President Obama Signs Executive Order Raising the Minimum Wage for Federal Contractors

Payroll-Services-419145_406x226BY:  CINDY CAMPBELL

FEBRUARY 27, 2014

During his State of the Union address on January 28, 2014, President Obama announced his plan to raise the minimum wage for federal contractors (and subcontractors) from $7.25 (or $7.93 in Florida) to $10.10 per hour.  On February 12, 2014, the President signed an Executive Order implementing the new policy, which the White House emphasized is intended to promote fairness and increase productivity in the workplace by ensuring that federal contractors pay their workers a fair wage.

The new minimum wage rate begins on January 1, 2015, and is subject to subsequent annual increases beginning January 1, 2016.  The minimum wage rate going forward will be (i) determined by the U.S. Secretary of Labor, (ii) no less than the current published rate, and (iii) calculated based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers.  Any new increase will be published at least 90 days prior to the effective date of the increase.

In addition, the Executive Order increases the minimum wage for tipped employees of federal contractors to $4.90 per hour beginning on January 1, 2015, and includes subsequent annual increases until the minimum wage reaches 70% of the published wage in effect for non-tipped employees of federal contractors.  If an employee’s tips, when added to the new minimum wage for tipped employees of federal contractors, do not equal the federal contractor minimum wage ($10.10 per hour), then the wages paid to such tipped employee of a federal contractor must be increased so that such worker’s wages equal the federal contractor minimum wage rate.

It is important to note that this change is prospective and, as a result, will affect new federal contracts only.  Therefore, the minimum wage rate will be increased with respect to existing contracts only if and when those contracts are renewed.  As for new contracts negotiated between the date of the Executive Order and the effective date of the change, the President “strongly encourages” agencies to take all reasonable and legal steps to ensure that contractors working pursuant to those contracts are paid at least $10.10 per hour as of the effective dates set forth in the Executive Order.

*Cindy Campbell is a Guest Blogger & 2L Student at Florida A&M University College of Law

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