Bottom Line Up Front: This blog post updates several of our previous posts addressing the implementation of the minimum wage for federal contractors. The FAR Council issued an interim rule on December 15, 2014, which establishes a new FAR provision – FAR 52.222-55 – governing the federal minimum wage. Specifically, the minimum wage is set at $10.10 per hour as of January 1, 2015 for contractor employees performing certain federal contracts.
With few exceptions, FAR 52.222-55 will apply to all prime contractors and subcontractors (after February 13, 2015) working under “new” federal contracts subject to the FAR. The minimum wage is generally not retroactive to currently existing contracts, but will apply to bilateral modifications extending a contract more than 6 months and may be applied to Indefinite Delivery / Indefinite Quantity (IDIQ) contracts with more than 6 months of task orders / delivery orders remaining. Contractors are entitled to a price adjustment on current contracts that are affected by the minimum wage, which will be based on a series of fairly complex calculations required to determine the applicable adjustments.
FAR 52.222-55 must be flowed down by all covered contractors to all subcontractor tiers affected by the minimum wage requirement. Further, the minimum wage will apply to all contractor employees that spend more than 20% of their weekly hours working in “connection” with a federal contract, but not necessarily directly under a federal contract.
Contractors that fail to comply with the federal minimum wage requirements are subject to a host of potential penalties, to include suspension / debarment from federal work, financial penalties, and possibly criminal penalties.
Lessons Learned: Contractors must analyze all future contracts and subcontracts for the incorporation of FAR 52.222-55 and must be prepared to pay the federal minimum wage as required by the government. Contractors must also be prepared to submit price adjustment requests to the government to recover any extra costs resulting from the minimum wage on currently existing contracts.
Doug Hibshman is a partner in Fox Rothschild LLP’s Federal Government Contracts and Procurement, Construction, and Infrastructure Practice Groups in Washington, DC, and routinely assists clients with compliance matters and requests for equitable adjustments related to federal contracts and subcontracts.