Who Gets The New $15 Per Hour Contractor Minimum Wage?

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Jay Blindauer

On April 27, 2021, President Biden issued Executive Order No. 14,026, which, with a phase-in that starts on January 30, 2022, increases the minimum wage for some federal contractors and subcontractors to no less than $15 per hour.   Emphasis on the word some, including for only some of the time.  

President Biden’s Executive Order supersedes President Obama’s 2014 Executive Order No. 13,658, which, where applicable, presently sets the contractor/subcontractor minimum wage at $10.95 per hour.[1]   As a comparison, the Fair Labor Standards Act of 1938 (“FLSA”) minimum wage is currently set at $7.25 per hour.[2], [3]   President Biden’s Executive Order also, as of January 30, 2022, revokes President Trump’s 2018 Executive Order No. 13,838, which removed the 2014 Order-provided minimum wage for “seasonal recreational services or seasonal recreational equipment rental for the general public on Federal lands[.]”[4]

Which workers get the minimum wage increase?

Generally, to be covered by the minimum wage increase, an individual worker has to meet both prongs of this two-part test:

  1. The individual must be working on or in connection with a contract/subcontract for:
  • Services that are subject to the Service Contract Labor Standards statute (formerly known as the Service Contract Act) (hereafter “SCA”);
  • Construction that is subject to the Wage Rate Requirements (Construction) statute (formerly known as the Davis-Bacon Act) (hereafter “DBA”);
  • Concessions;[5] or
  • An “instrument 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[.]”[6]

  1. The individual’s wages must be covered[7] under the SCA, DBA, or FLSA.[8]

According to the 2014 Final Rule issued by the U.S. Department of Labor (“DoL”) (and unlikely to change), the Order-provided minimum wage only applies to a worker’s hours that are on or in connection with a covered contract/subcontract.[9]   Hence, if a worker spends 30 hours of the week working on or in connection with a covered contract/subcontract, and 10 hours of the week working for other projects, the worker is only entitled to the $15 per hour minimum wage for 30 hours.

Not Just Employees

For the most part, it does not matter whether the individual worker is an employee, owner-operator, consultant, apprentice, or otherwise.   The Order potentially applies to all “workers working on or in connection with a Federal Government contract[.]”[10]   This is the same language that DoL used in describing the scope of the 2014 Order, and made clear that an individual being an actual employee is immaterial to assessing the connection.[11]   As part of this, the Order-provided minimum wage applies to a worker with a disability where the worker’s wages are calculated in accordance with 29 U.S.C. § 214(c).[12]   Further, the minimum wage increase applies to an apprentice, trainee, or student under certain DoL or DoL-recognized programs, provided that the individual’s wages are covered under the SCA or DBA.[13]   However, the Order-provided minimum wage does not apply for an apprentice, trainee, or student who’s wages are only covered under the FLSA at 29 U.S.C. § 214(a)-(b).[14]

Subcontractors Too

The 2021 Order states that the wage increase “shall incorporate into lower-tier subcontracts[.]”[15]   Hence, an individual worker may be covered if the person works under a subcontract at any tier.  

Nonetheless, to be covered, the subcontract must fall under services subject to the SCA, construction subject to the DBA, concessions, or a service-offering in connection with Federal lands/property.[16]   And the SCA, DBA, or FLSA still needs to apply to the individual.[17]   So, where the prime contract is for services subject to the SCA, if the subcontract is for supplies (even though the supplies may be prime contract deliverables), that subcontract does not count.[18]   On this point, it is important to remember that the dollar thresholds for the SCA (in excess of $2,500),[19] the DBA (in excess of $2,000),[20] and the Order-imposed threshold for the FLSA (presently in excess of $10,000)[21] do not apply at the subcontract level.[22]  

Furthermore, for the 2014 Order, DoL respected the distinction between a subcontractor and a service provider/materialman, and there is presently no reason to believe that will change under the new Order.[23]   Therefore, the janitor cleaning the prime contractor’s office, or the repairman servicing the contractor’s copier machine, those individuals are not “working on or in connection with a Federal Government contract[.]”[24]   Hence, those individuals are not subcontractors for the purpose of the new Order.  

There is a 20% Rule for Some FLSA Workers

Also, for the 2014 Order, and unlikely to change, DoL distinguished between working “on” the contract/subcontract, and working “in connection with” the contract/subcontract.[25]    

Specifically, an individual working “on” the covered contract/subcontract is involved in direct performance of called for requirements.[26]   That individual is entitled to the minimum wage for all hours worked on or in connection with the covered contract/subcontract, but not for the work hours that are devoted to efforts other than the covered contract/subcontract.[27]   Primarily, working “on” the contract/subcontract applies to direct and overhead labor (assuming that the overhead labor pool is involved in direct performance).[28]     

An individual working “in connection with” the contract/subcontract is not involved in direct performance, but has duties necessary to contract/subcontract performance.[29]   Examples of an “in connection with” worker could be someone processing payroll, or a security guard assigned to protect a construction site.[30]   For an individual working “in connection with” the contract/subcontract, that individual is only entitled to the minimum wage if at least 20% of the individual’s work hours in a workweek are devoted to the contract/subcontract.[31]   If the individual hits the 20% threshold, the minimum wage still only applies to the workweek hours that are on or in connection with the covered contract/subcontract.   If the individual falls short of the 20% threshold, the minimum wage is required for none of the hours for that week.   This basically applies to General & Administrative (“G&A”) labor, unless an individual is involved in direct performance, which would make the person working “on” the contract/subcontract.  

Importantly, in the 2014 Final Rule, DoL pointed out that if a worker is covered under the SCA or the DBA, implicit to that status is that the individual is working “on” a contract/subcontract.[32]   Consequently, the 20% rule really only applies to workers who are solely covered by the FLSA.

In assessing whether an individual meets the 20% threshold, the individual’s “in connection with” hours should be aggregated.[33]   This means that if the individual is supporting more than one covered contract/subcontract, all of those contract/subcontract hours should be totaled together to see if the 20% threshold is reached.

Additionally, DoL has previously made this warning.

“In the absence of records adequately segregating non-covered work from the work performed on or in connection with a covered contract, all workers working in the establishment or department where such covered work is performed will be presumed to have worked on or in connection with the contract during the period of its performance, unless affirmative proof establishing the contrary is presented.”[34]  

Thus, there is a presumed applicability of the minimum wage in instances of poor record-keeping.

Finally, as a reminder, the SCA and DBA have their own 20% rules for assessing whether the SCA or DBA even applies, which, where applicable, must be taken into consideration.[35]  

Summary

If an individual is working “on” or “in connection with” a contract/subcontract for services subject to the SCA, construction subject to the DBA, concessions, or a service-offering in connection with Federal lands/property, and the prime contract is in excess of $2,000 (for construction),[36] in excess of $2,500 (for services),[37] or is in excess of $10,000 where only the FLSA applies (which is likely to be the case for concessions or a Federal lands/property service-offering), there is a decent chance that the individual is entitled to the new minimum wage for pertinent work hours.    

Where will the minimum wage increase not apply?

Exclusion for Services of $2,500 or Less, or Construction of $2,000 or Less

As mentioned above, the prime contract threshold for the SCA is in excess of $2,500,[38] the prime contract threshold for the DBA is in excess of $2,000,[39] and the Order-imposed prime contract threshold where only the FLSA applies is presently in excess of $10,000 (the micro-purchase threshold).[40]   Implementing those thresholds together, the result is that the $15 per hour minimum wage will not apply for a services prime contract valued at $2,500 or less, or a construction prime contract valued at $2,000 or less.   At those low dollar values only the FLSA applies, and the 2021 Order specifies that the $15 per hour minimum wage will not apply to a prime contract valued at $10,000 or less if only the FLSA applies.[41]

Supply Contracts Excluded

The minimum wage increase does not apply where the prime contract is for supplies.   A prime contract is for supplies where the principal purpose is to provide supplies, even if that effort involves incidental services or construction.[42]   Supplies means supplies to the Government,[43] which is typically considered different than a concessions contract.[44]   Hence, if the Government is purchasing equipment, and the agreement involves some facilities alteration to make space for the equipment, and/or ongoing maintenance services, the agreement likely should still be considered a contract for supplies.  

For the supply contract exclusion, the issue to be wary of is a hybrid contract that includes significant requirements for construction or services.   This is especially true if the contract includes a construction CLIN, and that effort is unrelated to a supply CLIN.   DoL’s 2014 implementing regulations created some ambiguity for this scenario.  

On the one hand, DoL’s regulations expressly state that the minimum wage increase “does not apply to contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the Federal Government that are subject to the Walsh-Healey Public Contracts Act, 41 U.S.C. 6501 et seq.”[45]   The Walsh-Healey application threshold is over $15,000.[46]   Thus, if the principal purpose of the contract is for supplies, and it exceeds $15,000, then the minimum wage increase arguably should not apply to any of the contract, regardless of any contract requirements for services or construction.   Consistent with that view, in the 2014 Final Rule, DoL stated that “it intended to follow the SCA’s regulations at 29 CFR [§] 4.117 in distinguishing between work that is subject to the PCA and work that is subject to the SCA (and therefore the Executive Order).”[47]   And at 29 C.F.R. § 4.117, it states that “[t]he purpose of the exemption was to eliminate possible overlapping of the differing labor standards of the two Acts, which otherwise might be applied to employees performing work on a contract covered by the Service Contract Act if such contract and their work under it should also be deemed to be covered by the Walsh-Healey Act.”[48]   So, the notion is to avoid both wage rules on the same contract, especially recognizing that a single worker could perform under more than one requirement, and in turn cause compliance problems for the payroll staff.  

On the other hand, at 29 C.F.R. § 4.117, DoL provides a list of remanufacturing scenarios where SCA wage rules will not be followed, but then states that “[a]pplication of the Service Contract Act or the Walsh-Healey Act to any similar type of contract not decided above will be decided on a case-by-case basis by the Administrator[.]”[49]   Further, in the 2014 Final Rule, DoL stated that “where a PCA-covered contract involves a substantial and segregable amount of construction work that is subject to the DBA, workers whose wages are governed by the DBA or FLSA are covered by the Executive Order for the hours that they spend performing on such DBA-covered construction work.”[50]   Obviously, these carve-outs muddle an otherwise relatively clear exclusion for supply contracts.  

In sum, if it is a supply prime contract that incorporates some services, the minimum wage increase probably will not apply unless it is a remanufacturing scenario, which will require more forethought.   If it is a supply prime contract that incorporates “a substantial and segregable amount of construction work that is subject to the DBA[,]” then the minimum wage increase may apply to the construction part of the contract.[51]

Excluded Geographical Coverage

The minimum wage increase only applies where the services, construction, concessions, or Federal land/property service-offering is provided in the United States.   Specifically, the SCA, DBA, and FLSA geographically apply as follows.

  • The SCA applies in the U.S. (defined as a “State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, the outer Continental Shelf as defined in the Outer Continental Shelf Lands Act (43 U.S.C. § 1331 et seq.), American Samoa, Guam, Wake Island, and Johnston Island”),[52]
  • The DBA applies in the U.S. (defined as D.C. and the States),[53] and
  • The FLSA applies in the U.S. (defined as “the United States; the District of Columbia; Puerto Rico; the Virgin Islands; outer Continental Shelf lands defined in the Outer Continental Shelf Lands Act (ch. 345, 67 Stat. 462); American Samoa; Guam; Wake Island; Eniwetok Atoll; Kwajalein Atoll; and Johnston Island”).[54]  

Moreover, DoL defined the geographical scope of the 2014 Order as “the 50 States and the District of Columbia[.]”[55]   And there is presently no reason to believe that will change for the 2021 Order.   At the same time, DoL has previously made clear that “[i]f a contract with the Federal Government is to be performed in part within and in part outside the United States and is otherwise covered by the Executive Order and this part, the minimum wage requirements of the Order and this part would apply with respect to that part of the contract that is performed within the United States.”[56]  

Therefore, when it comes to a contract/subcontract performed both in and outside the U.S., partial implementation of the minimum wage is required.

Also, the new Order will have lessened geographical impact in D.C. and New York City (“NYC”), which both already have a $15 per hour minimum wage, and California will be at $15 by 2023.   So, unless a contractor/subcontractor does not meet the employer thresholds for those jurisdictions, or has its people working on a Federal enclave where the local minimum wage might not apply, the new Order has lessened impact for the contractor/subcontractor in D.C., NYC, and eventually California.    

Excluded Government Entities

Next, the minimum wage increase may not apply if the prime contract is with a mixed-ownership Government corporation, or is with an independent regulatory agency.  

Particularly, the 2014 Order applied to “Executive department and agencies[,]” and stated that “[i]ndependent agencies are strongly encouraged to comply with the requirements of this order.”[57]   Consequently, DoL made clear in the implementing regulations that “Executive departments and agencies means executive departments, military departments, or any independent establishments within the meaning of 5 U.S.C. [§§] 101, 102, and 104(1), respectively, and any wholly owned Government corporation within the meaning of 31 U.S.C. [§] 9101[,]” and that “Independent agencies means independent regulatory agencies within the meaning of 44 U.S.C. [§] 3502(5).”[58]   In turn, a host of Government entities were not required to implement the 2014 minimum wage increase.   These excluded Government entities consisted of but were not limited to the following.

Federal Communications Commission, Federal Deposit Insurance Corporation, Federal Energy Regulatory Commission, Federal Reserve System, Federal Trade Commission, National Labor Relations Board, Securities and Exchange Commission, Commodity Futures Trading Commission, Consumer Product Safety Commission, Federal Housing Finance Agency, Federal Maritime Commission, Interstate Commerce Commission, Mine Enforcement Safety and Health Review Commission, Occupational Safety and Health Review Commission, Postal Regulatory Commission, Consumer Financial Protection Bureau, and the Office of the Comptroller of the Currency.

Meanwhile, the 2021 Order uses slightly different language to describe the scope of covered Government entities—“[e]xecutive departments and agencies, including independent establishments subject to the Federal Property and Administrative Services Act[.]”[59]   Hence, even though the expectation is that the 2021 Order implementation will be very close to the 2014 Order, the 2021 Order does introduce some ambiguity as to whether DoL will change the scope of covered Government entities.   However, Federal Prison Industries, Inc. (d/b/a UNICOR), and the Committee for Purchase From People Who Are Blind or Severely Disabled (operating as the U.S. AbilityOne Commission), are, at least according to DoL’s 2014 Final Rule, both covered under the minimum wage increase, being a wholly-owned Government corporation and an independent establishment, respectively.[60]

I also note that even though D.C. falls within the geographical scope of the minimum wage increase, contracts with the D.C. Government do not.   Nonetheless, it is largely a non-issue because, as highlighted above, D.C.’s minimum wage is presently $15 per hour.   Further, the D.C. Living Wage Act of 2006 applies the minimum wage to every D.C. Government contract valued at $100,000 or more.[61]  

Old Contracts Excluded Until an Option is Exercised

The phase-in for the $15 per hour minimum wage increase does not begin until January 30, 2022.   And even then the new Order makes clear that it will only apply to “any new contract; new contract-like instrument; new solicitation; extension or renewal of an existing contract or contract-like instrument; and exercise of an option on an existing contract or contract-like instrument[.]”[62]   This language is different from the 2014 Order, which did not address options.   Consequently, in the 2014 Final Rule, DoL expressly excluded the minimum wage increase from the Government’s unilateral exercise of a pre-negotiated option on an already existing contract.[63]   Here, for the 2021 Order, given the language difference, the minimum wage increase may be required when the Government unilaterally exercises an option on an already existing contract.  

Regarding a solicitation that is opened before January 30, 2022, the 2021 Order provides that the minimum wage increase will not apply to the base period of performance if a contract is formed within 60 days after January 30, 2022.[64]   Naturally, the minimum wage increase will fully apply to any solicitation opened on or after January 30, 2022.

Grants and ISDEAA Agreements are Excluded

Like the 2014 Order, the 2021 Order applies not just to a procurement contract, but to a “contract-like instrument[.]”[65]   Ostensibly, this makes it possible for the $15 per hour minimum wage to apply under all sorts of Government transaction authorities, not just procurement contracts.[66]   In the 2014 Final Rule, DoL stated that the minimum wage increase also applied to “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.”[67]   At the same time, both the 2014 and 2021 Orders make clear that the minimum wage does not apply to grants.[68]   Furthermore, the minimum wage does not apply to contracts and other agreements under the Indian Self-Determination and Education Assistance Act of 1975 (“ISDEAA”).[69]

Despite the foregoing, a significant discussion may be had whether DoL’s present view of what qualifies as a “contract-like instrument” for the minimum wage exceeds the legal authority cited for the 2014 and 2021 Orders—the Federal Property and Administrative Services Act of 1949 (“FPASA”).[70]   But, that is a discussion for another day.

SCA, DBA, and FLSA Exclusions Still Apply, Where Pertinent

As discussed above, the $15 per hour minimum wage only applies to a worker if the SCA, DBA, or FLSA also applies.   Therefore, the following exclusions may preclude application of the Order-provided minimum wage.

SCA

First, the SCA only applies for a prime contract “the principal purpose of which is to furnish services[.]”[71]   So, even if it is a hybrid contract that involves some services, if services are not the contract’s principal purpose, the SCA should not apply.[72]   As already discussed, the SCA also does not apply if the prime contract is valued at $2,500 or less.[73]   Further, the SCA does not apply to an individual employed in a bona fide executive, administrative, or professional capacity, as provided at 29 C.F.R. Part 541.[74]   Hence, “[t]he coverage of the Act does not extend to contracts for services to be performed exclusively by persons who are not service employees, i.e., persons who are bona fide executive, administrative or professional personnel as defined in part 541 of this title[.]”[75]   Furthermore, “the Department does not require application of the Act to any contract for services which is performed essentially by bona fide executive, administrative, or professional employees, with the use of [SCA-covered] service employees being only a minor factor in the performance of the contract.   However, the Act would apply to a contract for services which may involve the use of [SCA-covered] service employees to a significant or substantial extent even though there is some use of bona fide executive, administrative, or professional employees in the performance of the contract.”[76]

FAR 22.1003 also lists services that are exempt from the SCA, either by statute or administrative determination of the Secretary of Labor (e.g., radio, telephone, or cable services subject to the Communications Act of 1934, or public utilities).[77]   There is also an exemption for certain commercial services where specific conditions are met, including that an employee devotes less than 20% of the employee’s available time.[78]

DBA

The DBA only applies to a contract/subcontract “for construction, alteration, or repair, including painting and decorating, of public buildings and public works” where the prime contract exceeds $2,000.[79]   Also, the DBA only applies to laborers and mechanics.[80]   Accordingly, DoL regulations state the following.  

“The term laborer or mechanic includes at least those workers whose duties are manual or physical in nature (including those workers who use tools or who are performing the work of a trade), as distinguished from mental or managerial.   The term laborer or mechanic includes apprentices, trainees, helpers, and, in the case of contracts subject to the Contract Work Hours and Safety Standards Act, watchmen or guards.   The term does not apply to workers whose duties are primarily administrative, executive, or clerical, rather than manual.   Persons employed in a bona fide executive, administrative, or professional capacity as defined in part 541 of this title are not deemed to be laborers or mechanics.   Working foremen who devote more than 20 percent of their time during a workweek to mechanic or laborer duties, and who do not meet the criteria of part 541, are laborers and mechanics for the time so spent.”[81]

Therefore, even under a DBA-covered contract/subcontract, some labor categories will not qualify for DBA prevailing wages.   Importantly, the $15 per hour minimum wage increase is not triggered by a DBA-related statute, only the DBA.   An example of a DBA-related statue is the Contract Work Hours and Safety Standards Act (“CWHSSA”), which applies, with exceptions, to a public work involving laborers, mechanics, guards, and watchmen, and the contract is valued in excess of $100,000.[82]

FLSA

41 U.S.C. § 6704(a) generally applies the FLSA to all contractors/subcontractors.   Hence, if no other Federal wage law kicks in, the FLSA probably does.   Nonetheless, there are exceptions.   First, as discussed above, the 2021 Order expressly states that “[w]here workers’ wages are governed by the Fair Labor Standards Act of 1938, this order shall apply only to procurement contracts or contract-like instruments that exceed the micro-purchase threshold, as defined in 41 U.S.C. 1902(a)[.]”[83]   Since the micro-purchase threshold is presently $10,000, if the prime contract value does not exceed that number, and if the SCA and DBA do not apply, then the $15 per hour minimum wage will not apply.   This over $10,000 threshold particularly establishes a floor for applying the minimum wage to many, if not all, concessions contracts and service-offerings related to Federal lands/property.

Next, the FLSA does not apply to “any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools), or in the capacity of outside salesman[.]”[84]   29 U.S.C. § 213 lists other activity-specific exemptions (e.g., the fisherman’s exception at § 213(a)(5)).[85]   Additionally, mentioned earlier, the Order-provided minimum wage does not apply to an apprentice, trainee, or student who’s wages are only covered under the FLSA at 29 U.S.C. § 214(a)-(b).[86]

Tipped Workers are Treated Different

The $15 per hour minimum wage applies differently to a tipped worker who is covered by the FLSA but not the SCA or DBA—such as a waiter who works in a restaurant/canteen on a military base or other Government property.   Specifically, the 2021 Order states that “the cash wage that must be paid by an employer to such workers shall be at least: (i) $10.50 per hour, beginning January 30, 2022; (ii) beginning January 1, 2023, 85 percent of the wage in effect under section 2 of this order, rounded to the nearest multiple of $0.05; and (iii)   beginning January 1, 2024, and for each subsequent year, 100 percent of the wage in effect under section 2 of this order.”[87]   Additionally, if the employee’s earned tips combined with the foregoing do not get the employee to at least $15 per hour, the contractor/subcontractor has to make up the difference.[88]  

Where More than $15 Per Hour is Required

To be clear, the Order-provided minimum wage is intended to replace lower, not higher, wages.[89]   Hence, if a worker is already entitled to be paid more than $15 per hour—because of a prevailing wage standard, collective bargaining agreement, higher local minimum wage, etc.—the higher wage still applies.   It is also worth noting that, according to DoL’s current regulations, “[t]he contractor may not discharge any part of its minimum wage obligation under the Executive Order by furnishing fringe benefits or, with respect to workers whose wages are governed by the Service Contract Act, the cash equivalent thereof.”[90]

Other Takeaways

  • An employer is permitted to make deductions from the $15 per hour minimum wage.   Specifically, DoL’s regulations state that the following.

“The contractor may make deductions that reduce a worker’s wages below the Executive Order minimum wage rate only if such deduction qualifies as a: (a) Deduction required by Federal, State, or local law, such as Federal or State withholding of income taxes; (b) Deduction for payments made to third parties pursuant to court order; (c) Deduction directed by a voluntary assignment of the worker or his or her authorized representative; or (d) Deduction for the reasonable cost or fair value, as determined by the Administrator, of furnishing such worker with ‘board, lodging, or other facilities,’ as defined in 29 U.S.C. [§] 203(m) and part 531 of this title.”[91]   

  • Upward equitable and unburdened (no application of indirect costs and fees) adjustments are expected, especially where an option will be exercised on an already existing contract.   There are several contract clauses which should provide that remedy, including but not limited to FAR Clauses 52.222-32(c), 52.222-43(d), 52.222-44(c), and 52.222-55(b).[92]   And, in any event, DoL’s regulations prompt agencies to retroactively incorporate the minimum wage clause, whether it is FAR Clause 52.222-55 or 29 C.F.R. Part 10, Appendix A.[93]  
  • As with many wage compliance issues, the Order-provided minimum wage sets up a minefield.   Possible pain points for getting it wrong include an employee making a wage complaint to DoL,[94] a DoL Wage and Hour Division investigation,[95] prime contractor and upper-tier subcontractor liability for the compliance failure of a subcontractor or lower-tier subcontractor,[96] the presumed applicability of the minimum wage in instances of poor record-keeping, the Government withholding of contract payments,[97] and possible suspension or debarment.[98], [99]   Additionally, DoL’s regulations make clear that compliance is a condition of contract payment.[100]   Consequently, non-compliance increases the risk of a civil false claim or related action premised upon the theory that an invoice for non-compliant performance may constitute an implied false certification.
  • The goal posts are also moving.   Specifically, the Order gives the Secretary of Labor the authority to, beginning on January 1, 2023 and each year thereafter, increase the minimum wage.[101]   That increase is to be no less than the percentage increase of the Consumer Price Index for Urban Wage Earners and Clerical Workers (“CPI-W”), and rounded to nearest nickel.[102]   Seeing as how the economy is presently experiencing accelerating inflation, with consumer prices seeing the fastest growth since the Great Recession, it will be interesting to see how long the fluctuation lasts, and how it potentially impacts the $15 per hour baseline minimum wage.[103]  
  • Finally, much of the foregoing is based on the regulations pursuant to the 2014 Order.   The 2021 Order specifies that DoL must issue new regulations by November 24, 2021, with the FAR Council to update the FAR within 60 days thereafter.[104]   Obviously, those new regulations could change some things.  

Last Word

No contractor or subcontractor achieves perfect compliance.   Indeed, imperfect people do not create perfection.   Nonetheless, among the many compliance issues that can bedevil a contractor/subcontractor, people’s wages really should receive priority focus.   And, as is often the case, where compliance is not achieved, a good faith and diligent attempt may significantly mitigate consequences.

[1] See Establishing a Minimum Wage for Contractors, Notice of Rate Change in Effect as of January 1, 2021, 85 Fed. Reg. 53,850-53 (Aug. 31, 2020).

[2] https://www.dol.gov/agencies/whd/flsa#:~:text=FLSA%20Minimum%20Wage%3A%20The%20federal,also%20have%20minimum%20wage%20laws.

[3] Of note, the FLSA minimum wage, where applicable, is currently still higher than the minimum wages of Georgia ($5.15 per hour), Wyoming ($5.15 per hour), the smallest employers in Oklahoma ($2 per hour), Puerto Rico ($5.08 per hour), and South Carolina and Louisiana do not have state minimum wage laws.   See https://www.dol.gov/agencies/whd/minimum-wage/state.

[4] Exec. Order No. 13,838 § 2 (May 25, 2018).

[5] “Concessions contract or contract for concessions means a contract under which the Federal Government grants a right to use Federal property, including land or facilities, for furnishing services.   The term concessions contract includes but is not limited to a contract the principal purpose of which is to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment, regardless of whether the services are of direct benefit to the Government, its personnel, or the general public.”   29 C.F.R. § 10.2.

[6] Exec. Order No. 14,026 § 8 (Apr. 27, 2021).   According to the U.S. Department of Labor, Wage and Hour Division, examples of this fourth category include “delegated leases of space in a Federal building from an agency to a contractor whereby the contractor operates a child care center, credit union, gift shop, barber shop, coffee shop, or fitness center in the Federal building to serve Federal employees and/or the general public.”   https://www.dol.gov/agencies/whd/government-contracts/minimum-wage/faq#contract_coverage-8.

[7] DoL’s 2014 Final Rule used the term “governed by[,]” which means that a worker receives the wage protections of, and is not exempted from coverage for, the relevant statute, be it the SCA, DBA, or FLSA.   See Establishing a Minimum Wage for Contractors, Final Rule, 79 Fed. Red. 60,634 at 60,658 (Oct. 7, 2014).   I simply say “covered.”

[8] See id. (“The Executive Order thus provides that its protections only extend to workers performing on or in connection with contracts covered by the Executive Order whose wages are governed by the FLSA, SCA, or DBA.”).

[9] See id. at 60,659 (“As a threshold matter, the Department notes that the Executive Order minimum wage requirements only extend to the hours worked by covered workers performing on or in connection with covered contracts.   The NPRM explained that in situations where contractors are not exclusively engaged in contract work covered by the Executive Order, and there are adequate records segregating the periods in which work was performed on covered contracts subject to the Order from periods in which other work was performed, the Executive Order minimum wage does not apply to hours spent on work not covered by the Order.   See 79 [Fed. Reg.] 34[,]582.   Accordingly, the regulatory text of § 10.22(a) emphasizes that contractors must pay covered workers performing on or in connection with a covered contract no less than the applicable Executive Order minimum wage for hours worked on or in connection with the covered contract.”); 29 C.F.R. § 10.22(a).

[10] Exec. Order No. 14,026 § 1.

[11] See Establishing a Minimum Wage for Contractors, Proposed Rule, 79 Fed. Reg. 34,568 at 34,581 (June 17, 2014) (“This section sets forth the general obligation to pay no less than the applicable Executive Order minimum wage to workers for all time worked on or in connection with the covered contract, and to include the Executive Order minimum wage contract clause in subcontracts and lower-tiered contracts.”); 79 Fed. Reg. 60,634 at 60,644 (“The Department also emphasized the well-established principle under those statutes that worker coverage does not depend upon the existence or form of any contractual relationship that may be alleged to exist between the contractor or subcontractor and such persons.   See, e.g., 29 U.S.C. [§] 203(d), (e)(1), (g) (FLSA); 41 U.S.C. [§] 6701(3)(B), 29 CFR [§] 4.155 (SCA); 29 CFR [§] 5.5(a)(1)(i) (DBA).”); FAR Clause 52.222-55(c)(1)(i).

[12] See 29 C.F.R. § 10.2.

[13] See id.; FAR 22.401 (definitions of Apprentice and Trainee); 79 Fed. Red. 60,634 at 60,644; but see 29 C.F.R. § 5.2(n)(3).

[14] See 29 C.F.R. §§ 4.6(p) and 10.4(e); FAR Clause 52.222-55(c)(2)(ii).

[15] Exec. Order No. 14,026 § 2.

[16] See 79 Fed. Reg. 60,634 at 60,657 (“In order for the requirements of the Order to apply to a subcontract, the subcontract must satisfy all of the following prongs: (1) It must qualify as a contract or contract-like instrument under the definition set forth in this part, (2) it must fall within one of the four specifically enumerated types of contracts set forth in section 7(d) of the Order and § 10.3, and (3) the wages of workers under the contract must be governed by the DBA, SCA, or FLSA.”).        

[17] See id.

[18] Id. at 60,658 (“[T]he Executive Order does not apply to subcontracts for the manufacturing or furnishing of materials, supplies, articles, or equipment between a manufacturer or other supplier and a covered contractor for use on a covered Federal contract (e.g., a contract to supply napkins and utensils to a fast food restaurant franchise on a military base is not a covered subcontract for purposes of this Order).”).

[19] 41 U.S.C. § 6702(a)(2).

[20] 40 U.S.C. § 3142.

[21] Exec. Order No. 14,026 § 8(b).

[22] See 29 C.F.R. § 10.3(b).

[23] See 79 Fed. Reg. 34,568 at 34,577 (“[I]f a contractor that performs work on SCA-covered contracts employs a security officer who is covered under the FLSA to guard the contractor’s headquarters, that security officer would not be covered by the Executive Order because the employee is not engaged in working on or in connection with the contract, either in performing the specific services called for by the contract’s terms or in performing other duties necessary to the performance of the contract.”); 79 Fed. Reg. 60,634 at 60,659 (“As a threshold matter, the Department notes that the Executive Order minimum wage requirements only extend to the hours worked by covered workers performing on or in connection with covered contracts.”); id. at 60,661 (“[A]n FLSA-covered technician who is hired to repair a DBA contractor’s electronic time system or an FLSA-covered janitor who is hired to clean the bathrooms at the DBA contractor’s company headquarters are not covered by the Order because they are not performing the specific duties called for by the contract or other services or work necessary to the performance of the contract.”); id. at 60,662 (“Neither the Executive Order nor the exclusion would apply, however, to an FLSA-covered employee hired by a covered concessionaire to redesign the storefront sign for a snack shop in a national park unless the redesign of the sign was called for by the SCA contract itself or otherwise necessary to the performance of the contract.”).

[24] Exec. Order No. 14,026 § 1.

[25] See 79 Fed. Reg. 60,634 at 60,659-62.

[26] See id. at 60,660 (“[T]he Department views workers performing ‘on’ a covered contract as those workers directly performing the specific services called for by the contract.”).

[27] See id. at 60,659 (“[T]he Department notes that the Executive Order minimum wage requirements only extend to the hours worked by covered workers performing on or in connection with covered contracts.”).

[28] See id. at 60,660 (“For purposes of administering the 20 percent of hours worked exclusion under the Executive Order, the Department views workers performing ‘on’ a covered contract as those workers directly performing the specific services called for by the contract.”).

[29] See id. at 60,659 (“The Department explained that this standard was intended to cover workers directly performing the specific services called for by the contract’s terms (i.e., ‘service employees’ on SCA contracts and ‘laborers and mechanics’ on DBA contracts) as well as those workers performing other duties necessary to the performance of the contract (i.e., FLSA-covered administrative personnel on SCA and DBA contracts).”).

[30] See id. at 60,660.

[31] See 29 C.F.R. § 10.4(f) (“This part does not apply to FLSA-covered workers performing in connection with covered contracts, i.e., those workers who perform work duties necessary to the performance of the contract but who are not directly engaged in performing the specific work called for by the contract, that spend less than 20 percent of their hours worked in a particular workweek performing in connection with such contracts.   This exclusion is inapplicable to covered workers performing on covered contracts, i.e., those workers directly engaged in performing the specific work called for by the contract.” (emphasis added)); 79 Fed. Red. 60,634 at 60,661 (“In the context of DBA-covered contracts, workers who may qualify for this exclusion if they spend less than 20 percent of their hours worked performing in connection with covered contracts could include an FLSA-covered security guard patrolling or monitoring a construction worksite where DBA-covered work is being performed or an FLSA-covered clerk who processes the payroll for DBA contracts (either on or off the site of the work).   However, if the security guard or clerk in these examples also performed the duties of a DBA-covered laborer or mechanic (for example, by painting or moving construction materials), the 20 percent of hours worked exclusion would not apply to any hours worked on or in connection with the contract because that worker performed “on” the covered contract at some point in the workweek.” (emphasis added)).

[32] See id. (“All laborers and mechanics engaged in the construction of a public building or public work on the site of the work thus will be regarded as performing ‘on’ a DBA-covered contract.   All service employees performing the specific services called for by an SCA-covered contract will also be regarded as performing ‘on’ a contract covered by the Executive Order.   In other words, any worker who is entitled to be paid DBA or SCA prevailing wages is entitled to receive the Executive Order minimum wage for all hours worked on covered contracts, regardless of whether such covered work constitutes less than 20 percent of his or her overall hours worked in a particular workweek.”).

[33] See id. at 60,662.

[34] See id. at 60,661-62.

[35] See id. at 60,660 (“For example, 29 CFR [§] 4.123(e)(2) exempts from SCA coverage contracts for seven types of commercial services, such as financial services involving the issuance and servicing of cards (including credit cards, debit cards, purchase cards, smart cards and similar card services), contracts with hotels for conferences, transportation by common carriers of persons by air, real estate services, and relocation services.   Certain criteria must be satisfied for the exemption to apply to a contract, including that each service employee spend only ‘a small portion of his or her time’ servicing the contract.   29 CFR [§] 4.123(e)(2)(ii)(D).   The exemption defines ‘small portion’ in relative terms and as ‘less than 20 percent’ of the employee’s available time.”); FAR 22.1003-4(d)(2)(iv); 29 C.F.R. § 5.2(m); FAR 22.401 (definition of Laborers or mechanics).

[36] See FAR 22.400.

[37] See FAR 22.1002-1.

[38] 41 U.S.C. § 6702(a)(2).

[39] 40 U.S.C. § 3142.

[40] Exec. Order No. 14,026 § 8(b).

[41] See id. (“Where workers’ wages are governed by the Fair Labor Standards Act of 1938, this order shall apply only to procurement contracts or contract-like instruments that exceed the micro-purchase threshold, as defined in 41 U.S.C. 1902(a)[.]”).  

[42] Cf. FAR 37.101 (“Service contract means a contract that directly engages the time and effort of a contractor whose primary purpose is to perform an identifiable task rather than to furnish an end item of supply.“); 29 C.F.R. § 10.2 (definitions of Procurement contract for construction and Procurement contract for services); 41 U.S.C. § 6702(a); 29 C.F.R. §§ 4.11(a) and 4.130; 79 Fed. Red. 60,634 at 60,643 (“The Department proposed to define the term procurement contract for services to mean a contract the principal purpose of which is to furnish services in the United States through the use of service employees, and any subcontract of any tier thereunder.   This proposed definition included any contract subject to the provisions of the SCA, as amended, and its implementing regulations.   This proposed definition was derived from language set forth in 41 U.S.C. [§] 6702(a), 29 CFR [§] 4.1a(e), and 29 CFR [§] 9.2.   No comments were submitted on this definition; accordingly, the Department implements the definition as proposed.”).

[43] See FAR 2.101 (definition of Supplies); Federal Grant and Cooperative Agreement Act of 1977 at 31 U.S.C. § 6303(1) (procurement contract occurs when “the principal purpose of the instrument is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government.”).

[44] See, e.g., 29 C.F.R. § 10.2 (definition of Concessions contract); 23 C.F.R. Part 710, Subpart G (federally-funded highway concession agreements); 36 C.F.R. Part 51 (National Park Service concessions contracts); Federal Lands Recreation Enhancement Act at 16 U.S.C § 6805 (permitting state and local government to share revenues with a Federal land management agency in exchange for services provided); DoD Instruction 1330.21 (Armed Services Exchange Regulation).

[45] 29 C.F.R. § 10.3(d).

[46] See FAR 22.602.

[47] 79 Fed. Red. 60,634 at 60,657.

[48] 29 C.F.R. § 4.117(a).

[49] Id. at § 4.117(b)(4).

[50] 79 Fed. Red. 60,634 at 60,657.

[51] See id.

[52] 41 U.S.C. § 6701(4)(A).

[53] See 40 U.S.C. § 3141(1); 29 C.F.R. § 5.2(g).

[54] 29 U.S.C. § 213(f).

[55] 29 C.F.R. § 10.2 (definition of United States); id. at § 10.3(c).

[56] Id.

[57] Exec. Order No. 13,658 §§ 7(g).

[58] 29 C.F.R. § 10.2; see also 79 Fed. Reg. 60,634 at 60,642 (“In the NPRM, the Department defined executive departments and agencies that are subject to Executive Order 13658 by adopting the definition of executive agency provided in section 2.101 of the FAR. 48 CFR 2.101.   The Department therefore interpreted the Executive Order to apply to executive departments within the meaning of 5 U.S.C. 101, military departments within the meaning of 5 U.S.C. 102, independent establishments within the meaning of 5 U.S.C. 104(1), and wholly owned Government corporations within the meaning of 31 U.S.C. 9101.   The Department did not interpret this definition as including the District of Columbia or any Territory or possession of the United States.   No comments were received on this proposed definition; the final rule therefore adopts the definition as set forth in the NPRM.”).

[59] Exec. Order No. 14,026 § 2.

[60] See 79 Fed. Reg. 60,634 at 60,649 (“The Department agrees with such commenters that procurements through the AbilityOne program are not exempt and will be covered in the same manner as any other contract.”).

[61] See D.C. Code § 2-220.03.

[62] Exec. Order No. 14,026 § 8(a).

[63] See 79 Fed. Reg. 60,634 at 60,643 (“[T]he Department believes that the interests of the Executive Order are best effectuated by adhering to its conclusion that only the unilateral exercise of a pre-negotiated option clause by the Federal Government itself falls outside the scope of the Order[.]”).

[64] Exec. Order No. 14,026 § 9(b).

[65] Id. at § 2.

[66] Id. at § 8.

[67] 79 Fed. Reg. 60,634 at 60,638.

[68] Exec. Order No. 14,026 § 8(c).

[69] See id.

[70] See id. at ¶1; see also 29 C.F.R. § 10.2.

[71] 41 U.S.C. §§ 6701(3)(A) and 6702(a)(3).

[72] See 29 C.F.R. § 4.111(a) (“If the principal purpose is to provide something other than services of the character contemplated by the Act and any such services which may be performed are only incidental to the performance of a contract for another purpose, the Act does not apply.”); see also id. at § 4.131.

[73] 41 U.S.C. § 6702(a)(2).

[74] Id. at § 6701(3)(C).

[75] 29 C.F.R. § 4.113(a)(2).

[76] Id. at § 4.113(a)(3).

[77] See FAR 22.1003.

[78] See 79 Fed. Red. 60,634 at 60,660.

[79] 40 U.S.C. § 3142(a).

[80] Id.

[81] 29 C.F.R. § 5.2(m).

[82] See 40 U.S.C. §§ 3701-08

[83] Exec. Order No. 14,026 § 8(b).

[84] 29 U.S.C. § 213(a)(1).

[85] See id.

[86] See 29 C.F.R. §§ 4.6(p) and 10.4(e); FAR Clause 52.222-55(c)(2)(ii).

[87] Exec. Order No. 14,026 § 3.

[88] See id.; 29 C.F.R. § 10.22(c).

[89] See id. at § 10.5(c) (“Nothing in the Executive Order or this part shall excuse noncompliance with any applicable Federal or State prevailing wage law or any applicable law or municipal ordinance establishing a minimum wage higher than the minimum wage established under the Executive Order and this part.”); see also id. at § 10.22(c).

[90] Id. at § 10.22(b).

[91] 29 C.F.R. § 10.23.

[92] When the Order-provided minimum wage is increased, the Administrator of the DoL Wage and Hour Division is supposed to place a general notice on all wage determinations, and that general notice suffices the definition of a wage determination under DoL’s regulations.   See FAR Clause 52.222-55(b)(2); 29 C.F.R. § 10.2 (definition of Wage determination).

[93] See 29 C.F.R. §§ 10.11(b) and 10.44(e).

[94] Id. at § 10.41.

[95] Id. at § 10.43.

[96] See FAR Clause 52.222-55(j); 29 C.F.R. § 10.21(b); 29 C.F.R. Part 10, Appendix A(h).

[97] Id. at Appendix A(c); FAR Clause 52.222-55(g).

[98] See 29 C.F.R. § 10.52.

[99] DoL’s 2014 Final Rule specifically eschewed the use of liquidated damages as a remedy for non-compliance with the Order-provided minimum wage.   See 79 Fed. Red. 60,634 at 60,681.

[100] Id. at § 10.21(a).

[101] Exec. Order No. 14,026 § 2.

[102] See id.

[103] https://www.reuters.com/business/us-consumer-prices-surge-april-2021-05-12/

[104] Exec. Order No. 14,026 § 4.