Feb 14, 2014

Executive Order Raises Minimum Wage and Tipped Wage for Federal Contractors

On February 12, 2014, President Obama signed an Executive Order increasing the federal minimum wage to $10.10 per hour for workers of federal contractors and subcontractors, an increase of 39 percent from the current minimum wage of $7.25 per hour.  Starting in 2016, increases to the minimum wage for federal contractors will be tied to the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

In addition, the Executive Order increases the wage for tipped workers of federal contractors and subcontractors by requiring that tipped workers earn at least $10.10 per hour through a combination of tips and employer contributions.  Currently, federal contractors and subcontractors are required to pay a minimum base wage of $2.13 per hour to tipped workers, and if a worker’s tips do not add up to the minimum wage of $7.25 per hour, the employer must pay the difference.  Under the Executive Order, federal contractors and subcontractors will be required to pay at least $4.90 per hour to tipped workers in addition to whatever the workers earn in tips.  If the worker’s total wages with tips do not add up to at least $10.10 per hour, the employer will be required to pay the difference.  Further, starting in 2016, the $4.90 minimum for tipped workers will increase by $0.95 or such lesser amount per year until it equals 70 percent of the minimum wage for non-tipped federal contract workers.

The Executive Order will also require a $10.10 per hour minimum wage for individuals with disabilities who are employed by federal contractors and subcontractors and currently paid less than others doing the same job.  Under the current federal law, individuals with disabilities whose productivity is affected due to their disabilities may be paid less than what others are paid for doing the same job under certain specialized certificate programs.

The Executive Order comes after several walkouts by fast food and janitorial workers employed by federal contractors at federal buildings in Washington, D.C., such as the Ronald Reagan Building, Union Station, the Smithsonian museum food court, and, most recently, the Pentagon food court.  However, the Executive Order will not have an immediate effect on the wages of current federal contractor employees because it applies only to new federal contracts beginning January 1, 2015, and replacements for expiring contracts.

In addition, the White House previously announced that President Obama will push for passage of a federal bill that would raise the current federal minimum wage for all workers from $7.25 per hour to $10.10 per hour and tie future increases to inflation.  We will monitor the status of the federal minimum wage bill as it makes its way through Congress and report on any developments.

The Executive Order is likely to have a significant financial impact on contractors and subcontractors with minimum wage workers on federal contracts. Going forward, federal contractors and subcontractors should factor the new minimum wage requirements into future contract bids.  If you have any further questions regarding the Executive Order, please do not hesitate to contact your Labor and Employment Counsel at Smith, Gambrell & Russell, LLP.


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