As previously noted, the OFCCP has published a proposed rule implementing Executive Order (E.O.) 14026, “Increasing the Minimum Wage for Federal Contractors.” The new executive order builds on E.O. 13658, “Establishing a Minimum Wage for Contractors,” signed by President Obama in 2014. Beginning January 30, 2022, the federal contractor minimum wage will increase to $15.00 per hour, $10.50 for tipped workers.
The original minimum wage order was ridiculously complicated, largely by design. The federal contractor minimum wage only applies to work performed “on” or “in connection with” a qualifying contract, but the recordkeeping required to track and pay workers the minimum rate only for qualifying work is well beyond most employers’ capabilities, forcing covered employers to consider simply raising their minimum wage rates to the federal contractor standard.
The new order is no less complicated. Rather than rehash all of the convoluted elements, we will focus on what is changing from the previous order.
E.O. 13838 Exemptions Still in Place (For Now)
First, we should note that in 2018 President Trump exempted from the minimum wage requirements contractors providing seasonal recreational services or seasonal recreational equipment rental on federal lands. This exemption does not apply to lodging and food services, but otherwise applies to services such as river running, hunting, fishing, horseback riding, camping, mountaineering, skiing, and youth camps.
This exemption is being left in place until the January 30, 2022, effective date of the new order, at which point it is automatically revoked. So, while other federal contractor employers will be able to “ramp up” to the new $15.00 per hour federal contractor minimum wage a bit more gradually, employers renewing or entering into new recreation contracts on or after January 30, 2022, will have to go from zero to sixty, in some cases more than doubling the minimum hourly rate paid to such employees.
E.O. 13658 Still in Place (For Now)
The existing federal contractor minimum wage order and rule continue to apply to covered contracts entered into, extended, or renewed through January 29, 2022. The current federal contractor minimum wage is $10.95. For tipped workers, the minimum rate is $7.65. The rates were raised effective January 1, 2021. It is unclear whether DOL will raise the rate again prior to the new order and rates taking effect on January 30, 2022.
The “old” minimum wage rate will continue to apply to covered contracts entered into prior to the January 30, 2022, effective date of the new order. If and when such contracts are renewed or extended after that date, however, the new minimum rate will apply.
Scope Broadens a Bit
The scope of coverage for the new E.O. is a bit broader than the original. Under the original order, the minimum wage was not triggered when a contractor either renewed or extended an existing contract pursuant to the exercise of a pre-negotiated renewal option. Under the new order, such renewals or extensions will be considered “new” contracts triggering the minimum wage obligations.
Both the current and the new minimum wage orders apply to work performed in the 50 states or the District of Columbia, but that is where the current order stops. The new order will also apply to work performed in: Puerto Rico; the U.S. Virgin Islands; the Outer Continental Shelf lands (as defined in the Outer Continental Shelf Lands Act; American Samoa; Guam; the Commonwealth of the Northern Mariana Islands; Wake Island; and Johnston Island.
Tip Credit is Going Away
Under the current federal contractor minimum wage rule, employers enjoy a “tip credit” for tipped workers such as restaurant wait staff. The minimum hourly wage for tipped workers is currently set at 70% of the rate for non-tipped workers.
Under the new order, the rate for tipped workers remains at 70%, but as of January 1, 2023, the tipped rate is raised to 85% of the non-tipped rate. And as of January 1, 2024, the gap is closed entirely. Employers can still pay the minimum rate for tipped employees, but if the employee does not make sufficient tips to earn the employee non-tipped rate, the employer must make up the difference.
For example, using the initial minimum rates, assume that a waiter works an 8-hour shift. The new order will allow the employer to pay the waiter $10.50 per hour, or $84 for the entire shift. If that waiter also makes at least $36 in tips, they will earn at least the full minimum rate. But if that waiter only makes $20 in tips, the waiter would effectively have made just $13.00 per hour and the employer would owe them $16.
The Fair Labor Standards Act (FLSA) contains provisions for paying “subminimum” wages in certain circumstances. In particular, Section 14(c) authorizes employers to pay workers with severe disabilities less than the federal minimum wage.
Both the current and new federal contractor minimum wage orders still allow for employers to calculate pay for disabled workers according to Section 14(c) of the FLSA. However, if the calculated rate is less than the federal contractor minimum wage, employers must pay the full federal contractor rate for covered work.
For example, let’s assume that the Service Contract Act prevailing wage rate for a janitor is $15.00 per hour. If a worker with a disability is determined to complete the job at 50% productivity, the 14(c) wage rate would be $7.50 per hour. Such an employee would nonetheless need to be paid $10.95 per hour under the current order, $15.00 per hour under the new.
If you have questions about this or any other OFCCP action, feel free to contact us at BCGi@Biddle.com.