Government Contracts Monitor

Short Take – Final Rule Establishing Minimum Wage

December 7, 2015

On December 4, 2015, DOD, GSA and NASA adopted a Final Rule, effective immediately, amending the Federal Acquisition Regulation (FAR) to implement (i) President Obama’s Executive Order 13658, establishing a minimum wage for employees working on covered federal contracts and subcontracts, and (ii) the Department of Labor (DOL)’s Final Rule (previously discussed here). The Final Rule essentially follows and adopts as final, with only minor changes, the Interim Rule issued December 14, 2014, previously discussed here.

As previously discussed here, DOL recently published a Notice, increasing the $10.10 minimum to $10.15, and the minimum hourly tipped wage to $5.85, effective January 1, 2016. DOL also published an updated version of the Executive Order 13658 poster (available here), that all covered contractors and subcontractors are required to post, to notify workers on covered contracts as to the applicable minimum wage rate under the Executive Order.

Contractors and subcontractors working on covered contracts should review their current policies (including employee handbooks) and pay practices to ensure compliance with Executive Order 13658 and its implementing regulations, as now finalized. Effective January 1, 2016, they also must (1) post the updated Executive Order 13659 Poster, and (2) start paying no less than the new minimum $10.15 hourly wage to all covered employees (or $5.85 to tipped employees). Please remember that covered employees include not only direct workers, but also any employees who spend 20% or more of their time supporting covered contracts. If you are a prime, you are responsible for compliance by, and are jointly and severally liable with, your subcontractors.

If the increased 2016 rates cause labor cost increases for primes or their subcontractors, they may request a price adjustment after January 1, 2016, per FAR 22.1904(b) and Subsection (3)(i) of FAR Clause 52.222-55. Such increases are limited to the actual increased wage and associated labor costs, such as social security and unemployment taxes, and cannot include any amount for general and administrative costs, overhead or profit.