Building on a previous executive order (EO) issued by President Barack Obama that increased the minimum wage for contractor employees to $10.10 (and automatically increased every year to keep pace with inflation), President Joe Biden issued a new EO that increases the minimum wage for those employees to $15 beginning on Jan. 30, 2022, and adjusts annually to the Consumer Price Index (CPI).
While the new minimum wage must be codified into regulations in order to be effective, the EO requests that agencies take more immediate action to require contractors to pay the higher wage. Sec. 9(c) of the EO provides that "For all existing contracts and contract-like instruments, solicitations issued between the date of this order and the effective dates set forth in this section, and contracts and contract-like instruments entered into between the date of this order and the effective dates set forth in this section, agencies are strongly encouraged, to the extent permitted by law, to ensure that the hourly wages paid under such contracts or contract-like instruments are consistent with the minimum wages specified in sections 2 and 3 of this order."
Contractors should be prepared to comply with the EO before the Federal Acquisition Regulatory Council (FAR Council) issues its final regulations in November 2021. This EO also applies to applicable subcontracts and will require prime contractors to flow this requirement down to subcontractors.
The EO captures a wide swath of contractor employees by including employees working in direct support of a contract as well as those working "in connection with" a contract. While the term "in connection with" has never been clearly defined, the FAR Council previously described those workers "as any worker who is performing work activities that are necessary to the performance of a covered contract but who are not directly engaged in performing the specific services called for by the contract itself" and who spend at least 20 percent of their time doing so.
The contracts covered by the EO include:
- a procurement contract or contract-like instrument for services or construction
- a contract or contract-like instrument for services covered by the Service Contract Act
- a contract or contract-like instrument for concessions
- a contract or contract-like 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
In addition, the EO requires the insertion of this requirement on renewal even if the original contract did not contain the requirement. Specifically, it also applies to any "extension or renewal of an existing contract or contract-like instrument; and exercise of an option on an existing contract or contract-like instrument..." See EO, Sec. 8.
Further, the new minimum wage will apply to tipped workers (though, at a different rate) and workers whose wages are calculated under Section 14(c) of the Fair Labor Standards Act (FLSA).
It is unknown at this time what kind of price adjustments contractors would be able to receive because of the increased wage, but the previous iteration of the EO allowed for price adjustments "only for increased labor costs (including subcontractor labor costs) as a result of an increase in the annual E.O. minimum wage, and for associated labor costs (including those for subcontractors). Associated labor costs shall include increases or decreases that result from changes in social security and unemployment taxes and workers' compensation insurance, but will not otherwise include any amount for general and administrative costs, overhead, or profit." See FAR 52.222-55.
To the extent they are paying wages below $15 per hour, government contractors and subcontractors should be prepared to provide higher wages when an agency inserts this EO or subsequent regulations into solicitations or contracts. Contractors should also preserve pay records and other relevant documents so that they can request a price adjustment when permitted to do so.
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