Client Alerts
March 19, 2014

President Obama signs Executive Order to Increase Minimum Wage for Federal Contractors

Stites & Harbison Client Alert, March 19, 2014

by Stites & Harbison, PLLC

President Obama has issued two Executive Orders that will have the effect of increasing workers’ wages and which will affect business owners throughout the country. On February 12, 2014, President Obama signed an Executive Order requiring Federal contractors to pay their employees at least $10.10 an hour. Then, on March 13, 2014, President Obama signed an Executive Order directing the Secretary of Labor to review overtime rules in order to expand the number of workers who would be eligible for overtime pay.

The Executive Order regarding minimum wages for employees of Federal contractors, directs the Secretary of Labor to issue new regulations increasing the minimum wage for these workers to $10.10 per hour.

The Executive Order states that the minimum wages will only apply to the following type federal service contracts:

  • Procurement contracts for services or construction;
  • Contracts or contract-like instruments for services covered by the Service Contract Act;
  • Contracts or contract-like instruments for concessions including any concessions contract excluded by Department of Regulations at 29 CFR 4.133(b); and
  • Contracts or contract-like instruments 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.

The Executive Order requires the new minimum wage to be paid by “Federal contractors and subcontractors” and states that the obligation to pay the new minimum wage will be imposed by requiring all federal contracts to contain a clause that requires a certification as a condition of payment that workers have been paid the new minimum wage. The contractor will be required to include a similar clause in lower tier subcontracts. These clauses should be developed by the FAR Council within 60 days after the Labor Department issues its regulations. These provisions of the Executive Order suggest that the regulations will apply to contractors and all of the lower tier subcontractors. It is not clear whether the new minimum wage requirement would apply to all employees of federal contractors, or only those employees who perform work on the qualifying government contract but the Executive Order seems to suggest that it would only apply to employees who perform work on the federal contract. This will not be clear until the Department of Labor issues its regulations. The Executive Order does not change the wages required by the Davis-Bacon Act or the Service Contract Act. The Executive Order will not take effect will not take effect until the Labor Secretary issues the new regulations on before October 14, 2014 and will only apply to contracts executed after January 1, 2015.

The Executive Order expanding overtime pay directs the Labor Secretary to revise the federal rules on overtime pay in order to make more workers eligible for overtime pay. The revisions would change the overtime exceptions under the Fair Labor Standards Act to allow more workers to be eligible for overtime pay. Currently, an employee who is paid a salary basis of not less than $455 per week and who performs exempt duties is not eligible for overtime pay. The proposed regulations would likely increase the weekly pay for exempt employees from $455 per week to a higher amount thus making more workers eligible for overtime pay. The new regulations would probably not come issued until the fall of 2014 and would likely not take effect until next year. The last time these rules were changed was in April 2004, under the Bush Administration, when the salary floor for exempt status was raised from $155 per week to $455 per week.

Neither Executive Order has been implemented by Federal regulation. However, employers and those who do business with the Federal government should be aware of these prospective changes for business planning and budgeting.

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