Federal Contractors Face Imminent Minimum Wage Increase and Mandatory COVID-19 Safety Protocols

By Jackson W. Moore, Susan M. Parrott and Grace A. Gregson

Federal Minimum Wage Increases to $15 on January 30, 2022

Federal prime contractors and subcontractors should prepare to pay a higher mandatory minimum wage starting January 30, 2022. On July 22, 2021, the federal Department of Labor ("DOL") published a proposed rule to establish standards and procedures implementing President Biden’s Executive Order 14026, "Increasing the Minimum Wage for Federal Contractors" ("Executive Order"). The DOL is accepting comments to the proposed rule through August 27, 2021. Pursuant to the Executive Order, the new regulations must be issued by November 24, 2021.

Under the regulations set forth in the proposed rule, the initial minimum wage will be $15 per hour, with further increases indexed for inflation starting in 2023. The regulations will apply to employees performing specific services provided in connection with a federal government contract or subcontract and to employees performing other duties necessary to the performance of that contract or subcontract. Contractors must pay a higher wage if required by state or other local laws.

The wage increase applies to workers under the four categories of contracts listed in the Executive Order: (1) Davis-Bacon Act construction contracts; (2) Service Contract Act ("SCA") service contracts; (3) concessions contracts (whether or not covered by the SCA); and (4) certain contracts in connection with federal property or lands and related to offering services for federal employees, their dependents or the general public.

In addition to raising the minimum wage, the Executive Order will eliminate the tip credit minimum wage for tipped employees as of January, 2024. As of January 30, 2022, a tipped worker’s hourly cash wage must be least $10.50 per hour. If a tipped worker’s wages, plus tips, do not total $15 per hour, the contractor must make up the difference. Until January 1, 2024, if the minimum wage for non-tipped workers increases, the minimum wage for tipped workers also will increase to 85% of that new rate. After January 1, 2024, tipped workers will receive the same minimum base wage as non-tipped employees.

The proposed rule does not apply to grants of any kind or to contracts with Indian Tribes under the Indian Self-Determination and Education Assistance Act. The proposed rule also does not apply to the manufacturing or furnishing of materials, supplies, articles or equipment sold to the federal government.

The proposed rule applies to federal government contractors and "flows down" to any covered subcontractors. A "covered subcontractor" is defined in the proposed rule as all subcontractors of the prime contractor, of any tier, on a contract with the federal government. This includes lessors and lessees, as well as employers of workers performing on or in connection with covered federal contracts. The prime contractor will be responsible for ensuring compliance by any covered subcontractor or lower-tier subcontractors.

The proposed rule will apply to "new contracts," which includes federal contracts entered into on or after January 30, 2022, as well as pre-existing contracts that are renewed or extended after that date. Bids will need to include the new wage starting in January, 2022.

Minimum wage requirements are enforced by the DOL’s Wage and Hour Division, and that Division will investigate complaints of non-compliance by prime contractors and subcontractors at any tier. Violations can have serious consequences for the contractor/employer. If a contractor fails to remedy a cited violation, the DOL could require the contracting agency to withhold payments due under the covered contract and transfer that money to the worker who was not paid the minimum wage. Violators also are subject to suspension or debarment or negative past performance references.

Vaccine Mandate Safety Protocols 

Federal contractors also need to be aware of new COVID-19 vaccination mandates for their onsite employees. On July 29, 2021, President Biden announced a COVID-19 vaccination mandate and released a Fact Sheet imposing new safety protocols on the federal government contractor workforce. All employees working onsite for a federal government contractor will be asked to attest to their COVID-19 vaccination status. Those employees who are not fully vaccinated, or who decline to provide their vaccination status, will be required to wear masks on the job (regardless of what local rules apply), physically distance from other employees and visitors, comply with weekly or twice-weekly screening tests and be subject to restrictions on official travel. A FAQ for Vaccinations was issued on this topic on August 6, 2021 for use by agencies. The FAQ includes links to a Certificate of Vaccination form and a template email to distribute the Certificate to employees.

The directive specifically applies to onsite contractors, but the Fact Sheet states that President Biden is "directing his team to take steps to apply similar standards to all federal contractors," regardless of where a contractor employee is working.

The Fact Sheet and FAQ do not outline how to determine whether an employee is "onsite" or what particular social distancing protocols unvaccinated employees must follow. However, the FAQ suggests that federal agencies should provide the Certification of Vaccination form to onsite contractors when they enter a federal building or federally controlled indoor worksite. Agencies may also email the form to contractors in advance of their time onsite. The contractors must keep their Certification of Vaccination form with them during their time on federal premises—they may be asked to show the form to federal employees who oversee their work. For now, agencies will not collect, store or maintain the attestation disclosure forms for the contractors "unless an agency has a system of records notice that covers its collection of this information from onsite contractors."

The Fact Sheet and FAQ also do not define "fully vaccinated" or address how these COVID-19 safety mandates might change given the FDA’s recent authorization of booster shots for the Pfizer-BioNTech and Moderna vaccines. Although neither the Fact Sheet nor the additional guidance provided by the Safer Federal Workforce Task Force on July 29, 2021 establishes a timeline for requiring the attestations, federal contractors should begin taking measures to determine the vaccination status of their workforces and encouraging employees to get the COVID-19 vaccination.

For further information on an employer’s ability to require employees to be vaccinated and OHSA guidance on "mixed vaccination status workers," please see our May 18, 2021 alert, "Masks Off" – Now What for Employers?.

Please contact the Smith Anderson lawyer with whom you usually work if you wish to discuss or have questions about these new requirements for federal contractors.