On February 12, 2014, President Obama followed up on comments made during his State of the Union address and signed an Executive Order increasing the minimum wage for employees of federal contractors. The Order, which increases the minimum wage from $7.25 to $10.10 per hour, covers all employees who perform services or construction work under new contracts, subcontracts, and replacements for existing contracts. The effective date of the Order is January 1, 2015, and mandatory application will begin with solicitations for covered contracts issued on or after the effective date. However, the Order also “strongly encourages” all federal agencies “to take all steps that are reasonable and legally permissible” to comply with the Order prior to the effective date.

The minimum wage is set at $10.10 per hour for 2015 and will thereafter be adjusted by the U.S. Secretary of Labor to reflect inflation. Tipped employees of federal contractors and subcontractors must receive a minimum of $4.90 per hour and a guaranteed $10.10 per hour through the combination of tips and wages. The Order also requires covered employers to increase to $10.10 per hour the minimum wage of disabled individuals who, pursuant to a special certificate program under the Fair Labor Standards Act, receive less pay because of a disability that affects their productivity.

While the White House estimates that the Order will affect hundreds of thousands of people who work under contracts with the federal government, industry groups have noted that existing legislation already requires most federal contractors to pay a prevailing or negotiated wage that is often higher than $10.10 per hour. The Order is still seen as a major step towards an increase of the federal minimum wage and may very well put pressure on private employers. Legislation has already been introduced in both houses of the U.S. Congress to increase the federal minimum wage from $7.25 to $10.10 per hour over the next several years and to tie future increases to inflation.

The Order instructs the U.S. Secretary of Labor to issue more detailed regulations concerning the new minimum wage requirements by no later than October 1, 2014. In the meantime, employers who are parties to federal contracts or subcontracts should begin preparing for increased labor costs beginning in January of 2015.