Friday, January 31, 2014

Presidential Executive Order on Contractor Salaries

By now most of you, even if you didn't watch the President's State of the Union address, know that the President plans, through Executive Order, to set the minimum wage on Government contracts to $10.10 per hour. This will apply prospectively to new contracts - existing contracts are unaffected. No one really knows how many workers will be impacted. A couple of accounts have set this number at about 500,000. But there are already rumors that there will be exceptions and waivers granted under the Executive Order so that number could be significantly lower.

It's always interesting to find out PSC's (Professional Services Council) take on these kinds of issues. In this case, PSC expressed concerns about the implications of its impact. PSC denied any implication that federal contractors are paying substandard wages. "The requirements of the federal prevailing wage laws and the government's central role in determining the definition of a fair and reasonable wage are clear and long-standing. Moreover, there is a natural concern that, amid a national debate over the minimum wage, government contractors are being uniquely singled out."

There could be a lot of implications to this new minimum wage for Government contracts.

  1. What about contractor employees who spend part of their time on Government contracts and part on commercial contracts? Will contractors need to bifurcate their workforce? Will employees have different wage rates depending upon where they work?
  2. Consider the HR (Human Relations) impact. Who decides which employees get to work on the Federal contract and who gets stuck on the lower paid commercial work?
  3. Commercial contractors seeking to compete with Government contractors for the same skills, could find themselves either scraping the bottom of the labor pool barrel, or have to raise employee wages to compete. Thus, in some markets, the entire wage structure could be impacted by this one Executive Order.
  4. Will contractors cut other benefits in order to meet the new minimum wage? It would be a simple matter to cut medical/dental benefits, contributions to 401K plans, cafeteria plans, or incentive compensation so that the bottom line is unaffected. How does anyone benefit if wages are raised but benefits are cut?

Hold on, this is going to be a wild ride.

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