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New Executive Order Establishes Minimum Wage Increase for Federal Contractors and Subcontractors

On February 12, 2014, President Barack Obama signed the new Executive Order 13658 establishing an increased minimum wage for Federal contractors and subcontractors.

Summary of article.

On February 12, 2014, President Barack Obama signed the new Executive Order 13658 ("EO 13658" or "the Executive Order") establishing an increased minimum wage for Federal contractors and subcontractors. President Obama had stated in his January 28, 2014, State of the Union Address that he was planning to sign the Executive Order, which was published in the February 20, 2014, Federal Register, and can be found at http://www.gpo.gov/fdsys/pkg/FR-2014-02-20/pdf/2014-03805.pdf.

In summary, EO 13658 states that, beginning January 1, 2015, covered "new contracts, contract-like instruments, and solicitations," collectively referred to as "Federal contracts" will be required to include a clause providing that workers performing work under such contracts be paid at a rate of at least $10.10.

The stated purpose of EO 13658 is "to promote economy and efficiency in procurement by contracting with sources who adequately compensate their workers." More specifically, other stated reasons for the Executive Order are:

  1. Raising the minimum wage will make sure that no family of four with a full-time worker has to raise their children in poverty (a full-time minimum wage worker makes $14,500 a year, which "leaves too many families struggling to make ends meet")
  2. Indexing the minimum wage to inflation would help lower-income workers keep up in the future; and
  3. Helping parents make ends meet (around 60 percent of workers who would benefit from a higher minimum wage are women, and less than 20 percent are teenagers).

In EO 13658, President Obama states that the U.S. Secretary of Labor will issue regulations by October 1, 2014, to implement the requirements of the new Executive Order, including exclusions from the requirements set forth in EO 13658, as appropriate.

Highlights of Executive Order 13658

New minimum wage for Federal contractors and subcontractors

The Executive Order states that Executive departments and agencies shall, to the extent permitted by law, ensure that new contracts include a clause, which the contractor and any subcontractors shall incorporate into lower-tier subcontracts, specifying, as a condition of payment, that the minimum wage paid to workers in the performance of the contract or any subcontract shall be at least $10.10, beginning January 1, 2015.

This higher wage will apply to new contracts and replacements for expiring contracts. Beginning on January 1, 2016, and annually thereafter, the amount shall be increased from this amount by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

Covered contractors

The Executive Order applies to all Federal contractors and subcontractors. The Fact Sheet issued by the Government regarding the Executive Order ("Fact Sheet") provides the following examples of the "hundreds of thousands of people" who work under contracts with the Federal government to provide services or construction who are currently making less than $10.10 an hour: nursing assistants providing care to veterans in nursing homes; concession workers in National Parks; people serving food to U.S. military troops; and individuals with disabilities working to maintain the grounds on military bases.

Increase in the tipped minimum wage

EO 13658 includes provisions to ensure that tipped workers earn at least $10.10 overall, through a combination of tips and an employer contribution.

According to the Fact Sheet, employers are currently required to pay a minimum base wage of $2.13 per hour, a base that has remained unchanged for over twenty years, and if a worker's tips do not add up to the minimum wage, the employer must make up the difference.

However, the Executive Order requires that employers pay a minimum base wage of $4.90 for new contracts and replacements for expiring contracts put out for bid after January 1, 2015. This amount increases by 95 cents per year until it reaches 70 percent of the regular minimum wage, and if a worker's tips do not add up to at least $10.10, the employer will be required to pay the difference.

Application to individuals with disabilities

Under the current law, workers whose productivity is affected because of their disabilities may be paid less than the wage paid to others doing the same job under certain specialized certificate programs. However, under the Executive Order, all individuals working under service or concessions contracts with the Federal government will be covered by the same $10.10 per hour minimum wage protections.

We will stay apprised of new information regarding the Executive Order and will provide updates pertaining to the regulations that will be implemented later this year.

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