How Should Federal Contractors Prepare for the New Federal Minimum Wage?

Kachmar-Shawn-OPTBy Shawn Kachmar, HunterMaclean
Special to Business In Savannah

In his State of the Union address this year, President Obama said that rather than waiting for Congress to raise the minimum wage for all workers, he planned to issue an executive order mandating that government contractors and subcontractors pay their employees at least $10.10 an hour. That order was issued on February 12, 2014.

What does the executive order do, to whom does it apply, and what is the timeframe?

Beginning on Jan. 1, 2015, government contractors entering into new federal construction or service contracts are required to pay employees $10.10 per hour. The order also dictates that the minimum hourly wage for federal contractors’ tipped employees be raised to $4.95 an hour. The pay raise will not retroactively affect existing agreements. Significantly, the executive order also requires that the federal contractor minimum wage be adjusted upward each year by an amount equivalent to the annual percentage increase in the Consumer Price index. The current minimum wage applicable to all employers is not adjusted annually.

This minimum wage hike only applies to certain federal contractor and subcontractors. The number of people impacted is unknown because the government does not collect relevant data on federal contract workers. The Administration estimates nearly 200,000 people will receive a pay raise; House Speaker John Boehner said the number was closer to zero. The true number will probably be somewhere in the middle.

Government contractors and subcontractors should begin preparing now for the wage hike. Businesses with operations in multiple states should examine their pay rates in each state: 21 states, as well as the District of Columbia, currently have minimum wage requirements greater than $7.25, which is the current minimum wage, and businesses may already be compliant with the new minimum wage requirement in some of those states. Georgia has a minimum wage rate lower than the current federal rate of $7.25, so government contractors and subcontractors in Georgia will need to reassess their wage structures and prepare to provide pay increases for employees paid below the newly mandated minimum wage. They may also need to consider wage adjustments for workers currently paid close to the new minimum wage so that they are not suddenly paid the same or close to their less qualified colleagues and morale is impacted.

Recent polling data indicates that 69 percent of Americans supported the President’s call to raise the federal minimum wage. Perhaps bolstered by such support, he recently announced that he will direct the Labor Department to revise overtime regulations to require overtime pay to some employees traditionally classified as “exempt” from overtime requirements under the “white collar” exemptions applicable to executive, administrative, and professional employees. While these proposed changes have yet to be announced, and such proposal will be subject to public comment before adoption, it is clear that the Administration is not waiting for Congress to act to modify existing wage rules.

Keep abreast of these regulatory developments so that your business isn’t faced with a wage and hour lawsuit, which are expensive and time-consuming. Also consider a comprehensive review of your wage and hour practices to ensure that you are in compliance with current regulations. The Fair Labor Standards Act is technical and complicated, and even one minor infraction can lead to significant costs and penalties.