Authored by Alex Passantino

The Department of Labor (DOL) has taken the next step in making a $10.10 minimum wage for government contract employees a reality.  Yesterday, DOL’s Wage & Hour Division submitted its proposed rule to the White House’s Office of Management and Budget (OMB).  OMB’s Office of Information and Regulatory Affairs will review the rule, and, once approved, the proposal will be published in the Federal Register for notice and comment by the public.

As readers may recall, during his State of the Union address back in January, President Obama announced that he would be issuing an Executive Order requiring employees on federal service and construction contracts to be paid no less than $10.10 per hour.  In February, the President issued that Executive Order, requiring that DOL issue final regulations by October 1, 2014.

The terms of the Executive Order provide for a minimum wage of $10.10 per hour beginning on January 1, 2015, and indexed to inflation each year thereafter.  In addition, there will be an increase to $4.90 (from $2.13) in the cash wage component to be paid to tipped employees, with an $0.95 annual increase until the cash wage amount equals 70% of the contractor minimum wage.

The Executive Order states that the minimum wage will apply to contracts, “contract-like instruments,” and solicitations for services (including services covered by the Service Contract Act) and construction (including construction covered by the Davis-Bacon and Related Acts).  Subcontractors and “lower-tier subcontracts” will be subject to the Executive Order by required contract clauses making payment contingent upon compliance with the minimum wage.

Some questions have been raised as to whether the Executive Order will apply to all employees of federal contractors or only those employees performing services on covered contracts (or contract-like instruments).  The Executive Order appears to answer that question, stating that the minimum wage must be “paid to workers . . . in the performance of the contract or any subcontract thereunder.”  Undoubtedly, this issue will be raised by the proposed rule, as well as many comments submitted in response to the rule.

Once OMB clears the rule, it is published in the Federal Register, and the comments have been submitted and reviewed, DOL will prepare a Final Rule, which will again be submitted to OMB.  Following that clearance, the Final Rule will be published and the regulation will be effective.  The FAR Council has 60 days following publication of the Final Rule to issue its own regulations implementing the contract provisions, which would apply to contracts with solicitation dates after January 1, 2015.