Government Contracts Monitor

Short Take – Minimum Wage Increases to $10.15 Effective January 1, 2016

October 19, 2015

As you no doubt know by now, President Obama issued Executive Order 13658 on February 12, 2014, establishing a $10.10 per hour minimum wage for employees working on covered federal contracts and subcontracts, starting January 1, 2015. The Department of Labor (DOL) issued a Final Rule (previously discussed here) on October 10, 2014, and the FAR Council issued an Interim Rule on December 15, 2014 (correction here) (previously discussed here), implementing the Executive Order. The Executive Order also established new minimum wage rules for tipped employees working under covered contracts.

Under the Executive Order and DOL Final Rule, DOL must determine annual adjustments to both the $10.10 minimum wage and the minimum tipped wage, starting this year, based upon changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), and to publish the new minimum wage rates at least 90 days prior to their taking effect.

Pursuant to this direction, DOL recently published a Notice [80 Fed. Reg. 55646 (9/16/15)] announcing that, effective January 1, 2016, the $10.10 minimum hourly wage rate will increase to $10.15, and the minimum hourly tipped wage will increase to $5.85. In its Final Rule DOL stated that, in order to minimize seasonal fluctuations, DOL was going to compare the CPI-W for the most recent available year with the CPI-W for the preceding year. Applying this methodology, and using the first two quarters of 2015 and the last two quarters of 2014, compared to the prior same four quarters, DOL determined that the applicable percentage increase is 0.345%, which would have resulted in an increased wage rate of $10.13 which, rounded to the nearest multiple of $0.05, is $10.15. DOL also has published an updated version of the Executive Order 13658 poster that all covered contractors and subcontractors are required to post, to notify all workers on covered contracts as to the applicable minimum wage rate under the Executive Order.

Contractors and subcontractors working on covered contracts therefore should review their current policies and pay practices to ensure compliance with Executive Order 13658 and its implementing regulations. Effective January 1, 2016, they also must (1) post the updated Executive Order 13659 Poster (available here), and (2) start paying no less than the new minimum $10.15 hourly wage) to all covered employees. In this regard, please remember that covered employees include not only direct workers, but also support workers spending 20% or more of their time supporting covered contracts. Please also recall that, if you are a prime, you are responsible for compliance by, and jointly and severally liable with, your subcontractors. Covered contractors and subcontractors also should review and amend their employee handbooks and policies accordingly, as necessary.