Thursday, February 13, 2014

Executive Order - Minimum Wage for Contractors

This is a follow-up to our posting from January 31st wherein we discussed the President's promise from his State of the Union message to issue an executive order increasing the minimum wage for contract employees to $10.10 per hour.

Yesterday, the President made good on that promise and issued an Executive Order that will increase the minimum wage on contracts issued after January 15, 2015 (about a year from now). You can read the entire Executive Order here, if so desired. Between now and then, regulations (e.g. the FAR) will need to be revised to reflect the order.

Only in Washington can someone say with a straight face that raising the minimum wage will reduce costs. In his Executive Order, the President stated that raising the minimum wage will indeed reduce costs:
This order seeks to increase efficiency and cost savings in the work performed by parties who contract with the Federal Government by increasing to $10.10 the hourly minimum wage paid by those contractors. Raising the pay of low wage workers increases their morale and the productivity and quality of their work, lowers turnover and its accompanying costs, and reduces supervisory costs. These savings and quality improvements will lead to improved economy and efficiency in Government Procurement.
Any real savings to be realized by this new minimum wage  is extremely doubtful and the increased costs will, of course, be borne by the American taxpayer. What, you thinks contractors are going to pay the increased costs out of their profits?

A couple of other aspects to this Executive Order that were not know at the time the President made his State of the Union speech include:

  1. The minimum wage requirement flows down to all subcontractors, even those down to the third, fourth, fifth, etc tiers. 
  2. The $10.10 rate is indexed each January by the Consumer Price Index for Urban Wage Earners and Clerical Workers. However the rate cannot go down if the Index goes down.

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