Following through on his State of the Union pledge, President Barack Obama has signed an Executive Order raising the minimum wage for workers on new federal contracts to $10.10 per hour. (See our article, President Obama to Raise Minimum Wage for Federal Contracts.)

The rate increase will apply only to solicitations and contracts issued on or after January 1, 2015. However, the EO (Section 8(c)) provides that for all new contracts negotiated between February 12, 2014, the effective date of the EO, and January 1, 2015, “agencies are strongly encouraged to take all steps that are reasonable and legally permissible to ensure that individuals working pursuant to those contracts and contract-like instruments are paid an hourly wage of at least $10.10….” Therefore, contractors should be on the lookout for agency inclusion of the new wage requirement prior to January 2015. 

Beginning January 1, 2016, and annually thereafter, the minimum wage will increase based on an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. 

The EO applies to new contracts and “contract-like instruments.” The Department of Labor (“DOL”) is tasked with issuing regulations by October 1, 2014, that will apply to contractors at all tiers. DOL likely will provide guidance as to the meaning of a “contract-like instrument” in the regulations.

The EO lists the following types of contracts subject to the new wage requirement: 

• procurement contracts for services or construction; 

• contracts and contract-like instruments for services covered by the Service Contract Act (“SCA”); 

• contracts or contract-like instruments for concessions; and 

• contracts or contract-like instruments entered into with the federal government in connection with federal property or lands and related to offered services for federal employees, their dependents, or the general public. 

Within 60 days of issuance of the DOL’s regulations, the Federal Acquisition Regulatory (“FAR”) Council must issue regulations to provide for the inclusion of a FAR clause implementing the new requirement in affected contracts. 

The DOL will enforce the new minimum wage requirement, just as it enforces the Fair Labor Standards Act (“FLSA”) and contracts subject to the SCA and the Davis-Bacon Act. While remedies for violations are not specified in the EO, the DOL will address the investigation and enforcement process and remedies for violations in its regulations.