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New Rule Details Biden Order to Boost Federal Contractor Pay (1)

July 21, 2021, 12:50 PM; Updated: July 21, 2021, 2:46 PM

A wide range of government contractors would be required to pay employees at least $15 an hour, the U.S. Labor Department announced Wednesday in a proposal to carry out President Joe Biden‘s executive order.

The regulation will establish the contours of how federal agencies next year will begin to implement and enforce Biden’s April directive when they contract out services to the private sector, such as construction projects or janitorial services.

The new wage provisions—which are set to take effect on new or extended contracts beginning Jan. 30, 2022—update the terms of an executive order that former President Barack Obama signed. The minimum wage on federal contracts would rise by $4.05, from its current level of $10.95, which stemmed from the Obama measure.

Unlike the Obama rule, the new proposal would mandate that when agencies exercise options on existing contracts to purchase additional supplies or services, they must update the terms to reflect the $15 minimum wage. The earlier regulation only applied to new or renewed awards.

The Labor Department’s Wage and Hour Division will accept public comments on the proposed rule for the next 30 days, a process that will inform the final version. The executive order stipulates the department must finalize the regulation by Nov. 24.

The proposal outlines how the department would enforce the wage standards and resolve disputes over whether a contractor has properly paid workers pursuant to the president’s order.

The regulation “will ensure taxpayer dollars uphold the dignity of work, and provide a living wage to workers on federal contracts, including cleaning, maintenance, nursing and food service workers whose efforts are critical to the nation’s pandemic recovery,” Jessica Looman, acting administrator of the Wage and Hour Division, said in a statement.

In addition to lifting the hourly pay floor on government contracts to $15 starting in January, the regulation would annually update that level to keep pace with inflation, phase out the lower minimum wage for tipped workers on federal contracts by 2024, and cover workers with disabilities.

The Biden administration argues it has legal authority to improve pay for contractor employees under the federal government’s procurement power, which allows the president to promote “economy and efficiency.”

Taxpayers will derive a better value from government contracts, DOL contends in the proposal, because “raising the minimum wage enhances worker productivity and generates higher-quality work by boosting workers’ health, morale, and effort; reducing absenteeism and turnover; and lowering supervisory and training costs.”

Broad Interpretation

The agency broadly interpreted the president’s order by defining applicable contracts to include subcontracts, lease agreements on federal property, licenses, permits, and other forms of agreements between the U.S. government and private-sector businesses.

Further, workers who’d be eligible for at least $15 per hour include apprentices and those who are performing services that may not be specified in a contract but are necessary to fulfill the agreement.

About 327,000 workers will be affected by the pay raise in the first year after the rule’s final version takes effect, the department said in the proposal.

The Wage and Hour Division is the sole government agency that would be responsible for enforcing the regulation by conducting investigations in response to worker complaints or as a result of the agency’s own targeted initiatives.

If government contractors are found to have violated the order as outlined under the regulation and then fail to remedy the situation by paying workers what they’re owed, the Wage and Hour Division could direct the contracting agency to withhold payments to the contractor and instead transfer those funds to WHD, which would then disburse them to workers.

Contractors the division believes have disregarded their obligations to workers in violation of the order would be subject to debarment proceedings by DOL, which would make them ineligible to bid on any government contract for up to three years.

(Updated with additional reporting throughout.)

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Travis Tritten at ttritten@bgov.com

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