New Guidance on the Federal Contractor Minimum Wage: Is Your Contract Covered?

6 min

On July 21, 2021, the Department of Labor (DOL) issued a long-awaited Notice of Proposed Rulemaking (NPRM) proposing to amend Title 29 of the Code of Federal Regulations (CFR) by revising Part 10 and adding Part 23 to implement President Biden’s April 27, 2021 Executive Order 14026, “Increasing the Minimum Wage for Federal Contractors” (the “Biden EO”). As Venable previously noted here, the Biden EO seeks to increase the minimum wage for certain employees under covered contracts to $15.00 per hour. As expected, the proposed rule, with some notable exceptions, mirrors the rules implemented under a similar Obama executive order (the “Obama EO”) that also raised the minimum wage for federal contractors under certain contracts.

While the NPRM covers a range of issues, such as definitions, applicability, requirements for covered contracts and contractors, repercussions for noncompliance, etc., this articles focuses on the threshold issue of which government contracts will be covered by the rule (i.e., will you need to pay your covered employees at least $15.00 per hour). However, given the importance of this new rule, we intend to release subsequent articles focusing on other aspects of the NPRM.

General Applicability

A contractor, including subcontractors at any tier, is subject to the minimum wage requirement only if it has a covered contract. To be covered by the minimum wage requirement, a contract must (1) qualify as a “contract” or contract-like instrument”; (2) fall within one of four enumerated types of contracts; and (3) be a “new contract.”

The NPRM defines “contract” and “contract-like instrument” collectively as “an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law.” This is a broad definition and will likely encompass many types of different arrangements with the government or a prime contract, including “procurement actions, lease agreements, cooperative agreements, provider agreements, […],” etc.

Under the Biden EO the four types of covered contracts are:

  1. Procurement contracts or contract-like instruments for services or construction;
  2. Contracts or contract-like instruments for services covered by the Service Contract Act (SCA) (also referred to as the Service Contract Labor Standards statute);
  3. Contracts or contract-like instruments for concessions; and
  4. Contracts or contract-like instruments "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."

The NPRM clarifies several points relating to the four types of covered contracts:

  • Procurement contracts for construction are ones subject to the Davis-Bacon Act (DBA), which generally include contracts for construction, alteration, or repair, including painting and decorating, of public buildings or public works and which require the employment of mechanics or laborers.
  • Procurement contracts for services and contracts covered by the SCA (items 1 and 2 above) collectively mean that procurement and non-procurement contracts for services governed by the SCA are covered contracts.
  • Concessions contracts are defined ones under which the government grants a right to use federal property, including land or facilities, for furnishing services. The services do not have to be offered exclusively to the government to be a concessions contract. 
  • Contracts in connection with federal property or lands to provide services include leases in a federal building to provide services to employees or the general public, e.g., a cafeteria or fitness center.

Notably, the NPRM clarifies that to be covered, not only must the contract be one of the four types of enumerated contracts, but a worker’s wages under the contract must also be governed by the DBA, the SCA, or the Fair Labor Standards Act (FLSA). As an example, the NPRM notes that a contract between the government and a private hotel whereby the hotel accepts the General Services Administration (GSA) room rate would be considered a “contract,” but it would not be a covered contract, because it is not subject to the DBA or SCA, is not a concessions contract, and is not entered into in connection with federal property or lands.

Finally, a “new contract” is “a contract that is entered into on or after January 30, 2022, or a contract that is renewed or extended (pursuant to an exercised option or otherwise) on or after January 30, 2022.” In a deviation from the Obama EO, the NPRM notes that by including “exercised contract options,” the Biden EO will also apply to option periods on existing contracts exercised on or after January 30, 2022 – meaning contractors who are currently paying their covered employees less than $15.00 will need to match the minimum wage on any exercised option on or after January 30.

Other Key Takeaways

  • The SCA applies to contracts that exceed $2,500 for furnishing services in the United States through the use of service employees. Consistent with the SCA, the proposed rule would apply only to prime contracts governed by the SCA that exceed $2,500. However, there is no dollar threshold for subcontracts under SCA-governed prime contracts.
  • Covered contracts are ones with executive departments and agencies, defined to include executive departments, military departments, independent establishments, and any wholly owned government corporation. In a deviation from the Obama EO, which “strongly encouraged” independent agencies to comply, the NPRM and the Biden EO apply to independent agencies. The District of Columbia and any territory or possession of the United States are not executive departments or agencies.
  • The DOL expects that for a limited time some contracts may be covered by the Obama EO but not by the Biden EO. As an example, an SCA-covered contract entered into on February 15, 2021 is subject to the Obama EO but would not be covered by the Biden EO until it is extended or renewed on or after January 30, 2022, i.e., if the contract is renewed on February 15, 2022, the Biden EO applies on, but not prior to, that date.

Timeline

Notable dates under the Biden EO and NPRM:

  • April 27, 2021 – Biden EO
  • July 21, 2021 – DOL NPRM
  • August 23, 2021 – Comment Period Closes
  • November 24, 2021 – Expected Final Rule
  • January 24, 2022 – Expected Amendment to the Federal Acquisition Regulation (FAR)
  • January 30, 2022 – $15.00 Minimum Wage Effective Date for New Contracts
  • January 1, 2023 and annually thereafter – Any New Minimum Wage Amount Becomes Effective

*     *     *     *

Again, while this article focuses on the threshold issue of whether a government contractor is subject to the Biden EO’s minimum wage requirement, we strongly encourage you to read the full text of the proposed rule, especially if your contract is clearly impacted.

As indicated above, the opportunity to comment on the NPRM closes on August 23, 2021. Venable encourages all interested parties to comment on the NPRM, to the extent they have questions or concerns.

Moreover, Venable will continue to report on implementation of the Biden EO and provide further guidance when it becomes available.