Government Contracts Monitor

Short Take - Minimum Wage Increases to $10.60, Effective January 1, 2019

October 24, 2018

The Department of Labor (DOL) recently published a Notice [83 Fed. Reg. 44906 (9/4/18)] announcing that, effective January 1, 2019, the minimum hourly wage required to be paid to workers performing work on or in connection with covered federal contracts, per Executive Order 13658, will increase from the present $10.35 to $10.60. The minimum hourly tipped wage will increase from $7.25 to $7.40.

By way of background, and as you no doubt know, Executive Order 13658 was issued by then President Obama on February 12, 2014, initially establishing a $10.10 per hour minimum wage for employees working on covered federal contracts and subcontracts, starting January 1, 2015. The Executive Order also established a new minimum wage for tipped employees working under covered contracts. DOL issued a Final Rule on October 10, 2014 (previously discussed here), which is now set forth at 29 C.F.R. Part 10, implementing the Executive Order. The FAR’s implementation may be found at FAR Part 22.19.

Under the Executive Order, DOL is required to determine annual adjustments to both the minimum wage and the minimum tipped wage, based upon changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), rounded to the nearest multiple of $0.05, and to publish the new minimum wage rates at least 90 days prior to their taking effect. DOL stated in its 2014 Final Rule 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, using the first two quarters of the current year and last two quarters of the prior year, compared to the preceding same four quarters. Applying this methodology over the past three years, DOL has raised the minimum wage in three steps from its initial $10.10 rate to the currently effective $10.35, and the tipped wage to $7.25 (70% of the current $10.35 minimum wage).

DOL has now determined, based upon comparing the 12 months from July 1, 2017 thru June 30, 2018 with the prior 12 months, that the applicable percentage increase for Calendar Year 2019 is 2.337%. This percentage, applied to the current $10.35 rate, would have resulted in an increased wage rate of $10.592, which DOL has rounded upwards to $10.60. In order to maintain the tipped wage at 70% of the new minimum wage (again rounded to the nearest multiple of $0.05), DOL is raising the tipped wage from $7.25 to $7.40.

DOL also has published an updated version of the Executive Order 13658 Poster, reflecting these new increases. All covered contractors and subcontractors are required to post this new Poster, to notify all workers on covered contracts as to the new applicable minimum wages. See Appendix B to DOL’s Notice (83 Fed. Reg. at 44904).

Contractors and subcontractors working on covered contracts should review and update their employee handbooks and policies as necessary, and their pay practices, effective January 1, 2019, to ensure continuing compliance with Executive Order 13658 and its implementing regulations. They also must (1) post the updated Executive Order 13658 Poster, and (2) start paying no less than the new minimum $10.60 hourly wage to all covered employees (and the new $7.40 for tipped employees), as of January 1, 2019. 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. You therefore should notify your subcontractors as to this change, and ensure that they are complying therewith.

Attorneys

Hopewell Darneille