Last week, the Federal Register published the final
regulation by the Department of Labor implementing Executive
Order 14026, raising on January 30, 2022 the minimum wage applicable to many,
but not all, federal contractors to $15/hour with automatic annual increases. Like other Executive Orders, this only
applies to new contracts, renewals and extensions, but agencies have been “strongly
encouraged” since April to include this requirement in new contract
solicitations, contracts and extensions.
It also only applies to certain types of federal contracts, including McNamara-O'Hara
Service Contract Act of 1965 covered contracts, concessions contracts,
contracts related to federal property and “a procurement contract or
contract-like instrument for services or construction” if those employees are
also subject to the Service Contract Act, the Davis-Bacon Act or the Fair Labor
Standards Act and only for hours worked on or in connection with a federal
contract. The regulation gradually phases
out all tip credits by 2024 and revokes some prior exemptions granted by the
prior Administration. The DOL has also
created a new poster to be displayed or distributed by covered employers.
Sections 23.30(d) and 23.40 specifically exclude coverage to
certain types of federal contracts and workers: (i) “contracts for the
manufacturing or furnishing of materials, supplies, articles, or equipment to
the Federal Government, including those that are subject to the Walsh-Healey
Public Contracts Act, 41 U.S.C. 6501 et seq.” (ii) grants, (iii)
agreements with Indian Tribes, (iv) construction procurement contracts not
covered by the Davis-Bacon Act, (v) certain contracts specifically excluded
from the Service Contract Act, (vi) with certain exceptions, employees exempt
under the FLSA, (vii), FLSA-covered employees who perform less than 20% of
their time in connection with (rather than directly for) a covered contract and
(viii) contracts resulting from a solicitation issued before January 30, 2022, but
entered into on or between January 30, 2022 and March 30, 2022.
The definition section of the regulation describes the
covered “workers” as follows:
any person engaged in performing
work on or in connection with a contract covered by the Executive Order, and
whose wages under such contract are governed by the Fair Labor Standards Act,
the Service Contract Act, or the Davis-Bacon Act, other than individuals
employed in a bona fide executive, administrative, or professional capacity, as
those terms are defined in 29 CFR part 541, regardless of the contractual
relationship alleged to exist between the individual and the employer. The
term worker includes workers performing on or in connection with a
covered contract whose wages are calculated pursuant to special certificates
issued under 29 U.S.C. 214(c), as well as any person working on or in
connection with a covered contract and individually registered in a bona fide
apprenticeship or training program registered with the U.S. Department of
Labor's Employment and Training Administration, Office of Apprenticeship, or
with a State Apprenticeship Agency recognized by the Office of Apprenticeship.
A worker performs “on” a contract if the worker directly performs the specific
services called for by the contract. A worker Start Printed Page 67227 performs
“in connection with” a contract if the worker's work activities are necessary
to the performance of a contract but are not the specific services called for
by the contract.
Except when covered by FAR, applicable federal agencies,
contractors and subcontractors are required to include a new clause in their covered
contracts:
(b) Flow-down requirement. The contractor and any
subcontractors shall include in any covered subcontracts the Executive Order
minimum wage contract clause referred to in § 23.110(a) and shall require, as a
condition of payment, that the subcontractor include the minimum wage contract
clause in any lower-tier subcontracts. The prime contractor and any upper-tier
contractor shall be responsible for the compliance by any subcontractor or
lower-tier subcontractor with the Executive Order minimum wage requirements,
whether or not the contract clause was included in the subcontract.
The new, lengthy clause reads as follows:
(a) Executive Order
14026. This contract is subject to Executive Order
14026, the Start Printed Page 67234 regulations issued by
the Secretary of Labor in 29
CFR part 23 pursuant to the Executive Order, and the following
provisions.
(b) Minimum wages. (1)
Each worker (as defined in 29
CFR 23.20) engaged in the performance of this contract by the prime
contractor or any subcontractor, regardless of any contractual relationship
which may be alleged to exist between the contractor and worker, shall be paid
not less than the applicable minimum wage under Executive Order
14026.
(2) The minimum wage required to be
paid to each worker performing work on or in connection with this contract
between January 30, 2022 and December 31, 2022, shall be $15.00 per hour. The
minimum wage shall be adjusted each time the Secretary of Labor's annual
determination of the applicable minimum wage under section 2(a)(ii) of Executive Order
14026 results in a higher minimum wage. Adjustments to the Executive
Order minimum wage under section 2(a)(ii) of Executive Order
14026 will be effective for all workers subject to the Executive Order
beginning January 1 of the following year. If appropriate, the contracting
officer, or other agency official overseeing this contract shall ensure the
contractor is compensated only for the increase in labor costs resulting from
the annual inflation increases in the Executive Order
14026 minimum wage beginning on January 1, 2023. The Secretary of
Labor will publish annual determinations in the Federal Register no
later than 90 days before such new wage is to take effect. The Secretary will
also publish the applicable minimum wage on https://alpha.sam.gov/content/wage-determinations (or
any successor website). The applicable published minimum wage is incorporated
by reference into this contract.
(3) The contractor shall pay
unconditionally to each worker all wages due free and clear and without
subsequent deduction (except as otherwise provided by 29
CFR 23.230), rebate, or kickback on any account. Such payments shall be
made no later than one pay period following the end of the regular pay period
in which such wages were earned or accrued. A pay period under this Executive
Order may not be of any duration longer than semi-monthly.
(4) The prime contractor and any
upper-tier subcontractor shall be responsible for the compliance by any
subcontractor or lower-tier subcontractor with the Executive Order minimum wage
requirements. In the event of any violation of the minimum wage obligation of
this clause, the contractor and any subcontractor(s) responsible therefore
shall be liable for the unpaid wages.
(5) If the commensurate wage rate
paid to a worker performing work on or in connection with a covered contract
whose wages are calculated pursuant to a special certificate issued under 29 U.S.C. 214(c), whether hourly or piece rate, is less
than the Executive Order minimum wage, the contractor must pay the Executive
Order minimum wage rate to achieve compliance with the Order. If the
commensurate wage due under the certificate is greater than the Executive Order
minimum wage, the contractor must pay the worker the greater commensurate wage.
(c) Withholding. The
agency head shall upon its own action or upon written request of an authorized
representative of the Department of Labor withhold or cause to be withheld from
the prime contractor under this or any other Federal contract with the same
prime contractor, so much of the accrued payments or advances as may be
considered necessary to pay workers the full amount of wages required by Executive Order
14026.
(d) Contract
suspension/Contract termination/Contractor debarment. In the event of a
failure to pay any worker all or part of the wages due under Executive Order
14026 or 29
CFR part 23, or a failure to comply with any other term or condition
of Executive
Order 14026 or 29
CFR part 23, the contracting agency may on its own action or after
authorization or by direction of the Department of Labor and written
notification to the contractor, take action to cause suspension of any further
payment, advance or guarantee of funds until such violations have ceased.
Additionally, any failure to comply with the requirements of this clause may be
grounds for termination of the right to proceed with the contract work. In such
event, the Government may enter into other contracts or arrangements for
completion of the work, charging the contractor in default with any additional
cost. A breach of the contract clause may be grounds for debarment as a contractor
and subcontractor as provided in 29
CFR 23.520.
(e) Workers who receive fringe
benefits. The contractor may not discharge any part of its minimum wage
obligation under Executive Order
14026 by furnishing fringe benefits or, with respect to workers whose
wages are governed by the Service Contract Act, the cash equivalent thereof.
(f) Relation to other laws. Nothing
herein shall relieve the contractor of any other obligation under Federal,
state or local law, or under contract, for the payment of a higher wage to any
worker, nor shall a lower prevailing wage under any such Federal, State, or
local law, or under contract, entitle a contractor to pay less than $15.00 (or
the minimum wage as established each January thereafter) to any worker.
(g) Payroll records. (1)
The contractor shall make and maintain for three years records containing the
information specified in paragraphs (g)(1)(i) through (vi) of this section for
each worker and shall make the records available for inspection and
transcription by authorized representatives of the Wage and Hour Division of
the U.S. Department of Labor:
(i) Name, address, and social
security number;
(ii) The worker's occupation(s) or
classification(s);
(iii) The rate or rates of wages
paid;
(iv) The number of daily and weekly
hours worked by each worker;
(v) Any deductions made; and
(vi) Total wages paid.
(2) The contractor shall also make
available a copy of the contract, as applicable, for inspection or
transcription by authorized representatives of the Wage and Hour Division.
(3) Failure to make and maintain or
to make available such records for inspection and transcription shall be a
violation of 29
CFR part 23 and this contract, and in the case of failure to produce
such records, the contracting officer, upon direction of an authorized
representative of the Department of Labor, or under its own action, shall take
such action as may be necessary to cause suspension of any further payment or
advance of funds until such time as the violations are discontinued.
(4) The contractor shall permit
authorized representatives of the Wage and Hour Division to conduct
investigations, including interviewing workers at the worksite during normal
working hours.
(5) Nothing in this clause limits
or otherwise modifies the contractor's payroll and recordkeeping obligations,
if any, under the Davis-Bacon Act, as amended, and its implementing
regulations; the Service Contract Act, as amended, and its implementing
regulations; the Fair Labor Standards Act, as amended, and its implementing
regulations; or any other applicable law.
(h) Flow-down requirement. The
contractor (as defined in 29
CFR 23.20) shall insert this clause in all of its covered subcontracts and
shall require its subcontractors to include this clause in any covered
lower-tier subcontracts. Executive Order
14026 does not apply to subcontracts for the manufacturing or
furnishing of materials, supplies, articles, or equipment, and this clause is
not required to be inserted in such subcontracts. The prime contractor and any
upper-tier subcontractor shall be responsible for the compliance by any
subcontractor or lower-tier subcontractor with this contract clause.
(i) Certification of
eligibility. (1) By entering into this contract, the contractor (and
officials thereof) certifies that neither it (nor he or she) nor any person or
firm who has an interest in the contractor's firm is a person or firm
ineligible to be awarded Government contracts by virtue of the sanctions
imposed pursuant to section 5 of the Service Contract Act, section 3(a) of the
Davis-Bacon Act, or 29
CFR 5.12(a)(1).
(2) No part of this contract shall
be subcontracted to any person or firm whose name appears on the list of
persons or firms ineligible to receive Federal contracts.
(3) The penalty for making false
statements is prescribed in the U.S. Criminal Code, 18 U.S.C. 1001.
(j) Tipped employees. In
paying wages to a tipped employee as defined in section 3(t) of the Fair Labor
Standards Act, 29 U.S.C. 203(t), the contractor may take a partial credit
against the wage payment obligation (tip credit) to the extent permitted under
section 3(a) of Executive Order
14026. In order to take such a tip credit, the employee must receive an
amount of tips at least equal to the amount of the credit taken; where the tipped
employee does not receive sufficient tips to equal the amount of the tip credit
the contractor must increase the cash wage paid for the workweek so that the
amount of cash wage paid and the tips received by the employee equal the
applicable minimum wage under Executive Order
14026. To utilize this proviso:
(1) The employer must inform the
tipped employee in advance of the use of the tip credit; Start Printed
Page 67235
(2) The employer must inform the
tipped employee of the amount of cash wage that will be paid and the additional
amount by which the employee's wages will be considered increased on account of
the tip credit;
(3) The employees must be allowed
to retain all tips (individually or through a pooling arrangement and
regardless of whether the employer elects to take a credit for tips received);
and
(4) The employer must be able to
show by records that the tipped employee receives at least the applicable
Executive Order minimum wage through the combination of direct wages and tip
credit.
(k) Antiretaliation. It
shall be unlawful for any person to discharge or in any other manner
discriminate against any worker because such worker has filed any complaint or
instituted or caused to be instituted any proceeding under or related to Executive Order
14026 or 29
CFR part 23, or has testified or is about to testify in any such
proceeding.
(l) Disputes concerning labor
standards. Disputes related to the application of Executive Order
14026 to this contract shall not be subject to the general disputes
clause of the contract. Such disputes shall be resolved in accordance with the
procedures of the Department of Labor set forth in 29
CFR part 23. Disputes within the meaning of this contract clause include
disputes between the contractor (or any of its subcontractors) and the
contracting agency, the U.S. Department of Labor, or the workers or their
representatives.
(m) Notice. The
contractor must notify all workers performing work on or in connection with a
covered contract of the applicable minimum wage rate under the Executive Order.
With respect to service employees on contracts covered by the Service Contract
Act and laborers and mechanics on contracts covered by the Davis-Bacon Act, the
contractor may meet this requirement by posting, in a prominent and accessible
place at the worksite, the applicable wage determination under those statutes.
With respect to workers performing work on or in connection with a covered
contract whose wages are governed by the FLSA, the contractor must post a
notice provided by the Department of Labor in a prominent and accessible place
at the worksite so it may be readily seen by workers. Contractors that
customarily post notices to workers electronically may post the notice
electronically provided such electronic posting is displayed prominently on any
website that is maintained by the contractor, whether external or internal, and
customarily used for notices to workers about terms and conditions of
employment.
NOTICE: This summary is designed merely to inform and alert
you of recent legal developments. It does not constitute legal advice and does
not apply to any particular situation because different facts could lead to
different results. Information here can change or be amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney.
