Audit, Compliance and Risk Blog

Minimum Wage Rising For Federal Contract Employees

Posted by Jon Elliott on Wed, Oct 22, 2014 employer probably should know that employees have a right to receive at least the “minimum wage” for the hours they work. But employers may or may not focus on the fact that there’s not just one “minimum wage” – there are many, depending on the jurisdiction, the employer’s business or governmental sector, and the employee’s status. The federally-mandated minimum wage for most employees is $7.25 per hour (set in 2007 under the Fair Labor Standards Act (FLSA)), but some categories of workers can be paid lower wages, and some states require higher wages. Employers with scattered and diverse activities and work forces need to track developments under each applicable situation.

Last week the US Department of Labor (DOL) issued rules raising the minimum wage for workers under large government contracts (29 CFR part 10). These new rules implement President Obama’s Executive Order Number 13658, signed on February 12, 2014. The rules apply to most “contracts, contract-like instruments, and solicitations” by federal agencies entered into on or after January 1, 2015, and applies to prime contractors and lower tier subcontractors.

How Much Must Contractors Pay?

For most contracts to provide services to the federal government, including at concessions:

  • For most employees (i.e., working on contracts covered by the Service Contract Act):

    • $10.10 per hour, effective January 1, 2015.

    • An inflation-adjusted amount, calculated annually and rounded to the nearest 5¢.

  • For tipped employee (following FLSA definitions):

    • $4.90 per hour, effective January 1, 2015.

    • An amount adjusted annually by $0.95 per hour, until tipped employees’ minimum hourly wages are at least 70 percent of non-tipped employees’.

    • After 70 percent is reached, an inflation-adjusted amount, calculated annually to maintain 70 percent and rounded to the nearest 5¢.

These requirements apply to contracts covered by the Service Contract Act or the Davis-Bacon Act, and to other contracts exceeding the federal government’s micro-purchase thresholds. Executive departments and agencies must follow these requirements to the extent permitted by law, and independent agencies are “encouraged” to do so. These thresholds apply to grants, contracts and agreements involving Indian tribes.

These federal requirements do not supersede higher state or local minimum wages.

How Do These Compare With Other Minimum Wages?

The national minimum wage is $7.25 per hour for most workers, and $2.13 for employees who receive tips. Some employees are subject to lower minimum wages (trainees for example), and others are “exempt” from these calculations and paid salaries (I previously blogged about changing white collar exemptions here) Roughly half the states provide higher minimum wages – none is presently as high as $10.10. A growing number of local jurisdictions impose higher “living wages” on at least some employers – for example, Seattle’s city council has ordered “large” employers to phase-in a $15 per hour minimum wage over 3 to 7 years beginning April 1, 2015, depending on employer size.

Self-Evaluation Checklist

Does the organization pay at least applicable minimum wages and overtime rates to all employees protected by FLSA?

Does the organization pay at least applicable minimum wages and overtime rates to all employees protected by applicable state and local requirements?

Does the organization company have policies and procedures to ensure that all individuals providing services to the company are properly classified, as employees subject to FLSA, as hourly or salaried (“exempt”) employees, as independent contractors, or as employees working for other employers?

Does the organization provide services to departments or agencies of the U.S. federal government?

Where Can I Go For More Information?

Specialty Technical Publishers (STP) provides a variety of single-law and multi-law services, intended to facilitate clients’ understanding of and compliance with requirements. These include:

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About the Author Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 25 years. He was involved in developing 16 existing products, including Environmental Compliance: A Simplified National Guide and The Complete Guide to Environmental Law.

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at:

photo credit: ZenGuide via photopin cc

Tags: Corporate Governance, Business & Legal, Employer Best Practices, Employee Rights