CPAs and Advisors with Your Growth in Mind

Government Contractors

Minimum Wage to Increase on U.S. Government Service Contracts and Subcontracts

As stated in his recent State of the Union Address on February 14, 2014, President Obama has signed an executive order to effectively increase the minimum wage required to be paid to employees of U.S. Government contractors. This mandated wage increase will only apply to service-based contracts, not supply contracts. Although not yet finalized, once the Department of Labor rolls out its regulations, the Federal Acquisition Regulation Council will follow with releasing its final regulations that will modify the current law around minimum wage requirements.

It is important to note that this law will not apply to existing contracts or subcontracts, but rather will go into effect beginning January 1, 2015. When this new law goes into effect, U.S Government prime contractors should expect to see an insertion of a new clause within their contracts that will address the new minimum wage requirements. In turn, it will be the responsibility of prime contractors to flow-down this clause to lower-tier subcontracts, whom will also be responsible for compliance.

As a result of this new law, government contractors will face an increase cost burden for employees’ labor incurred on these contracts. However, it is expected that contractors will not bear this increase cost as they will be able to pass the additional costs on to the government in the form of higher contract prices. Additionally, the executive order states that the minimum wage will increase annually and will mirror the percentage increase in the Consumer Price Index  for urban wage earners and clerical workers.

Enforcement of this new wage requirement will be similar to existing wage requirements and will grant authority to the Secretary of Labor to investigate potential violations and obtaining compliance with the minimum wage requirement.