Minimum wages for federal contractors are on the way up
"So what should contractors do? Well, first of all, they have to plan for this increase. They've got to plan for the pay," said attorney Alan Chvotkin.
Contractors are facing the obligation of a more than three percent minimum wage. That’s under the annual wage determination coming from the Labor Department. But a couple of federal court cases seem to limit how widely the new wage determination will apply. The Federal Drive with Tom Temin gets more now from Centre Law partner Alan Chvotkin.
Interview transcript:
Tom Temin And this is for contractors of any sort of service, basically for services, contractors.
Alan Chvotkin Primarily, but yes, contractors of any sort. Those who are performing the phrases on or in connection with a federal contract.
Tom Temin All right. So that could be everything from landscaping to professional services.
Alan Chvotkin Absolutely right. And as you mentioned, two executive orders, one by President Obama and one by President Biden, require the Department of Labor to establish these annual minimum wage increases. And on September 30th, the Department of Labor announced the wage increases effective January 1st, 2025, for contractors. Now, the reason for the two executive orders, they’re not identical. And so each of them has a sort of unique set of contracts that are covered by that depending on when they were entered into. And the wage rates are going to be different depending on which executive order contractors are covered by.
Tom Temin And they’re up about 3% to, what, $13 or so an hour. What are we looking at in terms of dollars.
Alan Chvotkin In the so-called legacy contracts, up to $13.30 an hour. And for the more current contracts, $17.75 an hour.
Tom Temin Okay. So that’s already getting in line with what some of the local counties and cities have for people that are doing the proverbial hamburger flipping. But even that level, does that really have much effect on professional services contracts, do you think?
Alan Chvotkin Probably not too much for two reasons. First of all, in the true professional services world, wages are much higher than that for the engineering or the professional services, the software coding, all of those, well above that. Secondly, for those wages that are covered by the service, kind of what we used to call the Service Contract Act, now call the Service Contract Labor Standards Act, the Department of Labor sets a wage determination for those contracts, and most of those are higher than that minimum wage as well. So if the wage determination for a covered service contract, that contract is higher. The contractor pays the higher rate. If it’s lower than this rate, then the new executive order rate applies.
Tom Temin And does it apply also in products? That is to say, for people assembling, say, military platforms that are working in factories, machinists, that kind of thing?
Alan Chvotkin It would if they were not covered by the Service Contract Act and their wage was below the rate set here in the executive order. Again, most of those workers under technology for U.S. government contracts are likely higher.
Tom Temin And under the regulations, and that law, then, is there a corresponding way for government agencies to pay the higher rates, because they’ve got the contracts. Sometimes these are fixed price contracts. Then what happens? There’s a crunch there, it seems.
Alan Chvotkin Well, you’re exactly right. And a whole new set of requirements come into play there under the Service Contract Act if the wage goes up. Generally there is a procedure for contractors to ask for that wage adjustment. If the wage determination that the Department of Labor issues, the process for that wage adjustment is very clear. In this case, where an executive order is providing for a wage increase, this is where I get to make some of my money. If the wage determination is different and even lower the wage, the adjustment is not automatic. And there’s been a few court cases indicating that the government may not be obligated to pay the higher rate.
Tom Temin We’re speaking with attorney Alan Chvotkin. He’s a partner at Center Law. And let’s get into those cases. Where would this likely not have to apply?
Alan Chvotkin Well, there are two circumstances under the executive order that are in litigation right now. One, not surprising in the U.S. District court for the Southern District of Texas. And there the Texas court said that they can’t enforce. The judge in Texas said that the Department of Labor could not enforce a prior last year’s wage increase because the president didn’t have authority to direct the Department of Labor to raise minimum wages. Now, that court decision only applies to three states, but not to contractors in those three states. So that’s Texas. Louisiana. And Mississippi. So actually, it’s interesting that those three states are actually federal government contractors as well. They get work from the U.S. government. So the judge says that you brought the lawsuit. It doesn’t apply to you, but contractors who live in those states, the wage increase from last year applies. Further litigation is going to take place to see what happens there. A second subset of covered contractors are those that are providing seasonal recreational services, often on national parks or providing seasonal equipment rentals. And there a separate court said it does apply, but that decision is being appealed. And the Justice Department has said that they will not apply the last year’s wage rate to that subset of contractors pending the outcome of the decision.
Tom Temin Right. So that doesn’t apply to Leidos or something, because…
Alan Chvotkin No. Most contractors are going to be subject to it. And as I said in my note to our clients, just be prepared for it and go through the steps you need to do. Know which contractor, subject to which of the two executive orders and what the wage rate is for those contractors.
Tom Temin It sounds like, well, first of all, this gets to a bigger issue, and that is the government has more authority over federal contractors than it does over industry because it can’t make statute in effect over industry, but because the government is buying using its own dollars for its own contracting, it has more leverage over contractors in the federal contracting space.
Alan Chvotkin Exactly right. And there’s lots of arguments over both wages and lots of other mandates about how much leverage the federal government does have and what’s the authority. And there have been dozens and dozens of lawsuits, and I’m sure you’ve covered many of them here that talk about the scope of authority of the president under the what’s called the Procurement Act, the Federal Property Administrative Services Act, a big challenge raised in a lot of courts, particularly in Texas.
Tom Temin Yeah, well, presidents are getting to be more like Kaisers and emperors than anything else in modernity. It goes with whatever party happens to hold the White House. So what should a contractor do? I mean, if you are subject to this and you have people, it sounds to me like people are going to find, companies will find ways to do the same work with fewer people.
Alan Chvotkin That’s not been my experience to date. But no doubt you already have the contract, so you’ve laid out a staffing plan, how you’re going to implement it. So it’s not easy to just lay off people or retool the performance, but it could have an impact on future contracts that, re-procurements and and new awards. These two executive orders are going to get closer and closer as the legacy period expires. But so what should contractors do? Well, first of all, they have to plan for this increase. They’ve got to plan for the pay. They’ve got to figure out how they can recover that on existing government contracts and then look to what they have to do when bidding for new work, how to take that into account.
Tom Temin Right. So yeah, price accordingly.
Alan Chvotkin Price accordingly.
Copyright © 2024 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.
Tom Temin
Tom Temin is host of the Federal Drive and has been providing insight on federal technology and management issues for more than 30 years.
Follow @tteminWFED
