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Compliance

Minimum Wage for Federal Contractors

PURPOSE

The purpose of Executive Order 13,658 (EO) and the regulations adopted thereunder are to increase the efficiency and boost the morale and productivity of government services by raising the minimum wage paid to federal contractors.

HISTORY

President Obama issued Executive Order 13,658 (EO) on February 12, 2014, which increased the hourly minimum wage paid by government contractors. Other laws, such as the Fair Labor Standards Act (FLSA) of 1938, regulate minimum wage more broadly and affect both private and public sector employees. The most recent notable amendment to the FLSA made by President George W. Bush incrementally raised the minimum wage to $7.25 per hour by July of 2009. The EO, which applies more narrowly to federal contractors, increased the minimum wage for employees on federal contracts by almost three dollars per hour. Final rules concerning the wage increase for federal contractors were published in the Federal Register on October 7, 2014. Officials estimate that due to the hourly wage increase, federal contractors will pay employees an additional $100 million by the end of 2014 and $501 million by the end of 2019.

APPLICABILITY TO BYU–HAWAII

Covered Entities

Wage increases under the EO apply to all new contracts with, contract-like instruments with, and solicitations from the federal government solicited on or after January 1, 2015 (collectively referred to as “contracts”). New federal contracts that are covered by the EO include the following:

  • Procurement contracts for construction covered by the Davis-Bacon Act (DBA)10
  • Contracts for services covered by the Service Contract Act (SCA)
  • Contracts for concessions (furnishing food, lodging, fuel, etc.), including those not covered by the SCA
  • Contracts entered into with the federal government in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public

For new contracts governed by the SCA or the DBA, these regulations apply only to prime contracts at their specified thresholds: $2,500 and $2,000, respectively. For procurement contracts where workers’ wages are governed by the FLSA, these regulations apply when the prime contract exceeds the micro-purchase threshold set at $3,000.

The minimum wage requirements apply only to employees performing work directly on or in connection with covered contracts. All contractors and lower-tier subcontractors involved in a contract with the federal government must adhere to the minimum wage requirements. If a contract is performed both within and outside of the United States, minimum wage requirements apply only to the portion of the contract performed inside the United States.

Exceptions

Federal minimum wage standards for government contractors do not apply to the following:

  • Grants
  • Contracts and agreements with and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act
  • Procurement contracts for construction not covered by the DBA
  • Contracts for services exempt from coverage under the SCA
  • Workers not otherwise covered by the DBA or SCA who are exempt from the minimum wage requirement of the FLSA. This may include, but is not limited to, learners, apprentices, messengers, students, or individuals employed in a bona fide executive, administrative, or professional capacity.
  • FLSA-covered workers that dedicate less than twenty percent of their work hours each week to covered contracts

Generally, BYU–Hawaii does not seek sponsored research contracts from agencies such as the Departments of Defense, Energy, and Agriculture; however, should the university seek such contracts, they would meet the criteria for contracts subject to regulation by the EO.

Thus, any new or modified contract that BYU–Hawaii enters into with the aforementioned agencies or any other federal agency on or after January 1, 2015, must generally compensate employees working on that contract according to the federal minimum wage standard.

REQUIREMENTS

Minimum Wage

Starting January 1, 2015, federal contractors must pay their employees who work on or in connection with a new federal contract a minimum hourly wage of at least $10.10 per hour.

New federal contracts include those resulting from solicitation issued on or after January 1, 2015, or those awarded outside the solicitation process on or after January 1, 2015. New federal contracts also include contracts entered into prior to January 1, 2015, that are renewed or extended after this date.28 On January 1,2016, and each year thereafter, the secretary of the Department of Labor will determine the new annual minimum wage rate according to the Consumer Price Index for Urban Wage Earners and Clerical Workers and will publish the figure ninety days before the new wage takes effect.

The contractor or subcontractor must include the minimum wage clause (found in Appendix A of 2 C.F.R. pt. 10) in any contract or lower-tier subcontract. The minimum wage requirement may not be met by the employer by furnishing fringe benefits or by distributing the cash equivalent (for workers governed by the SCA). If any other federal, state, or municipal law or ordinance establishes a higher minimum wage than the wage required by the EO, employees must be paid the higher wage.

Tipped Employees

If an employee working under a federal contract receives at least thirty dollars per month as a gift or gratuity for service, the employee is considered to be a tipped employee. Under the new regulations, tipped employees under federal contracts must be paid at least $4.90 per hour beginning on January 1, 2015. This wage will be increased annually by either $0.95 or to seventy percent of the minimum hourly wage paid to standard workers, whichever is less. This will continue until the wage paid to tipped workers equals seventy percent of the wage paid to standard workers, after which the wage will be increased to seventy percent of the standard minimum wage each year.

The contractor may take a tip credit to account for the difference in minimum wage for tipped and standard employees. For example, if a tipped employee under a federal contract is paid $5.00 per hour, the employer may take a tip credit of $5.10 to account for this deficit, given that the minimum wage is $10.10 per hour. If the tips that the employee earns in the workweek fall short of the tip credit, the contractor must increase cash wages to the employee in order to pay the balance. Though the contractor may adjust the tip credit, the cash wages may not fall below the federal standard for minimum wage.

Deductions

The employer may make deductions from an employee’s paycheck that may reduce the employee’s hourly wages below the specified threshold. These deductions may include

  • those required by federal, state, or local law (such as federal and state withholding of income taxes);
  • payments made to third parties pursuant to a court order;
  • money voluntarily assigned by the worker to be directed to his or her authorized representative; or
  • deductions for furnishing the worker with board, lodging, or other facilities.41

Overtime Payments

Consistent with the FLSA and the Contract Work Hours and Safety Standards Act, a worker covered by those laws who exceeds forty hours in a workweek must be paid one and one-half times the regular rate of pay. For tipped workers who receive a tip credit, the worker is entitled to one and one-half times the cash wage combined with the tip credit. A contractor may not claim a higher tip credit in an overtime hour than in a straight hour. For example, if a tipped employee usually receives $4.90 per hour and a $5.20 tip credit, the employee is entitled to $15.15 per hour when working overtime ($10.10 x 1.5 = $15.15). In satisfying the hourly cash wage of $15.15, however, the tip credit may not exceed $5.20, so the employer would have to pay $9.95 in cash wages in an overtime hour.

Recordkeeping

Contractors and subcontractors must make and maintain three years’ worth of records about each worker and have these records available for inspection by representatives of the Wage and Hour Division of the U.S. Department of Labor. These records must contain the following information:

  • Name, address, and social security number of each worker
  • The worker’s occupation(s) or classification(s)
  • The rate or rates of wages paid
  • Any deductions made
  • The total wages paid

Notice

Contractors must notify employees working under federal contracts of minimum wage requirements. In general, contractors may meet the notice requirement by posting a notice of wages in a prominent and accessible place at the worksite. For workers whose wages are governed by the FLSA, contractors must use the new notice provided by the Department of Labor. The notice may be posted electronically if the contractor customarily posts notices electronically and the notice is displayed prominently on any website maintained by the contractor.

COMPLIANCE CALENDAR

The new minimum wage standard for federal contractors will take effect on January 1, 2015, and the wage will be updated annually. The Administrator of the Wage and Hour Division of the Department of Labor will publish guidelines in the Federal Register at least ninety days before any new federal minimum wage takes effect. The minimum wage will also be posted on Wage Determinations Online (WDOL) found at beta.sam.gov.