New Interim FAR Rule on Minimum Wage Requirements

Did you know that raising employee wages will reduce contract costs? According to the Government, in an interim rule issued today (December 15, 2014), that is exactly what will happen on February 13, 2015 when the new minimum wage rules begin applying to FAR-based contracts. Although that logic may seem counter-intuitive, the Government reasons that raising the minimum wages for employees working on Government contracts to $10.10 per hour will increase efficiency and costs savings because the new minimum wage will

• increase morale
• increase productivity
• increase quality of their work
• lower turnover and accompanying costs
• reduce supervisory costs

There are a few exemptions to the new minimum wage rule. These include

• learners, apprentices, or messengers
• students
• individuals employed in a bona fide executive, administrative, or professional capacity
• workers who perform work duties necessary to the performance of the contract but who are not directly engaged in performing the specific work called for by the contract, and who spend less than 20 percent of the hours worked in a particular workweek performing in connection with such contracts.

These new rules apply to subcontractors at all levels, first, second, third tier, etc. Prime contractors are responsible for the compliance by any subcontractor or lower-tier subcontractor, "whether or not the contract clause was included in the subcontract". If prime contracts do not enforce compliance, they could become liable for the additional compensation at the upper-tier subcontractor but not lower-tier subcontracts since there is no "privity of contract" with subcontractors. Specifically, the new interim rule provides that the Government may withhold payment from the contractor to (i) reimburse unpaid wages and (ii) or a failure to make payroll records available to the contracting officer and the Department of Labor.

This is a complicated rule, running 10 Federal Register pages. Contractors and prospective contractors need to spend some time understanding and implementing its provisions.