On February 12, 2014, President Obama signed an Executive Order
raising the minimum wage to $10.10 per hour for federal contractors, starting
January 1, 2015. Although the Administration has stated that the increase will
apply only to new federal contracts, in reality it may end up applying to some
existing federal contracts as well. The immediate impact of the minimum wage
increase will vary depending on job and locality, but there are potential
long-term implications of which companies should be aware.
The Service Contract Act requires federal contractors
performing service contracts to pay service employees no less than the wage
rates set forth in Department of Labor wage determinations that are based upon
local prevailing wages. The Service Contract Act recognizes that prevailing
wages may change during the course of a service contract, and new wage determinations are incorporated into existing contracts when option years are
exercised.
It is likely that, beginning no later than January 1, 2015,
the prevailing wages set in the Department of Labor’s wage determinations will
be at least $10.10, as that will be the new “prevailing wage” for the
lowest-paid labor categories. If this happens, then when an option period on an
existing service contract is exercised following the issuance of the new wage
determination, these new minimum wages will apply. As with all increases in
wage determinations, contractors will be entitled to a price adjustment to
reflect any increases in wages and fringe benefits required by a new wage
determination.
Because the majority of federal contractors are already
being paid wages greater than $10.10 an hour, the immediate impact of the wage
increase is minimal for most contractors in most areas of the country. The
impact will be the greatest in the middle of the country where prevailing wages
are lower, and for workers throughout the country working in lower-skilled
service jobs, such as janitorial and food service positions. Raising the
minimum wage of these traditionally lower-paid positions will likely cause a
ripple effect eventually leading to an increase in the prevailing wages for
other labor classifications and nearby regions, which will in time come to be
reflected in the Department of Labor’s wage determinations.
Federal contractors should keep in mind both the immediate
and long-term impact this minimum wage increase may have on their existing
contracts and be aware of their right to request a price adjustment for any
increases to the wages and fringe benefits required by a new wage
determination. The lawyers at Berenzweig Leonard have experience helping government contractors navigate the
complexities of the Service Contract Act.
Stephanie Wilson is an attorney at Berenzweig Leonard, LLP, a business law firm in the Washington metro area. She can be reached at swilson@berenzweiglaw.com.
