indefinite quantity” (IDIQ) contracts.

Federal contractors should pay close attention to how WHD clarifies how the rule applies to IDIQ contracts. For example, while the master IDIQ contract entered into prior to Jan. 1, 2015, does not fall under the rule, task order contracts contractors entered into on or after January 1, 2015 are subject to the rule. However, WHD is encouraging, but not requiring, contracting agencies to bilaterally modify existing contracts, as appropriate, to include the minimum wage requirements of this rule when such contracts are not otherwise considered to be a “new contract” under the rule.

Lastly, and perhaps most significant and worthy of repeating, federal agencies must compensate contractors for the annual inflation increases in the minimum wage. As a result, federal contractors are entitled to an adjustment by federal agencies where the annual inflation increase to the minimum wage was not covered by the existing contract award.

For more information, please contact Jimmy Christianson at christiansonj@agc.org  or Tamika Carter at cartert@agc.org

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