A New Minimum Wage on Federal Contracts?

Minimum WageDuring the State of the Union Address on 28 January, President Obama called for raising the minimum wage for people working on new or renewed Federal Contracts from $7.25 an hour to $10.10 per hour.

What does this mean for you as a Federal contractor?

Particularly for contractors providing staffing services using a GSA Schedule, the initial answer is, very little for now.

  1. It doesn’t change existing law

The President will sign an executive order that gives preference to companies that pay their workers at least $10.10 per hour.  So, while not mandatory, you may see it appearing in RFPs as an evaluation factor.  The President is expected to sign the Executive Order within the coming month.

  1. It would affect a relatively small number of workers.

As you may know, the wages of most hourly workers on Federal Government contracts follow the Wage Determination Rates set by the Service Contract Act.  These rates are updated annually, usually in June.  It is likely that the increase would be reflected in the Wage Determinations published in June 2015 or perhaps phased across a series of annual Wage Determinations.Currently, there are a number of Wage Determination Rates that would be affected for persons working on Federal Contracts in relatively low-wage areas.  For example, in San Antonio (Bexar County, Texas), the minimum Federal Wage Determination Rate for a dishwasher is $7.76 an hour; the hourly wage would increase to $10.10 an hour as the Service Contract Act is updated in 2015.

The increase would only affect contract workers working directly on Federal contracts—Federal billable contracts.  Therefore, if you own a staffing firm that places people onsite at Federal installations, the increase would affect those workers making less than $10.10 per hour when it goes into effect in 2015.  If you have a Federal contract to supply products to the Federal Government, it will not affect the wages paid to your warehouse workers.

The Washington Post (January 28, 2014) estimated that the increase would affect about 200,000 Federal contract workers beginning in 2015 and the following years.

  1. It is not immediate

It will only affect contracts issued in 2015 and later (or renewals of existing ones) and not necessarily affect the out-year pricing of existing contracts, although the Government could seek to modify those contracts, in which case, contractors would be permitted to change pricing to allow them to charge the Government to make up the difference.The situation for GSA Contract holders is directly tied to the Service Contract Act Wage Determinations. If the increase to $10.10 per hour takes effect in 2015, is reflected in the June 2015 Wage Determinations, and you are a GSA Schedule Contract holder, the increase would likely not affect you until 2017, as under the GSA Schedule contract terms, you have up to 2 years to modify your contract to make your pricing reflect  Wage Determinations.

GSA Schedule solicitations may be updated or “refreshed” to include the Executive Order; if that happens, a mandatory modification (what we refer to as a “mass mod”) could be enacted.

  1. It is not the same as an increase in the minimum wage

The increase would only affect persons working directly on Federal contracts; if your contract is affected, you will be given the opportunity to modify your pricing so that you can collect the difference from the Government.This is different from a minimum wage, which cannot be put into place by Executive Order, but can only be enacted through the usual legislative route of approval by both the House and Senate and receiving the President’s signature.  Minimum wage is a matter of labor law and would apply to all workers in private industry engaged in interstate commerce—a very different thing from the proposed $10.10 minimum for Federal Contract Workers

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