DOL publishes proposed rule to increase the minimum wage for federal entrepreneurs | Smaller
On July 22, 2021, the U.S. Department of Labor proposed rule for the implementation and enforcement of Executive Order 14026, “Increase in the minimum wage for federal entrepreneurs”, was published in the Federal Register. Executive Order 14026, which President Biden signed on April 27, 2021, generally requires federal contractors to pay their workers at least $ 15 an hour, and increases the minimum wage for tipped federal contractors to 10 from January 30, 2022, $ 50 an hour typically has no direct impact on minimum wage requirements for non-federal contractors.
Interaction with previous executive orders
The new Executive Order 14026 claims that increasing the minimum wage paid by government contractors will result in improved economics and efficiency in federal procurement. It is also based on Executive Order 13658, “Establishing a Minimum Wage for Contractors,” which President Obama signed on February 12, 2014. However, a separate executive order (Executive Order 13838) issued during the Trump administration established several exceptions to compliance with Executive Order 13658. According to Obama’s Executive Order, the minimum wage increases each year with effect from January 1. For contractors subject to this arrangement, effective January 1, 2021, the minimum wage has been increased to $ 10.95 per hour for covered hourly workers and $ 7.65 per hour for covered tips. Note, however, that some contractors who were previously subject to Executive Order 13658 are no longer subject to this requirement due to the exemptions from the requirement under Trump’s Executive Order 13838. The transition period until the latest implementing regulation is fully implemented will therefore be complicated for those federal entrepreneurs who may have different contracts that are subject to different rules.
Scope of the rule proposed by DOL
The proposed rule sets out detailed standards and procedures for the implementation and enforcement of Executive Order 14026, which is intended to be codified by adding a new Part 23 to Title 29 of the Code of Federal Regulations. The proposed rule also amends the existing rules regarding President Obama’s Executive Order 13658 (codified in 29 CFR Part 10) to clarify that the existing rules will continue to apply to covered contracts entered into, extended or renewed through January 29th , 2022. The new regulation applies to contracts concluded, extended or renewed on or after January 30, 2022. The same applies if an option on an existing contract is exercised on or after January 30, 2022.
Under the Proposal, Executive Order 14026 applies to new contracts, new type-of-contract instruments, new tenders, and extensions or renewals of existing contracts (under an option exercised or otherwise) under the Fair Labor Standards Act (FLSA), service. subject to Contract Act (SCA) and Davis Bacon Act (DTA)2 on or after January 30, 2022. This scope is broader than that under Executive Order 13658, as the extension or renewal of a contract based on the exercise of an option period on or after January 30, 2022 is a “new contract”. for the purposes of Executive Order 14026, while the coverage under Executive Order 13658 was not triggered by the unilateral exercise of a pre-negotiated option by the government to extend an existing contract. The DOL recognizes this and even assumes that in the relatively near future essentially all covered contracts with the federal government will be considered ‘new contracts’.  and is therefore subject to the higher minimum wage rate of Executive Order 14026. “The rules do not take into account how state contractors are reimbursed for increased costs when options are exercised on an existing contract, particularly a fixed price contract.
New minimum hourly rates
The proposed regulation provides that Executive Order 14026 repeals Executive Order 13838 as of January 30, 2022. Accordingly, contracts concluded with the federal government on January 30, 2022 in connection with seasonal leisure services or seasonal leisure equipment for the general public in federal states are subject to the minimum wage requirements of Executive Order 13658 or Executive Order 14026, depending on when the corresponding contract was concluded, extended or extended . Under the proposed rule, the standard minimum wage for state contractors will be $ 15.00 per hour starting January 30, 2022, effectively increasing the minimum wage for state contractors by $ 4.05. And from January 1, 2023, the Minister of Labor will set the minimum wage annually on the basis of the consumer price index at least 90 days before a new minimum wage comes into force.
For state tipped contractors, the proposed rule is that the standard cash wage is $ 10.50 per hour starting January 30, 2022, and the standard cash wage for tipped state contractors is 85% of the standard hour starting January 1, 2023 The minimum wage is the wage for federal entrepreneurs. Beginning January 1, 2024, the standard cash wage for state contractors with a tip is 100% of the standard minimum wage for state contractors – effectively eliminating a contractor’s ability to claim a tip credit. If a state contractor uses a tip credit to meet any portion of their wage obligations before January 1, 2024, the amount of tips received must be at least the difference between the required cash wage and the standard minimum wage for a state contractor. If the employee does not receive enough tips, the contractor must increase the cash wages paid so that the cash wages in combination with the tips received correspond to the standard minimum wage for federal entrepreneurs. Likewise, if the SCA or any other law or regulation provides for a higher wage, the employer must pay additional cash wages to meet these requirements.
Geographical scope and employees covered
The proposed rule is also broader geographically than the regulations implementing Executive Order 13658. Under the proposal, it covers contracts that require performance in whole or in part in the United States, designated as the 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Outer Continental Shelf Lands Act, American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Wake Island and Johnston Island. In contrast, Executive Order 13658 only applied to contracts executed in the 50 states and the District of Columbia.
The proposed rule defines “worker” as any person who performs work on or in connection with a contract covered by the Implementing Regulation and whose wages under such contract are governed by the FLSA, SCA, or DTA, regardless of the contractual relationship exists between the person and the employer. The proposed regulation expressly provides that the new minimum wage requirements also extend to employees with disabilities, whose tariffs are calculated according to special certificates, as well as to persons who are registered in a good apprenticeship or training phase. In addition, the definition provides that an employee performs “on” a contract if the employee directly provides the specific services required in the contract, and that an employee performs “in connection with” a contract if the work is performed for the performance of a contract , but are not the specific services required in the contract. However, FLSA Covered Workers performing work “related” to Covered Contracts for less than 20% of their working hours in a given work week would not be covered. This proposed 20% hourly exclusion does not apply to employees working “on” a Covered Contract whose wages are regulated by the FLSA, SCA or DBA. Therefore, in order to properly apply this exclusion, contractors need to distinguish and keep records of workers performing “under” a Covered Contract and those performing “in connection with” a Covered Contract is separated from the work carried out on or in connection with a covered contract.
According to the proposed regulation, the minimum wage requirements would also not apply to (a) grants, (b) contracts with Indian tribes under the Indian law on self-determination and educational assistance, (c) construction contracts that are excluded from the cover of the DBA, (d) contracts over Services that are exempt from SCA coverage, (e) employees exempt from FLSA minimum wage requirements, and (f) contracts resulting from a solicitation issued prior to January 30, 2022 and dated on or are closed between January 30, 2022 and March 30, 2022 (however, the regulations apply in the event of subsequent extension or renewal).
The proposed rule provides that employees can lodge a complaint with the DOL’s payroll department. The administrator can investigate possible violations either based on a complaint or at any time on their own initiative. If a violation is found, the administrator will notify the contractor to resolve the violation. Failure to correct this, the administrator may order that payments due under the contract or any other contract between the federal contractor and the government be withheld as necessary to pay unpaid wages. If the administrator determines that retaliation has been taken against an employee, he may provide whatever facilities it deems appropriate, including employment, reinstatement, promotion and loss of wages payment, as appropriate.
The Biden government claims it has the legal authority to increase pay for federal contractors under the federal government’s procurement powers, allowing the president to “promote economy and efficiency.” Questions remain, however, as to whether the president has the legal authority to mandate a minimum wage higher than the wage regulations imposed by the SCA and DBA. While this issue was never litigated under President Obama’s Executive Order 13658 because the minimum wage was set low enough to affect few government contractors, the increased minimum wage under Executive Order 14026 will affect more contractors and could therefore be challenged.
The DOL has given the public only 30 days to post comments from the date it was posted in the Federal Register, i.e. all comments must be submitted by August 23, 2021 for consideration in the rule-making process.2 Interested parties can submit comments electronically via the federal government’s eRulemaking portal at http://regulation.gov. The regulations only come into effect after the DOL has examined the submitted comments and published a final regulation. According to Executive Order 14026, however, the DOL must issue final regulations by November 24, 2021.