[Federal Register Volume 86, Number 224 (Wednesday, November 24, 2021)]
[Rules and Regulations]
[Pages 67126-67236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25317]
[[Page 67125]]
Vol. 86
Wednesday,
No. 224
November 24, 2021
Part II
Department of Labor
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Office of the Secretary of Labor
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29 CFR Parts 10 and 23
Increasing the Minimum Wage for Federal Contractors; Final Rule
Federal Register / Vol. 86 , No. 224 / Wednesday, November 24, 2021 /
Rules and Regulations
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DEPARTMENT OF LABOR
Office of the Secretary of Labor
29 CFR Parts 10 and 23
RIN 1235-AA41
Increasing the Minimum Wage for Federal Contractors
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Final rule.
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SUMMARY: This document finalizes regulations to implement an Executive
order titled ``Increasing the Minimum Wage for Federal Contractors,''
which was signed by President Joseph R. Biden, Jr. on April 27, 2021.
The Executive order states the Federal Government's procurement
interests in economy and efficiency are promoted when the Federal
Government contracts with sources that adequately compensate their
workers. The Executive order therefore seeks to raise the hourly
minimum wage paid by those contractors to workers performing work on or
in connection with covered Federal contracts to $15.00 per hour,
beginning January 30, 2022; and beginning January 1, 2023, and annually
thereafter, an amount determined by the Secretary of Labor (Secretary).
The Executive order directs the Secretary to issue regulations by
November 24, 2021, consistent with applicable law, to implement the
order's requirements. This final rule therefore establishes standards
and procedures for implementing and enforcing the minimum wage
protections of the Executive order. As required by the order, the final
rule incorporates to the extent practicable existing definitions,
principles, procedures, remedies, and enforcement processes under the
Fair Labor Standards Act of 1938, the Service Contract Act, the Davis-
Bacon Act, and the Executive order of February 12, 2014, entitled
``Establishing a Minimum Wage for Contractors,'' as well as the
regulations issued to implement that order.
DATES:
Effective date: This final rule is effective on January 30, 2022.
Applicability date: For procurement contracts subject to the
Federal Acquisition Regulation and Executive Order 14026, this final
rule is applicable beginning on the effective date of regulations
issued by the Federal Acquisition Regulatory Council. For
nonprocurement contracts subject to Executive Order 14026, this final
rule is applicable beginning on the effective date of relevant agency
action to implement the Executive order and this final rule.
FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Director of the
Division of Regulations, Legislation, and Interpretation, Wage and Hour
Division (WHD), U.S. Department of Labor, Room S-3502, 200 Constitution
Avenue NW, Washington, DC 20210, telephone: (202) 693-0406 (this is not
a toll-free number). Accessible Format: Copies of this final rule may
be obtained in alternative formats (Rich Text Format (RTF) or text
format (txt), a thumb drive, an MP3 file, large print, braille,
audiotape, compact disc, or other accessible format), upon request, by
calling (202) 693-0675 (this is not a toll-free number). TTY/TDD
callers may dial toll-free (877) 889-5627 to obtain information or
request materials in alternative formats.
Questions of interpretation or enforcement of the agency's existing
regulations may be directed to the nearest WHD district office. Locate
the nearest office by calling the WHD's toll-free help line at (866)
4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or log onto WHD's website at https://www.dol.gov//whd/contact/local-offices for a nationwide listing of WHD district and area
offices.
SUPPLEMENTARY INFORMATION:
I. Background
On April 27, 2021, President Joseph R. Biden, Jr. issued Executive
Order 14026, ``Increasing the Minimum Wage for Federal Contractors.''
This Executive order explains that increasing the hourly minimum wage
paid to workers performing on or in connection with covered Federal
contracts to $15.00 beginning January 30, 2022 will ``bolster economy
and efficiency in Federal procurement.'' 86 FR 22835. The order builds
on the foundation established by Executive Order 13658, ``Establishing
a Minimum Wage for Contractors,'' signed by President Barack Obama on
February 12, 2014. See 79 FR 9851.
A. Prior Relevant Executive Orders
On February 12, 2014, President Barack Obama signed Executive Order
13658, ``Establishing a Minimum Wage for Contractors.'' See 79 FR 9851.
Executive Order 13658 stated that the Federal Government's procurement
interests in economy and efficiency are promoted when the Federal
Government contracts with sources that adequately compensate their
workers. Id. Executive Order 13658 therefore sought to increase
efficiency and cost savings in the work performed by parties that
contract with the Federal Government by raising the hourly minimum wage
paid by those contractors to workers performing on or in connection
with covered Federal contracts to: (i) $10.10 per hour, beginning
January 1, 2015; and (ii) beginning January 1, 2016, and annually
thereafter, an amount determined and announced by the Secretary,
accounting for changes in inflation as measured by the Consumer Price
Index for Urban Wage Earners and Clerical Workers. Id. Section 3 of
Executive Order 13658 also established a minimum hourly cash wage
requirement for tipped employees performing on or in connection with
covered contracts, initially set at $4.90 per hour for 2015 and
gradually increasing to 70 percent of the full Executive Order 13658
minimum wage over a period of years.
Section 4 of Executive Order 13658 directed the Secretary to issue
regulations to implement the order's requirements. See 79 FR 9852.
Accordingly, after engaging in notice-and-comment rulemaking, the
Department published a final rule on October 7, 2014, to implement the
Executive order. See 79 FR 60634. The final regulations, set forth at
29 CFR part 10, established standards and procedures for implementing
and enforcing the minimum wage protections of the Executive order.
Pursuant to the methodology established by Executive Order 13658, the
applicable minimum wage rate has increased each year since 2015.
Executive Order 13658's minimum wage requirement is presently $10.95
per hour and its minimum cash wage requirement for tipped employees is
presently $7.65 per hour. See 85 FR 53850. These rates will increase to
$11.25 per hour and $7.90 per hour, respectively, on January 1, 2022.
See 86 FR 51683.
On May 25, 2018, President Donald J. Trump issued Executive Order
13838, titled ``Exemption from Executive Order 13658 for Recreational
Services on Federal Lands.'' See 83 FR 25341. Section 2 of Executive
Order 13838 amended Executive Order 13658 to add language providing
that the provisions of Executive Order 13658 ``shall not apply to
[Federal] contracts or contract-like instruments'' entered into ``in
connection with seasonal recreational services or seasonal recreational
equipment rental.'' Id. Executive Order 13838 additionally stated that
seasonal recreational services include ``river running, hunting,
fishing, horseback riding, camping, mountaineering activities,
recreational ski services, and youth camps.'' Id. Executive Order 13838
further specified that this exemption does not apply to ``lodging
[[Page 67127]]
and food services associated with seasonal recreational activities.''
Id. Executive Order 13838 did not otherwise amend Executive Order
13658. On September 26, 2018, the Department implemented Executive
Order 13838 by adding the required exclusion to the regulations for
Executive Order 13658 at 29 CFR 10.4(g). See 83 FR 48537.
B. Executive Order 14026
On April 27, 2021, President Joseph R. Biden Jr. signed Executive
Order 14026, ``Increasing the Minimum Wage for Federal Contractors.''
86 FR 22835. Executive Order 14026 states that the Federal Government's
procurement interests in economy and efficiency are promoted when the
Federal Government contracts with sources that adequately compensate
their workers. Id. Executive Order 14026 therefore seeks to promote
economy and efficiency in Federal procurement by raising the hourly
minimum wage paid by those contractors to workers performing work on or
in connection with covered Federal contracts to (i) $15.00 per hour,
beginning January 30, 2022; and (ii) beginning January 1, 2023, and
annually thereafter, an amount determined by the Secretary in
accordance with the Executive order. Id.
Section 1 of Executive Order 14026 sets forth a general position of
the Federal Government that increasing the hourly minimum wage paid by
Federal contractors to $15.00 will ``bolster economy and efficiency in
Federal procurement.'' 86 FR 22835. The order states that 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.'' Id. The order further states that these savings and quality
improvements will lead to improved economy and efficiency in Government
procurement. Id.
Section 2 of Executive Order 14026 therefore increases the minimum
wage for Federal contractors and subcontractors. 86 FR 22835. The order
provides that executive departments and agencies, including independent
establishments subject to the Federal Property and Administrative
Services Act, 40 U.S.C. 102(4)(A), (5) (agencies), shall, to the extent
permitted by law, ensure that contracts and contract-like instruments
(collectively referred to as ``contracts''), as described in section
8(a) of the order and defined in this rule, include a particular clause
that the contractor and any covered subcontractors shall incorporate
into lower-tier subcontracts. 86 FR 22835. That contractual clause, the
order states, shall specify, as a condition of payment, that the
minimum wage to be paid to workers employed in the performance of the
contract or any covered subcontract thereunder, including workers whose
wages are calculated pursuant to special certificates issued under
section 14(c) of the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C.
214(c),\1\ shall be at least: (i) $15.00 per hour beginning January 30,
2022; and (ii) beginning January 1, 2023, and annually thereafter, an
amount determined by the Secretary in accordance with the Executive
order. 86 FR 22835. As required by the order, the minimum wage amount
determined by the Secretary pursuant to this section shall be published
by the Secretary at least 90 days before such new minimum wage is to
take effect and shall be (A) not less than the amount in effect on the
date of such determination; (B) increased from such amount by the
annual percentage increase in the Consumer Price Index (CPI) for Urban
Wage Earners and Clerical Workers (United States city average, all
items, not seasonally adjusted) (CPI-W), or its successor publication,
as determined by the Bureau of Labor Statistics; and (C) rounded to the
nearest multiple of $0.05. Id.
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\1\ 29 U.S.C. 214(c) authorizes employers, after receiving a
certificate from the WHD, to pay subminimum wages to workers whose
earning or productive capacity is impaired by a physical or mental
disability for the work to be performed.
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Section 2 of the Executive order further explains that, in
calculating the annual percentage increase in the CPI for purposes of
that section, the Secretary shall compare such CPI-W for the most
recent month, quarter, or year available (as selected by the Secretary
prior to the first year for which a minimum wage determined by the
Secretary is in effect pursuant to this section) with the CPI-W for the
same month in the preceding year, the same quarter in the preceding
year, or the preceding year, respectively. 86 FR 22835-36. Pursuant to
that section, nothing in the order excuses noncompliance with any
applicable Federal or state prevailing wage law or any applicable law
or municipal ordinance establishing a minimum wage higher than the
minimum wage established under the order. 86 FR 22836.
Section 3 of Executive Order 14026 explains the application of the
order to tipped workers. 86 FR 22836. It provides that for workers
covered by section 2 of the order who are tipped employees pursuant to
section 3(t) of the FLSA, 29 U.S.C. 203(t), the cash wage that must be
paid by an employer to such workers shall be at least: (i) $10.50 an
hour, beginning on January 30, 2022; (ii) beginning January 1, 2023, 85
percent of the wage in effect under section 2 of the order, rounded to
the nearest multiple of $0.05; and (iii) beginning January 1, 2024, and
for each subsequent year, 100 percent of the wage in effect under
section 2 of the order. 86 FR 22836. Where workers do not receive a
sufficient additional amount of tips, when combined with the hourly
cash wage paid by the employer, such that their total earnings are
equal to the minimum wage under section 2 of the order, section 3
requires that the cash wage paid by the employer be increased such that
the workers' total earnings equal the section 2 minimum wage. Id.
Consistent with applicable law, if the wage required to be paid under
the Service Contract Act (SCA), 41 U.S.C. 6701 et seq., or any other
applicable law or regulation is higher than the wage required by
section 2 of the order, the employer must pay additional cash wages
sufficient to meet the highest wage required to be paid. 86 FR 22836.
Section 4 of Executive Order 14026 provides that the Secretary
shall, consistent with applicable law, issue regulations by November
24, 2021, to implement the requirements of the order, including
providing both definitions of relevant terms and exclusions from the
requirements set forth in the order where appropriate. 86 FR 22836. It
also requires that, to the extent permitted by law, within 60 days of
the Secretary issuing such regulations, the Federal Acquisition
Regulatory Council (FARC) shall amend the Federal Acquisition
Regulation (FAR) to provide for inclusion of the contract clause
described in section 2(a) of the order in Federal procurement
solicitations and contracts subject to the order. Id. Additionally,
section 4 states that within 60 days of the Secretary issuing
regulations pursuant to the order, agencies must take steps, to the
extent permitted by law, to exercise any applicable authority to ensure
that certain contracts--specifically, contracts for concessions and
contracts entered into with the Federal Government in connection with
Federal property or lands and related to offering services for Federal
employees, their dependents, or the general public--entered into on or
after January 30, 2022, consistent with the effective date of such
agency action, comply with the requirements set forth in sections 2 and
3 of the order. Id. The order further specifies that any regulations
issued pursuant to section 4
[[Page 67128]]
of the order should, to the extent practicable, incorporate existing
definitions, principles, procedures, remedies, and enforcement
processes under the FLSA, 29 U.S.C. 201 et seq.; the SCA; the Davis-
Bacon Act (DBA), 40 U.S.C. 3141 et seq.; Executive Order 13658 of
February 12, 2014, ``Establishing a Minimum Wage for Contractors''; and
regulations issued to implement that order. 86 FR 22836.\2\
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\2\ The Department recognizes that the FAR has been amended to
refer to the Service Contract Act as the ``Service Contract Labor
Standards'' statute and the Davis-Bacon Act as the ``Wage Rate
Requirements (Construction)'' statute. See 79 FR 24192-02, 24193-95
(Apr. 29, 2014). Consistent with the text of Executive Order 14026,
as well as with Executive Order 13658 and its implementing
regulations, the Department refers to these laws in this rule as the
Service Contract Act and the Davis-Bacon Act, respectively.
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Section 5 of Executive Order 14026 grants authority to the
Secretary to investigate potential violations of and obtain compliance
with the order. 86 FR 22836. It also explains that Executive Order
14026 does not create any rights under the Contract Disputes Act, 41
U.S.C. 7101 et seq., and that disputes regarding whether a contractor
has paid the wages prescribed by the order, as appropriate and
consistent with applicable law, shall be disposed of only as provided
by the Secretary in regulations issued pursuant to the order. Id.
Section 6 of Executive Order 14026 revokes and supersedes certain
presidential actions. 86 FR 22836-37. Specifically, section 6 of
Executive Order 14026 provides that Executive Order 13838 of May 25,
2018, ``Exemption From Executive Order 13658 for Recreational Services
on Federal Lands'' is revoked as of January 30, 2022. Id. Section 6 of
Executive Order 14026 also states that Executive Order 13658 of
February 12, 2014, ``Establishing a Minimum Wage for Contractors'' is
``superseded, as of January 30, 2022, to the extent it is inconsistent
with this order.'' Id.
Section 7 of Executive Order 14026 establishes that if any
provision of the order, or the application of any such provision to any
person or circumstance, is held to be invalid, the remainder of the
order and the application shall not be affected. 86 FR 22837.
Section 8 of Executive Order 14026 establishes that the order shall
apply to ``any new contract; new contract-like instrument; new
solicitation; extension or renewal of an existing contract or contract-
like instrument; and exercise of an option on an existing contract or
contract-like instrument,'' if: (i)(A) It is a procurement contract for
services or construction; (B) it is a contract for services covered by
the SCA; (C) it is a contract for concessions, including any
concessions contract excluded by Department of Labor (the Department)
regulations at 29 CFR 4.133(b); or (D) it is a contract entered into
with the Federal Government in connection with Federal property or
lands and related to offering services for Federal employees, their
dependents, or the general public; and (ii) the wages of workers under
such contract are governed by the FLSA, the SCA, or the DBA. 86 FR
22837. Section 8 of the order also states that, for contracts covered
by the SCA or the DBA, the order shall apply only to contracts at the
thresholds specified in those statutes.\3\ Id. Additionally, for
procurement contracts where workers' wages are governed by the FLSA,
the order specifies that it shall apply only to contracts that exceed
the micro-purchase threshold, as defined in 41 U.S.C. 1902(a),\4\
unless expressly made subject to the order pursuant to regulations or
actions taken under section 4 of the order. Id. The order specifies
that it shall not apply to grants; contracts or agreements with Indian
Tribes under the Indian Self-Determination and Education Assistance Act
(Pub. L. 93-638), as amended; or any contracts expressly excluded by
the regulations issued pursuant to section 4(a) of the order. Id.
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\3\ The prevailing wage requirements of the SCA apply to covered
prime contracts in excess of $2,500. See 41 U.S.C. 6702(a)(2)
(recodifying 41 U.S.C. 351(a)). The DBA applies to covered prime
contracts that exceed $2,000. See 40 U.S.C. 3142(a). There is no
value threshold requirement for subcontracts awarded under such
prime contracts.
\4\ 41 U.S.C. 1902(a) currently defines the micro-purchase
threshold as $10,000.
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Section 9(a) of Executive Order 14026 provides that the order is
effective immediately and shall apply to new contracts; new
solicitations; extensions or renewals of existing contracts; and
exercises of options on existing contracts, as described in section
8(a) of the order, where the relevant contract will be entered into,
the relevant contract will be extended or renewed, or the relevant
option will be exercised, on or after: (i) January 30, 2022, consistent
with the effective date for the action taken by the FARC pursuant to
section 4(a) of the order; or (ii) for contracts where an agency action
is taken pursuant to section 4(b) of the order, January 30, 2022,
consistent with the effective date for such action. 86 FR 22837.
Section 9(b) of Executive Order 14026 establishes an exception to
section 9(a) where agencies have issued a solicitation before the
effective date for the relevant action taken pursuant to section 4 of
the order and entered into a new contract resulting from such
solicitation within 60 days of such effective date. The order provides
that, in such a circumstance, such agencies are strongly encouraged,
but not required, to ensure that the minimum wages specified in
sections 2 and 3 of the order are paid in the new contract. 86 FR
22837-38. The order clarifies, however, that if such contract is
subsequently extended or renewed, or an option is subsequently
exercised under that contract, the minimum wages specified in sections
2 and 3 of the order shall apply to that extension, renewal, or option.
86 FR 22838.
Section 9(c) also specifies that, for all existing contracts,
solicitations issued between the date of the order and the effective
dates set forth in that section, and contracts entered into between the
date of the order and the effective dates set forth in that section,
agencies are strongly encouraged, to the extent permitted by law, to
ensure that the hourly wages paid under such contracts are consistent
with the minimum wage rates specified in sections 2 and 3 of the order.
86 FR 22838.
Section 10 of Executive Order 14026 provides that nothing in the
order shall be construed to impair or otherwise affect the authority
granted by law to an executive department or agency, or the head
thereof; or the functions of the Director of the Office of Management
and Budget relating to budgetary, administrative, or legislative
proposals. 86 FR 22838. It also states that the order is to be
implemented consistent with applicable law and subject to the
availability of appropriations. Id. Finally, section 10 explains that
the order is not intended to, and does not, create any right or
benefit, substantive or procedural, enforceable at law or in equity by
any party against the United States, its departments, agencies, or
entities, its officers, employees, or agents, or any other person. Id.
C. Notice of Proposed Rulemaking
On July 22, 2021, the Department published a Notice of Proposed
Rulemaking (NPRM) in the Federal Register inviting comments for a
period of 30 days on a proposal to implement the provisions of
Executive Order 14026. See 86 FR 38816. On August 4, 2021, the
Department extended the comment period until August 27, 2021. See 86 FR
41907. The Department received approximately 275 comments in response
to its NPRM implementing Executive Order 14026. Comments were received
from a variety of interested stakeholders, such as labor
[[Page 67129]]
organizations; contractors and contractor associations; worker
advocates; contracting agencies; small businesses; and workers.
II. Discussion of the Final Rule
A. Purpose and Legal Authority
President Biden issued Executive Order 14026 pursuant to his
authority under ``the Constitution and the laws of the United States,''
expressly including the Federal Property and Administrative Services
Act (Procurement Act), 40 U.S.C. 101 et seq. 86 FR 22835. The
Procurement Act authorizes the President to ``prescribe policies and
directives that the President considers necessary to carry out'' the
statutory purposes of ensuring ``economical and efficient'' government
procurement and administration of government property. 40 U.S.C. 101,
121(a). Executive Order 14026 delegates to the Secretary the authority
to issue regulations to ``implement the requirements of this order.''
86 FR 22836. The Secretary has delegated his authority to promulgate
these regulations to the Administrator of the Wage and Hour Division
(WHD) and to the Deputy Administrator of the WHD if the Administrator
position is vacant. Secretary's Order 01-2014 (Dec. 19, 2014), 79 FR
77527 (published Dec. 24, 2014); Secretary's Order 01-2017 (Jan. 12,
2017), 82 FR 6653 (published Jan. 19, 2017).
The Department received many comments, such as those submitted by
the American Federation of Labor and Congress of Industrial
Organizations (AFL-CIO) and Communications Workers of America, AFL-CIO
(CWA), the National Women's Law Center, the National Employment Law
Project (NELP), Restaurant Opportunities Centers (ROC) United, and the
Shriver Center on Poverty Law, expressing strong support for Executive
Order 14026 and for raising the minimum wage paid to workers performing
on or in connection with federal contracts. Many of these commenters,
such as the Center for American Progress and the Center for Law and
Social Policy, commended the Department's NPRM as a ``thorough'' and
appropriate implementation of Executive Order 14026. Although the
Associated General Contractors of America (AGC) recommended some
substantive changes to the interpretations set forth in the
Department's NPRM, it also expressed its appreciation to the Department
``for generally following the provisions of the previous rulemaking
increasing the minimum wage for federal contractors'' and expressed its
support for ``the retention of the existing guidelines and
definitions,'' where appropriate.
However, the Department also received submissions from several
commenters, including Associated Builders and Contractors (ABC), the
Home Care Association of America, the Pacific Legal Foundation, the
U.S. Chamber of Commerce (Chamber), and U.S. House of Representatives
Members Virginia Foxx and Fred Keller, expressing strong opposition to
Executive Order 14026 and/or questioning its legality and stated
purpose. The purpose of this rulemaking is to implement Executive Order
14026, and therefore comments questioning the legal authority and
rationale underlying the President's issuance of the Executive order
are not within the scope of this rulemaking action.
A few commenters, such as ABC and the Chamber, argued that the
Department lacks the authority to issue or enforce this rule because it
impermissibly conflicts with congressional enactments by establishing a
minimum wage that overrides or conflicts with the statutory wage
requirements and methodologies set forth in the DBA, FLSA, and SCA. For
example, the Chamber asserted that ``the new minimum wage, and the
future wages increased through indexing, will likely override the
already established, and statutorily driven, method for calculating
wages under the [DBA] and [SCA]. These two laws specifically require a
locally prevailing wage be paid for the different employee job
descriptions on work covered by them.'' ABC made a similar argument,
contending that the Department has ``all the discretion necessary to
decline to enforce the E.O. in a manner that is inconsistent with
congressional authority (i.e., by declining to set a new minimum wage
for any employee covered by the DBA, SCA or FLSA that differs from the
congressionally mandated minimum wages under the foregoing statutes).''
To the extent the comments above are addressing the scope of the
Department's rulemaking authority, the Department strongly disagrees
with them. While it is true that section 4 of Executive Order 14026
states that the Department's regulations ``should, to the extent
practicable, incorporate existing definitions, principles, procedures,
remedies, and enforcement processes'' under the DBA, FLSA, SCA, and
Executive Order 13658, that section of the order must be read in
harmony with the entire order, particularly with sections 1 and 8. When
read holistically, Executive Order 14026 clearly does not authorize the
Department to essentially nullify the policy, premise, and essential
coverage protections of the order, as suggested by ABC, by declining to
extend the Executive order minimum wage to any worker covered by the
DBA, FLSA, or SCA where such rate differs from the applicable minimum
wages established under those laws. Indeed, in order to effectuate the
purposes of Executive Order 14026, it must apply to workers who would
otherwise be subject to lower minimum wage requirements under the DBA,
FLSA, and/or SCA. As ABC itself recognizes, the DBA, FLSA, and SCA
establish ``minimum'' wage rates; it is therefore not inconsistent with
these wage floors to establish a higher minimum wage rate.
As the Department explained in the NPRM, and consistent with the
relevant discussion in the rulemaking implementing Executive Order
13658, the minimum wage requirements of Executive Order 14026 are
separate and distinct legal obligations from the prevailing wage
requirements of the DBA and SCA. If a contract is covered by the DBA or
SCA and the wage rate on the applicable DBA or SCA wage determination
for the classification of work the worker performs is less than the
applicable Executive order minimum wage, the contractor must pay the
Executive order minimum wage in order to comply with the order and this
part. If, however, the applicable DBA or SCA prevailing wage rate
exceeds the Executive order minimum wage rate, the contractor must pay
that prevailing wage rate to the DBA- or SCA-covered worker in order to
be in compliance with the DBA or SCA.\5\
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\5\ Moreover, if a contract is covered by a state prevailing
wage law that establishes a higher wage rate applicable to a
particular worker than the Executive order minimum wage, the
contractor must pay that higher prevailing wage rate to the worker.
Section 2(c) of the order expressly provides that it does not excuse
noncompliance with any applicable State prevailing wage law or any
applicable law or municipal ordinance establishing a minimum wage
higher than the Executive order minimum wage. See 86 FR 22836.
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The minimum wage requirements of the DBA and SCA do not preclude
the Department from implementing or enforcing the minimum wage
requirement of Executive Order 14026. The DBA itself expressly states
that it ``does not supersede or impair any authority otherwise granted
by federal law to provide for the establishment of specific wage
rates.'' 40 U.S.C. 3146. The DBA thus sets a wage floor for covered
construction contracts and explicitly contemplates laws that exceed the
floor. Likewise, the legislative history of the SCA reflects that the
SCA
[[Page 67130]]
prevailing wage requirement can co-exist with other applicable laws
requiring the payment of higher minimum wages. The reports accompanying
the 1965 enactment of the SCA, for example, make clear that contractors
must pay ``no less'' than the prevailing wage determined by the
Secretary under the SCA. See H.R. Rep. No. 89-948, at 3 (1965); S. Rep.
No. 89-798 (1965), reprinted in 1965 U.S.C.C.A.N. 3737. Congressional
reports accompanying subsequent amendments to the SCA reflect that
contractors must pay ``at least'' the prevailing wage. S. Rep. No. 92-
1131 (1972), reprinted in 1972 U.S.C.C.A.N. 3534; H.R. Rep. No. 92-
1251, at 3 (1972); H.R. Rep. No. 94-1571, at 1 (1976). These statements
demonstrate that the SCA's prevailing wage rates were not intended to
preclude higher wage rates required by other laws. The DBA, SCA, and
Executive Order 14026 can and should thus be viewed as complementary
and co-existing rather than in conflict because it is possible for
contractors to comply with all of the laws; neither the DBA nor SCA
reflects an intent to preclude application of a higher wage requirement
under other laws, including this Executive order.
Similarly, the Department strongly disagrees with the Chamber's
argument that the Executive order and the Department's NPRM conflict
with the FLSA. As a threshold matter, the Department notes that the
FLSA itself expressly states that ``[n]o provision of this chapter or
of any order thereunder shall excuse noncompliance with any Federal or
State law or municipal ordinance establishing a minimum wage higher
than the minimum wage established under this chapter.'' 29 U.S.C.
218(a). Just as the FLSA's minimum wage requirement does not preclude
application of a higher prevailing wage rate requirement under the DBA
or SCA when both laws apply to a particular worker, neither does the
higher minimum wage requirement of Executive Order 14026 conflict with
the FLSA's minimum wage floor. Nonetheless, the Chamber asserts that
such a conflict exists because Executive Order 14026, for example,
``would eliminate the credit employers are allowed to take in
compensating tipped employees. . . . and would eliminate the exemption
for employees with disabilities to be paid a wage less than the minimum
wage.'' The FLSA permits, but does not require, employers satisfying
relevant requirements to take a credit against tips; an employer can
comply with the requirements of both the FLSA and Executive Order 14026
by paying the full Executive order minimum wage for covered federal
contract work. An FLSA-covered employer that performs work on a covered
contract must abide by the higher cash wage floor for such contract
work to comply with Executive Order 14026 and this part; however,
neither the order nor this rule affect how the employer complies with
the FLSA for work not covered by the order. Similarly, the FLSA
permits, but does not require, employers satisfying relevant
requirements to pay subminimum wages pursuant to an FLSA section 14(c)
certificate; an employer can comply with the requirements of both the
FLSA and Executive Order 14026 by paying the full Executive order
minimum wage for covered federal contract work.\6\ Moreover, employers
whose workers are performing on or in connection with a contract
covered by Executive Order 14026 may continue to pay subminimum
commensurate wages to workers with disabilities where authorized by an
FLSA section 14(c) certificate to the extent that the commensurate wage
rates are not lower than the applicable Executive order minimum wage.
Executive Order 14026 applies to federal contractors, not the entire
universe of employers covered by the FLSA who employ tipped workers or
workers with disabilities under FLSA section 14(c) certificates, and
the Executive order only applies to workers performing work on or in
connection with a covered contract.
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\6\ The Department notes that some states and localities have
enacted laws that eliminate the tip credit and/or that prohibit the
payment of subminimum wages to workers with disabilities. The FLSA
does not preclude such laws establishing higher wage requirements
and does not excuse noncompliance with such laws. The FLSA likewise
does not prohibit application of a higher minimum wage requirement
for federal contractors under Executive Order 14026. Indeed, the
FLSA itself explicitly contemplates that other applicable laws may
require greater wage payments. See 29 U.S.C. 218(a).
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The Department is the federal agency charged with administering and
enforcing the DBA, FLSA, and SCA; after careful consideration of the
comments, the Department has determined that the minimum wages provided
for under those statutes do not operate to preclude the Department from
issuing this final rule to implement the requirements of Executive
Order 14026.\7\
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\7\ A Department of the Army attorney-advisor similarly
commented that application of Executive Order 14026 to
intergovernmental support agreements (IGSAs) governed by 10 U.S.C.
2679 would be unlawful because that statute authorizes the use of
wage grade rates normally paid by the state or local government. For
the reasons explained above, the Department does not perceive any
conflict between that statute and Executive Order 14026. Notably, 10
U.S.C. 2679 expressly permits, but does not require, the use of such
wage grade rates. See 10 U.S.C. 2679(a)(2) (stating that an IGSA
``may use'' state or local government wage grades). To the extent
that an IGSA qualifies as a covered contract under Executive Order
14026, the contractor would be required to pay at least the
applicable Executive order rate to workers performing on or in
connection with the covered contract in order to comply with the
order and this part. Where the wage grade rates normally paid by the
state or local government exceed the wage floor established by
Executive Order 14026, the order would have no applicability and the
workers should be paid the higher rate. See Sec. 23.50(c). Because
the Department concludes that application of the Executive order to
such IGSAs is not inconsistent with 10 U.S.C. 2679, the Department
declines to create a special exemption for IGSAs.
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Other commenters, such as the Colorado River Outfitters
Association, Colorado Ski Country USA, Conduent Federal Solutions, LLC
(Conduent), and the National Federation of Independent Business (NFIB),
request that the Department either decline to implement Executive Order
14026, modify the amount of the Executive Order 14026 minimum wage
rate, change the effective date for the wage rate, or phase in the wage
rate over a number of years, for at least certain subsets of covered
contracts. Executive Order 14026 clearly directs the Department to
issue regulations implementing its requirements. See 86 FR 22836. The
Executive order expressly requires that, as of January 30, 2022,
workers performing on or in connection with covered contracts must be
paid $15 per hour unless exempt. See 86 FR 22835-38. There is no
indication in the Executive order that the Department has authority to
modify the amount or timing of the minimum wage requirement, except
where the Department is expressly required to implement the future
annual inflation-based adjustments to the wage rate pursuant to the
methodology set forth in the order.
The Department also received several comments, including from the
International Brotherhood of Teamsters (Teamsters), requesting that the
President take other executive actions or the Department pursue other
initiatives to protect federal contract workers. While the Department
appreciates and will consider such recommendations, comments requesting
further executive actions or other Departmental actions are beyond the
scope of this rulemaking.
All other comments, including comments raising specific concerns or
questions regarding interpretations of the Executive order set forth in
the Department's NPRM, will be addressed in the following section-by-
section analysis of the final rule. After
[[Page 67131]]
considering all timely and relevant comments received in response to
the July 22, 2021 NPRM, the Department is issuing this final rule to
implement the provisions of Executive Order 14026.
B. Discussion of Final Rule Provisions
The Department's final rule, which amends Title 29 of the Code of
Federal Regulations (CFR) by adding part 23 and modifying part 10,
establishes standards and procedures for implementing and enforcing
Executive Order 14026. Subpart A of part 23 relates to general matters,
including the purpose and scope of the rule, as well as the
definitions, coverage, and exclusions that the rule provides pursuant
to the Executive order. It also sets forth the general minimum wage
requirement for contractors established by the Executive order, an
antiretaliation provision, a prohibition against waiver of rights, and
a severability clause. Subpart B establishes requirements for
contracting agencies and the Department to comply with the Executive
order. Subpart C establishes requirements for contractors to comply
with the Executive order. Subparts D and E specify standards and
procedures related to complaint intake, investigations, remedies, and
administrative enforcement proceedings. Appendix A contains a contract
clause to implement Executive Order 14026. An additional appendix,
which will not publish in 29 CFR part 23, sets forth a poster regarding
the Executive Order 14026 minimum wage for contractors with FLSA-
covered workers performing work on or in connection with a covered
contract. The Department also finalizes a few conforming revisions to
the existing regulations at part 10 implementing Executive Order 13658
to fully implement the requirements of Executive Order 14026 and
provide additional clarity to the regulated community.
The following section-by-section discussion of this final rule
summarizes the provisions proposed in the NPRM, addresses the comments
received on each section, and sets forth the Department's response to
such comments for each section.
Part 23 Subpart A--General
Subpart A of part 23 pertains to general matters, including the
purpose and scope of the rule, as well as the definitions, coverage,
and exclusions that the rule provides pursuant to the order. Subpart A
also includes the Executive Order 14026 minimum wage requirement for
contractors, an antiretaliation provision, and a prohibition against
waiver of rights.
Section 23.10 Purpose and Scope
Proposed Sec. 23.10(a) explained that the purpose of the proposed
rule was to implement Executive Order 14026, both in terms of its
administration and enforcement. The paragraph emphasized that the
Executive order assigns responsibility for investigating potential
violations of and obtaining compliance with the Executive order to the
Department of Labor.
Proposed Sec. 23.10(b) explained the underlying policy of
Executive Order 14026. First, the paragraph repeated a statement from
the Executive order that the Federal Government's procurement interests
in economy and efficiency are promoted when the Federal Government
contracts with sources that adequately compensate their workers. The
proposed rule elaborated that 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. It is for these reasons that
the Executive order concludes that raising, to $15.00 per hour, the
minimum wage for work performed by parties who contract with the
Federal Government will lead to improved economy and efficiency in
Federal procurement. As explained more fully in section IV.C.4, the
Department stated its belief that, by increasing the quality and
efficiency of services provided to the Federal Government, the
Executive order will improve the value that taxpayers receive from the
Federal Government's investment.
Proposed Sec. 23.10(b) further explained the general requirement
established in Executive Order 14026 that new covered solicitations and
contracts with the Federal Government must include a clause, which the
contractor and any covered subcontractors shall incorporate into lower-
tier subcontracts, requiring, as a condition of payment, that the
contractor and any subcontractors pay workers performing work on or in
connection with the contract or any subcontract thereunder at least:
(i) $15.00 per hour beginning January 30, 2022; and (ii) beginning
January 1, 2023, and annually thereafter, an amount determined by the
Secretary pursuant to the Executive order. Proposed Sec. 23.10(b) also
clarified that nothing in Executive Order 14026 or part 23 is to be
construed to excuse noncompliance with any applicable Federal or state
prevailing wage law or any applicable law or municipal ordinance
establishing a minimum wage higher than the minimum wage established
under the Executive order.
The Department received some comments addressing the purpose and
scope provisions of the rule set forth at proposed Sec. 23.10(a) and
(b). Several commenters, including ABC, the Chamber, and the Pacific
Legal Foundation, contended that Executive Order 14026 does not promote
economy and efficiency in Federal Government procurement and challenged
the evidentiary and legal basis for the determinations set forth in the
Executive order that are reflected in proposed Sec. 23.10. As noted
above, comments questioning the President's legal authority to issue
the Executive order under the Procurement Act are not within the scope
of this rulemaking action. To the extent that such comments object to
or challenge specific conclusions made by the Department in its
regulatory impact analysis and regulatory flexibility analysis set
forth in the NPRM, those comments are addressed in sections IV and V of
the preamble to this final rule.
The AFL-CIO and CWA, among other commenters, urged the Department
to amend proposed Sec. 23.10(b) to clarify that nothing in Executive
Order 14026 excuses noncompliance with higher wages required under a
collective bargaining agreement (CBA) and that a CBA or wage law
requiring a minimum wage lower than the order's requirement does not
excuse noncompliance with the order. The Center for American Progress
requested similar clarification. The Chamber, on the other hand,
asserted that the ``[a]bsence of any allowance for collective
bargaining agreements (CBAs) with a wage rate lower than $15 per hour
and the inflation adjusted wage in future years is another problem''
that existed under Executive Order 13658 and its regulations and will
be ``exacerbate[d]'' under Executive Order 14026 and this part. The
Chamber argued that, by requiring a higher wage rate ``than what they
could achieve through the bargaining process, unions will be getting
something without having to give anything up,'' thereby disrupting the
``delicate balance of competing interests'' and wage certainty
reflected in a CBA.
Executive Order 14026 does not reflect any intent to permit a CBA
rate lower than the Executive order minimum wage rate to govern the
wages of workers while performing on or in connection with contracts
covered by the order. The Department notes that this interpretation is
consistent with the regulations interpreting Executive Order 13658.
Moreover, in the event that a
[[Page 67132]]
collectively bargained wage rate is below the applicable DBA rate, a
DBA-covered contractor must pay no less than the applicable DBA rate to
covered workers on the project. Although a successor contractor on an
SCA-covered contract is required under the SCA only to pay wages and
fringe benefits not less than those contained in the predecessor
contractor's CBA even if an otherwise applicable area-wide SCA wage
determination contains higher wage and fringe benefit rates, that
requirement is derived from a specific statutory provision that
expressly bases SCA obligations on the predecessor contractor's CBA
wage and fringe benefit rates in specific circumstances. See 41 U.S.C.
6707(c); 29 CFR 4.1b. Moreover, where an SCA-covered contractor's CBA
rate is not the applicable SCA rate pursuant to that statutory
provision and is below that applicable SCA rate, the contractor must
pay no less than the applicable SCA rate to covered workers on the
project.
Accordingly, the Department concludes that permitting payment of
CBA wage rates below the Executive Order 14026 minimum wage is
inconsistent with the order; the Department thus declines to suspend
application of the Executive order minimum wage for contractors that
have negotiated a CBA wage rate lower than the order's minimum wage.
This conclusion, as well as the Department's related determination that
nothing in the Executive order excuses noncompliance with higher wages
required under a CBA, is reflected in the contract clause set forth in
Appendix A. Specifically, paragraph (f) of the Department's contract
clause expressly provides: ``Nothing herein shall relieve the
contractor of any other obligation under Federal, state or local law,
or under contract, for the payment of a higher wage to any worker, nor
shall a lower prevailing wage under any such Federal, State, or local
law, or under contract, entitle a contractor to pay less than $15.00
(or the minimum wage as established each January thereafter) to any
worker.'' After careful consideration of the comments, however, the
Department has determined to also add a corresponding clarification to
Sec. 23.50(c), which is the regulatory provision discussing Executive
Order 14026's minimum wage rate and its relation to other laws. To
ensure full consistency between the regulatory text and the contract
clause on this point, the Department therefore amends Sec. 23.50(c) by
adding ``or any applicable contract'' to the provision, such that it
reads as follows: ``Nothing in the Executive Order or this part shall
excuse noncompliance with any applicable Federal or state prevailing
wage law or any applicable law or municipal ordinance, or any
applicable contract, establishing a minimum wage higher than the
minimum wage established under the Executive Order and this part.''
In its comment, Maximus recommended that the Department expand the
purpose and scope discussion set forth in Sec. 23.10 to address
procedures dealing with wage compression that may result from the
Executive order minimum wage increase; establish prevailing wage
determination processes for remote workers based on the worker's
locality rather than the location of the work; outline wage
determination processes to eliminate monopsony impacts in localities
where the contractor's wages are the locality-based prevailing wage;
and define procedural changes to better align the Wage and Hour
Division, contracting officers, and contractors' responsibilities and
actions. Maximum's recommendations largely pertain to the wage
determination processes and enforcement schemes under the DBA and SCA.
This rulemaking is solely dedicated to implementing Executive Order
14026 and thus does not alter the Department's statutory or regulatory
obligations, including its responsibility and protocols for determining
prevailing wage rates, under the DBA and SCA. The Department
appreciates such proposals and will carefully consider the suggestions
provided by Maximus as part of the Department's continual evaluation of
its wage determination and enforcement programs under the DBA and
SCA,\8\ but declines to make such modifications in this final rule. The
Department specifically notes that Executive Order 14026 does not
empower the Department to change prevailing wage rates established
under the DBA and SCA or to establish an Executive order minimum wage
rate that is higher than the rate set forth in the order, except where
authorized to do so based on annual inflation increases pursuant to the
order's methodology.
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\8\ The Department notes that it plans to engage in a rulemaking
to update and modernize the regulations implementing the DBA in the
near future. See https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202104&RIN=1235-AA40. The Department described
a similar initiative to update the SCA regulations as a ``long term
action'' in WHD's Spring 2021 regulary agenda. See https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202104&RIN=1235-AA38.
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After consideration of these comments, and based on the
clarifications made elsewhere in the regulatory text and contract
clause, the Department adopts Sec. 23.10(a) and (b) as proposed.
Proposed Sec. 23.10(c) outlined the scope of the rule and provided
that neither Executive Order 14026 nor part 23 creates or changes any
rights under the Contract Disputes Act or any private right of action.
The Department explained that it does not interpret the Executive order
as limiting existing rights under the Contract Disputes Act. This
provision also restated the Executive order's directive that disputes
regarding whether a contractor has paid the minimum wages prescribed by
the Executive order, to the extent permitted by law, shall be disposed
of only as provided by the Secretary in regulations issued under the
Executive order. The provision clarified, however, that nothing in the
Executive order is intended to limit or preclude a civil action under
the False Claims Act, 31 U.S.C. 3730, or criminal prosecution under 18
U.S.C. 1001. Finally, this paragraph clarified that neither the
Executive order nor the proposed rule would preclude judicial review of
final decisions by the Secretary in accordance with the Administrative
Procedure Act, 5 U.S.C. 701 et seq.
The Department received some comments from stakeholders such as the
AFL-CIO and CWA, National Employment Lawyers Association (NELA), NELP,
the Service Employees International Union (SEIU), and the Teamsters,
requesting that the Department amend proposed Sec. 23.10(c) by adding
a statement that the Department does not intend for these regulations
to displace any state or local law meant to enforce federal minimum
wage or prevailing wage rates, including the minimum rates set forth in
Executive Order 14026. The Department appreciates this feedback and
confirms that neither the Executive order nor this part are intended to
modify any existing private rights of action that workers may possess
under other laws. The Department believes that this interpretation is
already reflected in the first sentence of the proposed regulatory text
at Sec. 23.10(c), which states that ``[n]either Executive Order 14026
nor this part creates or changes any rights under the Contract Disputes
Act, 41 U.S.C. 7101 et seq., or any private right of action.'' However,
to further improve clarity, the Department is modifying this provision
of the regulatory text to add ``that may exist under other applicable
laws'' at the end of the sentence. Other than this clarifying edit, the
Department adopts this provision as proposed.
[[Page 67133]]
Section 23.20 Definitions
Proposed Sec. 23.20 defined terms for purposes of this rule
implementing Executive Order 14026. Section 4(c) of the Executive order
instructs that any regulations issued pursuant to the order should
``incorporate existing definitions'' under the FLSA, the SCA, the DBA,
Executive Order 13658, and the regulations at 29 CFR part 10
implementing Executive Order 13658 ``to the extent practicable.'' 86 FR
22836. Most of the definitions set forth in the Department's proposed
rule were therefore based on either Executive Order 14026 itself or the
definitions of relevant terms set forth in the statutory text or
implementing regulations of the FLSA, SCA, DBA, or Executive Order
13658. Several proposed definitions adopted or relied upon definitions
published by the FARC in section 2.101 of the FAR. 48 CFR 2.101. The
Department noted in the NPRM that, while the proposed definitions
discussed in the proposed rule would govern the implementation and
enforcement of Executive Order 14026, nothing in the proposed rule was
intended to alter the meaning of or to be interpreted inconsistently
with the definitions set forth in the FAR for purposes of that
regulation.
As a general matter, some commenters, such as the SEIU, stated that
the Department appropriately and reasonably defined the terms of
Executive Order 14026. The AFL-CIO and CWA, for example, noted that
they ``especially endorse the NPRM's broad definitions,'' particularly
the Department's proposed definitions of the terms contract or
contract-like instrument and new contract. AGC expressed appreciation
to the Department ``for generally following the provisions of the
previous rulemaking increasing the minimum wage for federal
contractors'' and expressed its support for ``the retention of the
existing guidelines and definitions,'' noting that ``[c]larity and
consistency are necessary for contractors to easily come into
compliance with the rulemaking, plan for the future of their
businesses, and deliver quality[,] fiscally accurate, and timely
projects for federal owners.'' Other individuals and organizations
submitted comments supporting, opposing, or questioning specific
proposed definitions that are addressed below.
The Department proposed to define the term agency head to mean the
Secretary, Attorney General, Administrator, Governor, Chairperson, or
other chief official of an executive agency, unless otherwise
indicated, including any deputy or assistant chief official of an
executive agency or any persons authorized to act on behalf of the
agency head. The proposed definition was based on the definition of the
term set forth in section 2.101 of the FAR, see 48 CFR 2.101, and was
identical to the definition provided in the implementing regulations
for Executive Order 13658, see 29 CFR 10.2. The Department did not
receive any comments addressing the term agency head and thus the
Department adopts the definition of that term as it was originally
proposed.
The Department proposed to define concessions contract (or contract
for concessions) to mean a contract under which the Federal Government
grants a right to use Federal property, including land or facilities,
for furnishing services. This proposed definition did not contain a
limitation regarding the beneficiary of the services, and such
contracts may be of direct or indirect benefit to the Federal
Government, its property, its civilian or military personnel, or the
general public. See 29 CFR 4.133. The proposed definition covered but
was not limited to all concessions contracts excluded from the SCA by
Departmental regulations at 29 CFR 4.133(b). This definition was taken
from 29 CFR 10.2, which defined the same term for purposes of Executive
Order 13658.
Some commenters expressed concern or requested clarification
regarding application of this definition to specific factual
circumstances; such comments are addressed below in the preamble
discussion of the coverage of concessions contracts. The Department did
not receive any comments suggesting revisions to the proposed
definition of this term and thus adopts the definition set forth in the
NPRM.
The Department proposed to define contract and contract-like
instrument collectively for purposes of the Executive order as an
agreement between two or more parties creating obligations that are
enforceable or otherwise recognizable at law. The proposed definition
included, but was not limited to, a mutually binding legal relationship
obligating one party to furnish services (including construction) and
another party to pay for them. The proposed definition of the term
contract broadly included all contracts and any subcontracts of any
tier thereunder, whether negotiated or advertised, including any
procurement actions, lease agreements, cooperative agreements, provider
agreements, intergovernmental service agreements, service agreements,
licenses, permits, or any other type of agreement, regardless of
nomenclature, type, or particular form, and whether entered into
verbally or in writing.
The Department indicated in the NPRM that the proposed definition
of the term contract was intended to be interpreted broadly to include,
but not be limited to, any contract within the definition provided in
the FAR or applicable Federal statutes. The proposed definition would
also include, but was not to be limited to, any contract that may be
covered under any Federal procurement statute. The Department noted
that under this definition contracts may be the result of competitive
bidding or awarded to a single source under applicable authority to do
so. The proposed definition also explained that, in addition to
bilateral instruments, contracts included, but were not limited to,
awards and notices of awards; job orders or task letters issued under
basic ordering agreements; letter contracts; orders, such as purchase
orders, under which the contract becomes effective by written
acceptance or performance; exercised contract options; and bilateral
contract modifications. The proposed definition also specified that,
for purposes of the minimum wage requirements of the Executive order,
the term contract included contracts covered by the SCA, contracts
covered by the DBA, concessions contracts not otherwise subject to the
SCA, and contracts in connection with Federal property or land and
related to offering services for Federal employees, their dependents,
or the general public, as provided in section 8(a) of the Executive
order. See 86 FR 22837. The proposed definition of contract included in
the NPRM was identical to the definition of contract in the regulations
implementing Executive Order 13658, see 29 CFR 10.2, except that it
included ``exercised contract options'' as an example of a contract.
The addition of this example reflected that, unlike Executive Order
13658, Executive Order 14026 expressly applies to option periods on
existing contracts that are exercised on or after January 30, 2022. See
86 FR 22837.
As explained in the Department's final rule implementing Executive
Order 13658, this definition of contract was originally derived from
the definition of the term contract set forth in Black's Law Dictionary
(9th ed. 2009) and section 2.101 of the FAR (48 CFR 2.101), as well as
the descriptions of the term contract that appear in the SCA's
regulations at 29 CFR 4.110 and 4.111, 4.130. See 79 FR 60638-41. The
Department noted that the fact that a legal instrument constitutes a
contract under this definition does not mean that
[[Page 67134]]
the contract is covered by the Executive order. In order for a contract
to be covered by the Executive order and this rule, the contract must
satisfy all of the following prongs: (1) It must qualify as a contract
or contract-like instrument under the definition set forth in part 23;
(2) it must fall within one of the four specifically enumerated types
of contracts set forth in section 8(a) of the order and Sec. 23.30;
and (3) it must be a ``new contract'' pursuant to the definition
described below. Further, in order for the minimum wage protections of
the Executive order to extend to a particular worker performing work on
or in connection with a covered contract, that worker's wages must also
be governed by the DBA, SCA, or FLSA. For example, although an
agreement between a contracting agency and a hotel located on private
property pursuant to which the hotel accepts the General Services
Administration (GSA) room rate for Federal Government workers would
likely be regarded as a ``contract'' or ``contract-like instrument''
under the Department's proposed definition, such an agreement would not
be covered by the Executive order and part 23 because it is not subject
to the DBA or SCA, is not a concessions contract, and is not entered
into in connection with Federal property or lands. Similarly, a permit
issued by the National Park Service (NPS) to an individual for purposes
of conducting a wedding on Federal land would qualify as a ``contract''
or ``contract-like instrument'' but would not be subject to the
Executive order because it would not be a contract covered by the SCA
or DBA, a concessions contract, or a contract in connection with
Federal property related to offering services to Federal employees,
their dependents, or the general public.
Numerous commenters, such as the Strategic Organizing Center and
the Teamsters, expressed their support for the Department's proposed
definition of the terms contract and contract-like instrument. NELP,
for example, noted that the definition ``mirrors that of the SCA and
DBA'' and is consistent with ``the definition established by the
existing minimum wage policy for contracted workers.'' In supporting
the inclusion of contract-like instruments within the scope of coverage
of Executive Order 14026, NELP agreed ``that it is best for the
efficiency of federal agencies and for the strongest return on public
revenues to expand the types of formal relationships under which
contracted work is performed.'' The Teamsters similarly endorsed the
proposed definition as ``consistent both with the Order and the
definitions contained in the SCA and DBA'' and noted that the proposal
``appropriately seeks to include the full range of contracts and other
government procurement arrangements to effectuate the purposes of''
Executive Order 14026.
A few commenters, such as the SEIU and the Teamsters, requested
that the proposed definition of contract or contract-like instrument be
amended to specifically include task orders placed under multiple-award
contracts (MACs), such as GSA Schedules, Government Wide Acquisition
Contracts (GWACs), and other indefinite-delivery, indefinite-quantity
(IDIQ) contracts. SourceAmerica requested that the Department clarify
the proposed definition of contract or contract-like instrument to
expressly include contracts between the Federal Government and state
and local governments entered into through intergovernmental support
agreements (IGSAs).
Other commenters, including the Chamber, acknowledged that the
proposed definition is consistent with the regulations implementing
Executive Order 13658 but expressed concern that the term ``contract-
like instrument'' will nevertheless cause confusion because there will
be more contractors and workers affected by Executive Order 14026 who
are unfamiliar with the term. Numerous commenters, particularly in the
outdoor recreational industries, similarly opposed the breadth of the
proposed definition of contract set forth in the NPRM because it would
include non-procurement contracts, such as permits and licenses and
other types of legal arrangements in which a contractor pays money to
the Federal Government in order to operate.
With respect to all comments regarding the broad scope of the
proposed collective definition of the terms contract and contract-like
instrument, the Department agrees that its proposed definition is
intended to encompass a wide variety of contractual agreements, even
though the Department recognizes that not all such agreements will
actually be subject to the Executive order, as explained more fully
below. The proposed definition of these terms could be applied to an
expansive range of different types of legal arrangements, including
licenses, permits, task orders, and contracts entered into through
IGSAs. (To maintain consistency with the definition of ``contract'' as
it appears in the regulations implementing Executive Order 13658, the
Department declines commenters' requests to modify the regulatory text
here to explicitly reference task orders and contracts entered into
pursuant to IGSAs as examples of legal instruments that may fall within
the scope of the definition. However, as in the Department's 2014
rulemaking to implement Executive Order 13658, the Department agrees
that this definition could indeed be applied to such legal instruments
and affirms that the list of examples of legal arrangements qualifying
as ``contracts'' provided in the definition is illustrative and non-
exhaustive.) Indeed, and consistent with its use in Executive Order
13658, the use of the term contract-like instrument in Executive Order
14026 underscores that the Order was intended to be of potential
applicability to virtually any type of agreement with the Federal
Government that is contractual in nature.
With respect to commenter concerns regarding use of the purportedly
unfamiliar term ``contract-like instrument,'' the Department
acknowledges that the term ``contract-like instrument'' is not used in
the FLSA, SCA, DBA, or FAR. For this reason, the Department has defined
the term collectively with the well-known term ``contract'' in a manner
that should be generally known and understood by the contracting
community. The Department notes that the term ``contract-like
instrument'' was expressly used in both Executive Order 13658 and
Executive Order 14026 and is defined, collectively with the term
contract, in the Department's regulations implementing Executive Order
13658, see 29 CFR 10.2. That definition has been codified in the
regulations since 2015, and the Department expects that most
contracting agencies and contractors affected by this rulemaking are
familiar with the definition. The use of the term ``contract-like
instrument'' in Executive Order 14026 reflects that the order is
intended to cover all arrangements of a contractual nature, including
those arrangements that may not be universally regarded as a
``contract'' in other contexts, such as special use permits issued by
the Forest Service, Commercial Use Authorizations issued by the
National Park Service, and outfitter and guide permits issued by the
Bureau of Land Management and the U.S. Fish and Wildlife Service.
The Department acknowledges that the term contract does not apply
to an arrangement or an agreement that is truly not contractual.
However, Executive Order 14026 is intended to sweep broadly to apply to
traditional procurement construction and service contracts as well as a
broad range of concessions agreements and agreements
[[Page 67135]]
in connection with Federal property or lands and related to offering
services, regardless of whether the parties involved typically consider
such arrangements to be ``contracts'' and regardless of whether such
arrangements are characterized as ``contracts'' for purposes of the
specific programs under which they are administered.
Moreover, and consistent with the relevant discussion in the
Executive Order 13658 rulemaking, the Department believes that the use
of the term ``contract-like instrument'' in Executive Order 14026 is
intended to prevent disputes or extended discussions between
contracting agencies and contractors regarding whether a particular
legal arrangement qualifies as a ``contract'' for purposes of coverage
by the order and this part. The broad definition set forth in this rule
will help facilitate more efficient determinations by contractors,
contracting officers, and the Department as to whether a particular
legal instrument is covered. The Department thus affirms that the term
``contract-like instrument'' is best understood contextually in
conjunction with the well-known term ``contract'' and thus defines the
terms collectively.
The Department has carefully considered all of the comments
received on the proposed collective definition of the terms contract
and contract-like instrument, and adopts the definition as proposed.
Importantly, however, and as explained in the NPRM, the fact that a
legal instrument qualifies as a contract or contract-like instrument
under this definition does not necessarily mean that such contract is
subject to Executive Order 14026. See 86 FR 38828. In addition to
qualifying as a contract or contract-like instrument, such contract
must also fall within one of the four specifically enumerated types of
contracts set forth in section 8(a) of the order and Sec. 23.30, and
must qualify as a new contract pursuant to the definition explained
below. (Moreover, in order for the minimum wage protections of the
Executive order to extend to a particular worker performing work on or
in connection with a covered contract, that worker's wages must also be
governed by the DBA, SCA, or FLSA.) The Department believes that the
NPRM implementing Executive Order 14026 clearly explained the proposed
definition and this basic test for contract coverage, but as requested
by commenters, the Department has endeavored to provide additional
clarification and examples of covered contracts in its preamble
discussion of the coverage provisions set forth at Sec. 23.30 in this
final rule.
The Department also recognizes that a few commenters, including the
Affiliated Outfitter Associations (AOA), suggested that the Department
should include separate definitions of the terms ``subcontract'' and
``subcontractor'' in the final rule. In the proposed rule, the
Department stated that the proposed definition of the term contract
broadly included all contracts and any subcontracts of any tier
thereunder and also provided that the term contractor referred to both
a prime contractor and all of its subcontractors of any tier on a
contract with the Federal Government. The applicability of Executive
Order 14026 to subcontracts is discussed in greater detail in the
discussion of the rule's coverage provisions below, but with respect to
these commenters' specific proposal to separately define the terms
``subcontract'' and ``subcontractor,'' the Department declines to
define those terms in the final rule because it could generate
significant confusion for contracting agencies, contractors, and
workers. The Department notes that many commenters strongly urged the
Department to align its definitions and coverage provisions with those
set forth in the SCA, the DBA, Executive Order 13658, and the FAR to
ensure compliance and to minimize confusion. Neither Executive Order
13658 nor the FAR nor the regulations implementing the DBA or SCA
provide independent definitions of the terms ``subcontract'' and
``subcontractor.'' The SCA's regulations, for example, simply provide
that the definition of the term ``contractor'' includes a subcontractor
whose subcontract is subject to provisions of the SCA. See 29 CFR
4.1a(f).
As with the DBA, SCA, and Executive Order 13658, all of the
provisions of Executive Order 14026 that are applicable to covered
prime contracts and contractors apply with equal force to covered
subcontracts and subcontractors, except for the value threshold
requirements set forth in section 8(b) of the order that only pertain
to prime contracts. For these reasons, and to avoid using unnecessary
and duplicative terms throughout this part, the Department therefore
will continue to use the term contract to refer to all contracts and
any subcontracts thereunder, unless otherwise noted.
The Department proposed to substantially adopt the definition of
contracting officer in section 2.101 of the FAR, which means a person
with the authority to enter into, administer, and/or terminate
contracts and make related determinations and findings. The term would
include certain authorized representatives of the contracting officer
acting within the limits of their authority as delegated by the
contracting officer. See 48 CFR 2.101. This definition was identical to
the definition provided in 29 CFR 10.2, which implemented Executive
Order 13658. The Department did not receive any comments on its
proposed definition of this term; the final rule therefore adopts the
definition as proposed.
The Department proposed to define contractor to mean any individual
or other legal entity that is awarded a Federal Government contract or
subcontract under a Federal Government contract. The Department noted
that the term contractor referred to both a prime contractor and all of
its subcontractors of any tier on a contract with the Federal
Government. The proposed definition was consistent with the definition
set forth in 29 CFR 10.2, which incorporates relevant aspects of the
definitions of the term contractor in section 9.403 of the FAR, see 48
CFR 9.403, and the SCA's regulations at 29 CFR 4.1a(f). The proposed
definition included lessors and lessees, as well as employers of
workers performing on or in connection with covered Federal contracts
whose wages are computed pursuant to special certificates issued under
29 U.S.C. 214(c). The Department noted that the term employer is used
interchangeably with the terms contractor and subcontractor in part 23.
The U.S. Government, its agencies, and its instrumentalities are not
considered contractors, subcontractors, employers, or joint employers
for purposes of compliance with the provisions of Executive Order
14026.
Importantly, the Department noted in the NPRM that the fact that an
individual or entity is a contractor under the Department's definition
does not mean that such an entity has legal obligations under the
Executive order. A contractor only has obligations under the Executive
order if it has a contract with the Federal Government that is
specifically covered by the order. Thus, an entity that is awarded a
contract with the Federal Government will qualify as a ``contractor''
pursuant to the Department's definition, however, that entity will only
be subject to the minimum wage requirements of the Executive order if
such contractor is awarded or otherwise enters into a ``new'' contract
that falls within the scope of one of the four specifically enumerated
categories of contracts covered by the order.
[[Page 67136]]
The Department received a few comments, such as from the AOA,
asserting that the definition of contractor should not apply to
particular individuals and entities, generally involving
concessionaires and other licensees and permitees; such comments
overlap with concerns expressed about the coverage of such legal
instruments that are discussed below regarding contract coverage under
Sec. 23.30. As recognized by many commenters, Executive Order 14026
and this part apply to both procurement and non-procurement contracts,
including contracts that are not subject to the FAR. In order to
effectuate the stated intent and coverage provisions of the Executive
order, the Department's definitions of both contract and contractor are
thus broadly written to encompass a wide range of arrangements with the
Federal Government entered into by a wide range of entities and
individuals. As noted above, however, the mere fact that an individual
or entity qualifies as a contractor under this definition does not
necessarily render that individual or entity subject to Executive Order
14026; that entity must comply with the minimum wage requirements of
the Executive order only if such contractor is awarded or otherwise
enters into a ``new'' contract that falls within the scope of one of
the four specifically enumerated categories of contracts covered by the
order.
The Department also received comments from stakeholders, such as
Colorado Ski Country USA and the National Ski Areas Association (NSAA),
requesting clarification that the Department's determination that a
particular individual or entity qualifies as a contractor under
Executive Order 14026 and this part does not necessarily mean that such
individual or entity is subject to other laws pertaining to federal
contractors. The Department confirms that its determination that
certain individuals or entities qualify as contractors for purposes of
Executive Order 14026 and this part does not render such individuals or
entities or their agreements ``federal contractors'' or ``contracts''
under other laws. The Department's proposed definitions and coverage
principles discussed in this rule pertain to Executive Order 14026 and
are not determinative of rights and responsibilities under other laws
and regulations enforced by other federal agencies. (As recognized by
NSAA, however, due to the nearly identical definitions of contract and
contractor under Executive Order 14026 and Executive Order 13658, the
determination in this rule that an entity qualifies as a contractor
also means that such entity would be a contractor for purposes of
Executive Order 13658.)
The Department did not receive any specific comments requesting
changes to its proposed definition of the term contractor; the final
rule therefore adopts the definition as proposed.
The Department proposed to define the term Davis-Bacon Act to mean
the Davis-Bacon Act of 1931, as amended, 40 U.S.C. 3141 et seq., and
its implementing regulations. This proposed definition was taken from
29 CFR 10.2. The Department did not receive any comments on its
proposed definition of this term and thus finalizes the definition as
proposed.
Consistent with the regulations implementing Executive Order 13658,
see 29 CFR 10.2, the Department proposed to define executive
departments and agencies that are subject to Executive Order 14026 by
adopting the definition of executive agency provided in section 2.101
of the FAR. 48 CFR 2.101. Specifically, the Department proposed to
interpret the Executive order to apply to executive departments within
the meaning of 5 U.S.C. 101, military departments within the meaning of
5 U.S.C. 102, independent establishments within the meaning of 5 U.S.C.
104(1), and wholly owned Government corporations within the meaning of
31 U.S.C. 9101. The Department noted that this proposed definition
included independent agencies. Such agencies were expressly excluded
from coverage of Executive Order 13658, which ``strongly encouraged''
but did not require compliance by independent agencies. See 79 FR 9853
(section 7(g) of Executive Order 13658); see also 79 FR 60643, 60646
(final rule interpreting Executive Order 13658 to exclude from coverage
independent regulatory agencies within the meaning of 44 U.S.C.
3502(5)). Because Executive Order 14026 does not contain such
exclusionary language, independent agencies are covered by the order
and part 23. The inclusion of independent agencies was discussed in
greater detail in the NPRM in the explanation of contracting agency
coverage set forth at Sec. 23.30. Finally, and consistent with the
regulations implementing Executive Order 13658, the Department did not
interpret the definition of executive departments and agencies as
including the District of Columbia or any Territory or possession of
the United States.
The Department received a few comments on this proposed definition,
such as those submitted by the AFL-CIO and CWA and the SEIU, generally
expressing support for this proposed definition and its inclusion of
independent agencies but requesting that the Department expressly state
that the U.S. Postal Service and other agencies and establishments
within the meaning of 40 U.S.C. 102(4)(A) and (5) are covered by the
definition of executive departments and agencies. The SEIU also
expressed that the Department's final rule should include a list of
independent establishments, government-owned corporations, and other
entities covered by Executive Order 14026 to assist stakeholders in
understanding their rights and responsibilities.
As a threshold matter, the Department notes that Executive Order
14026 expressly states that it applies to ``[e]xecutive departments and
agencies, including independent establishments subject to the Federal
Property and Administrative Services Act, 40 U.S.C. 102(4)(A), (5).''
86 FR 22835. The plain text of Executive Order 14026 thus reflects that
the Order applies to independent establishments but only to the extent
that such establishments are subject to the Procurement Act. As
explained in the comment submitted by the American Postal Workers
Union, AFL-CIO, the U.S. Postal Service may qualify as an independent
establishment, but it is not subject to the Procurement Act, 40 U.S.C.
121 et seq. The Department understands that the Postal Reorganization
Act includes an exclusive list of laws Congress applies to the Postal
Service and that list does not include the Procurement Act. See 39
U.S.C. 410(b). Thus, while commenters such as the American Postal
Workers Union and the Teamsters request coverage of U.S. Postal Service
contracts under Executive Order 14026, the Department does not have
authority to expand coverage to such contracts because the U.S. Postal
Service is not subject to the Procurement Act.
With respect to commenter requests for inclusion of a list of
independent establishments, government-owned corporations, and other
entities covered by Executive Order 14026, the Department greatly
appreciates such feedback and agrees that transparency for the
regulated community as to the scope of coverage is helpful in achieving
compliance under the Executive order. After careful consideration,
however, the Department declines to provide such a list in this final
rule because various agencies and entities may be added or removed from
the underlying statutory classifications of covered agencies (i.e.,
executive departments, military departments, or any independent
establishments within the meaning of 5
[[Page 67137]]
U.S.C. 101, 102, and 104(1), respectively, and any wholly owned
Government corporation within the meaning of 31 U.S.C. 9101) by
congressional or judicial determinations beyond the purview of the
Department. Because these designations are not static, the Department
believes it would be inadvisable to codify such lists in the
regulations themselves. The Department will endeavor, however, to work
with contracting agencies to ensure awareness of their potential
obligations under Executive Order 14026 and to provide compliance
assistance to the general public as needed. The Department therefore
adopts its definition of executive departments and agencies as
proposed, without modification.
The Department proposed to define Executive Order 13658 to mean
Executive Order 13658 of February 12, 2014, ``Establishing a Minimum
Wage for Contractors,'' 79 FR 9851 (Feb. 20, 2014), and its
implementing regulations at 29 CFR part 10. The Department did not
receive any comments about this proposed definition and therefore
adopts it as proposed.
The Department proposed to define the term Executive Order 14026
minimum wage as a wage that is at least: (i) $15.00 per hour beginning
January 30, 2022; and (ii) beginning January 1, 2023, and annually
thereafter, an amount determined by the Secretary pursuant to section 2
of Executive Order 14026. This definition was based on the language set
forth in section 2 of the Executive order. 86 FR 22835. No comments
were received on this proposed definition; accordingly, this definition
is adopted in the final rule.
The Department proposed to define Fair Labor Standards Act as the
Fair Labor Standards Act of 1938, as amended, 29 U.S.C. 201 et seq.,
and its implementing regulations. This definition was adopted from 29
CFR 10.2. The Department did not receive any comments regarding this
proposed definition and therefore adopts it as proposed, with one
technical edit to change reference from the implementing regulations
``in this chapter'' to ``in this title.''
The Department proposed to define the term Federal Government as an
agency or instrumentality of the United States that enters into a
contract pursuant to authority derived from the Constitution or the
laws of the United States. This proposed definition was based on the
definition set forth in the regulations implementing Executive Order
13658. See 29 CFR 10.2. Consistent with that definition and the SCA,
the proposed definition of the term Federal Government included
nonappropriated fund instrumentalities under the jurisdiction of the
Armed Forces or of other Federal agencies. See 29 CFR 4.107(a); 29 CFR
10.2. As explained above, and unlike the regulations implementing
Executive Order 13658, this proposed definition also included
independent agencies because such agencies are subject to the order's
requirements. For purposes of Executive Order 14026 and part 23, the
Department's proposed definition would not include the District of
Columbia or any Territory or possession of the United States. The
Department did not receive any comments on the proposed definition of
Federal Government and thus adopts the definition as set forth in the
NPRM.
The Department proposed to define the term new contract as a
contract that is entered into on or after January 30, 2022, or a
contract that is renewed or extended (pursuant to an exercised option
or otherwise) on or after January 30, 2022. For purposes of Executive
Order 14026, a contract that is entered into prior to January 30, 2022
will constitute a new contract if, on or after January 30, 2022: (1)
The contract is renewed; (2) the contract is extended; or (3) an option
on the contract is exercised. Under the proposed definition, a new
contract includes contracts that result from solicitations issued prior
to January 30, 2022, but that are entered into on or after January 30,
2022, unless otherwise excluded by Sec. 23.40; contracts that result
from solicitations issued on or after January 30, 2022; contracts that
are awarded outside the solicitation process on or after January 30,
2022; and contracts that were entered into prior to January 30, 2022
(an ``existing contract'') but that are subsequently renewed or
extended, pursuant to an exercised option period or otherwise, on or
after January 30, 2022.
This definition was based on sections 8(a) and 9(a) of Executive
Order 14026. See 86 FR 22837. The Department noted that the plain
language of Executive Order 14026 compels a more expansive definition
of the term new contract here than was promulgated under Executive
Order 13658. For example, the renewal or extension of a contract
pursuant to the exercise of an option period on or after January 30,
2022, will qualify as a new contract for purposes of Executive Order
14026 and part 23; exercised option periods, however, generally did not
qualify as ``new contracts'' under Executive Order 13658. See 29 CFR
10.2. As in the NPRM, the Department separately discusses the coverage
of ``new contracts,'' and the interaction of Executive Order 14026 and
Executive Order 13658 with respect to contract coverage, in the
preamble discussion accompanying Sec. 23.30 (``Coverage'') below.
Numerous commenters, including the AFL-CIO and CWA, NELP, the SEIU,
the Strategic Organizing Center, and the Teamsters, expressed their
strong support for the proposed definition of new contract,
particularly for its inclusion of exercised option periods. For
example, the AFL-CIO and CWA stated that ``[b]roadening the definition
of `new contract' to include renewals, options, and extensions more
closely aligns with the SCA and DBA'' and that ``DOL's inclusion of the
exercise of options within the definition of `new contract' provides a
more congruent position that will not only allow agencies and
contractors to predict the changes in contractual obligations due to
the exercise of an option but will also ensure that a larger class of
workers more quickly receive the benefit of the new minimum wage
requirements.'' NELP similarly commended the proposed definition of new
contract, stating that ``adhering to the announced implementation date
of January 30, 2022, and attaching the wage increase to any renewals,
extensions, or options on contracts signed before that date is critical
to realizing the benefits of the executive order and to establishing
consistency and equity in a system in which more than 500,000 contract
actions were implemented in low-paying service industries just between
the inauguration of President Biden and the date of the NPRM
publication.'' Other commenters, such as Colorado Ski Country USA,
Maximus, and River Riders, Inc., expressed concern or confusion
regarding the application of Executive Order 14026 to contracts that
were entered into prior to January 30, 2022 but that are subsequently
renewed or extended, pursuant to an exercised option period or
otherwise, on or after January 30, 2022.
A few commenters, such as the AFL-CIO and CWA and the Teamsters,
requested that the Department expand the definition of new contract to
include covered task orders placed on or after January 30, 2022, under
existing multiple-award contracts. Other commenters, such as River
Riders, Inc., requested clarification as to how the definition of new
contract applies to particular factual situations, such as whether an
extension to an existing permit, where the permit is presently exempt
under Executive Order 13838, qualifies as a new contract.
Because the Department's proposed definition of new contract
accurately
[[Page 67138]]
and appropriately implements the coverage principles explicitly
required by sections 8(a) and 9(a) of Executive Order 14026, see 86 FR
22837, the Department adopts the definition of new contract as
proposed. The Department addresses commenters' specific questions
regarding application of the definition to various factual situations,
and provides additional clarification and examples of new contracts, in
its preamble discussion of the coverage provisions set forth at Sec.
23.30 in this final rule below.
Proposed Sec. 23.20 defined the term option by adopting the
definition set forth in 29 CFR 10.2 and in section 2.101 of the FAR,
which provides that the term option means a unilateral right in a
contract by which, for a specified time, the Federal Government may
elect to purchase additional supplies or services called for by the
contract, or may elect to extend the term of the contract. See 48 CFR
2.101. When used in this context, the Department noted in the NPRM that
the additional ``services'' called for by the contract would include
construction services. As discussed above, an option on an existing
covered contract that is exercised on or after January 30, 2022,
qualifies as a ``new contract'' subject to the Executive order and part
23. The Department did not receive comments regarding this proposed
definition and thus adopts the definition as set forth in the NPRM.
The Department proposed to define the term procurement contract for
construction to mean a procurement contract for the construction,
alteration, or repair (including painting and decorating) of public
buildings or public works and which requires or involves the employment
of mechanics or laborers, and any subcontract of any tier thereunder.
The proposed definition included any contract subject to the provisions
of the DBA, as amended, and its implementing regulations. This proposed
definition was identical to that set forth in 29 CFR 10.2, which in
turn was derived from language found at 40 U.S.C. 3142(a) and 29 CFR
5.2(h).
The Center for Workplace Compliance expressed support for this
proposed definition of a ``key term'' because it is consistent with the
definition set forth in the regulations implementing Executive Order
13658, see 29 CFR 10.2. The Center for Workplace Compliance noted that
it supports such consistency because ``compliance with the new E.O.
will be simplified to the extent that the compliance obligations are
similar to those under E.O. 13658.'' The Department received no other
specific comments about the proposed definition of procurement contract
for construction and therefore adopts the definition as proposed in the
NPRM.
The Department proposed to define the term procurement contract for
services to mean a contract the principal purpose of which is to
furnish services in the United States through the use of service
employees, and any subcontract of any tier thereunder. This proposed
definition included any contract subject to the provisions of the SCA,
as amended, and its implementing regulations. This proposed definition
was identical to that set forth in 29 CFR 10.2, which in turn was
derived from language set forth in 41 U.S.C. 6702(a) and 29 CFR
4.1a(e). As with the definition of procurement contract for
construction above, the Center for Workplace Compliance commended this
definition for its consistency with 29 CFR 10.2. The Department
received no other specific comments about the proposed definition and
thus adopts it without modification.
The Department proposed to define the term Service Contract Act to
mean the McNamara-O'Hara Service Contract Act of 1965, as amended, 41
U.S.C. 6701 et seq., and its implementing regulations. See 29 CFR
4.1a(a). The Department did not receive comments about this proposed
definition and thus finalizes it as set forth in the NPRM.
The Department proposed to define the term solicitation to mean any
request to submit offers, bids, or quotations to the Federal
Government. This definition was based on the definition set forth at 29
CFR 10.2. The Department broadly interpreted the term solicitation to
apply to both traditional and nontraditional methods of solicitation,
including informal requests by the Federal Government to submit offers
or quotations. However, the Department noted that requests for
information issued by Federal agencies and informal conversations with
Federal workers would not be ``solicitations'' for purposes of the
Executive order. No comments were received on this proposed definition
and it is therefore adopted as proposed.
The Department proposed to adopt the definition of tipped employee
in section 3(t) of the FLSA, that is, any employee engaged in an
occupation in which the employee customarily and regularly receives
more than $30 a month in tips. See 29 U.S.C. 203(t). For purposes of
the Executive order, a worker performing on or in connection with a
contract covered by the Executive order who meets this definition is a
tipped employee. The Department did not receive comments regarding this
proposed definition; it is therefore adopted as set forth in the NPRM.
The Department proposed to define the term United States as the
United States and all executive departments, independent
establishments, administrative agencies, and instrumentalities of the
United States, including corporations of which all or substantially all
of the stock is owned by the United States, by the foregoing
departments, establishments, agencies, instrumentalities, and including
nonappropriated fund instrumentalities. This portion of the proposed
definition is identical to the definition of United States in 29 CFR
10.2. When the term is used in a geographic sense, the Department
proposed that the United States means the 50 States, the District of
Columbia, Puerto Rico, the Virgin Islands, Outer Continental Shelf
lands as defined in the Outer Continental Shelf Lands Act, American
Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Wake
Island, and Johnston Island.
The geographic scope component of this proposed definition was
derived from the definition of United States set forth in the
regulations implementing the SCA. See 29 CFR 4.112(a). Although the
Department only included the 50 States and the District of Columbia
within the geographic scope of the regulations implementing Executive
Order 13658, see 29 CFR 10.2, the Department noted in the NPRM that
Executive Order 14026 directs the Department to establish ``definitions
of relevant terms'' in its regulations. 86 FR 22835. As previously
discussed, Executive Order 14026 also directs the Department to
``incorporate existing definitions'' under the FLSA, SCA, DBA, and
Executive Order 13658 ``to the extent practicable.'' 86 FR 22836. Each
of the territories listed above is covered by both the SCA, see 29 CFR
4.112(a), and the FLSA, see, e.g., 29 U.S.C. 213(f); 29 CFR 776.7; Fair
Minimum Wage Act of 2007, Public Law 110-28, 121 Stat. 112 (2007), but
not the DBA, 40 U.S.C. 3142(a).
Accordingly, it was not practicable to adopt all the cross-
referenced existing definitions, and the Department had to choose
between them to incorporate existing definitions ``to the extent
practicable.'' The Department proposed to exercise its discretion to
select a definition that tracks the SCA and FLSA, for the following
reasons. As explained in the NPRM and reflected in the preliminary
regulatory impact analysis, the Department further examined the issue
since its prior rulemaking in 2014 and consequently determined that the
Federal Government's procurement interests in economy and efficiency
would be
[[Page 67139]]
promoted by expanding the geographic scope of Executive Order 14026. To
be clear, the Department was not proposing to extend coverage of this
Executive order to contracts entered into with the governments of the
specified territories, but rather proposed to expand coverage to
covered contracts with the Federal Government that are being performed
inside the geographical limits of those territories. Because
contractors operating in those territories will generally have
familiarity with many of the requirements set forth in part 23 based on
their coverage by the SCA and/or the FLSA, the Department did not
believe that the proposed extension of Executive Order 14026 and part
23 to such contractors would impose a significant burden.
The Department received a number of comments on this proposed
definition and interpretation that workers performing on or in
connection with covered contracts in the specified U.S. territories are
covered by Executive Order 14026. The vast majority of the comments
received on this proposed definition expressed strong support for the
proposed interpretation that Executive Order 14026 apply to covered
contracts being performed in Puerto Rico, the Virgin Islands, Outer
Continental Shelf lands as defined in the Outer Continental Shelf Lands
Act, American Samoa, Guam, the Commonwealth of the Northern Mariana
Islands, Wake Island, and Johnston Island. A wide variety of
stakeholders expressed their agreement with this proposed coverage
interpretation, including numerous elected officials, such as the
Governor of Guam and several legislators from Puerto Rico and Guam;
labor organizations, such as the Labor Council for Latin American
Advancement, AFL-CIO, the American Federation of State, County, and
Municipal Employees (AFSCME), the Union de Profesionales de la
Seguridad Privada de Puerto Rico, and the Teamsters; and other
interested organizations, including the Economic Policy Institute
(EPI), One Fair Wage, Oxfam, ROC United, and the Leadership Conference
on Civil and Human Rights. Several of these commenters voiced their
concurrence that expansion of coverage to the enumerated U.S.
territories will promote economy and efficiency in Federal Government
procurement. For example, the Governor of Guam, the Hon. Lourdes A.
Leon Guerrero, affirmed ``that extending the E.O. 14026 minimum wage to
workers performing contracts in Guam would promote the federal
government's procurement interests in economy and efficiency'' and
``E.O. 14026's application to Guam will improve the morale and quality
of life of 11,800 employees in Guam, Puerto Rico, and the U.S. Virgin
Islands, who are laborers, nursing assistants, and foodservice and
maintenance workers.'' Several legislators in Puerto Rico expressed
similar support for the expansion of coverage to workers in Puerto
Rico. NELP also commended the Department's proposed definition of
United States as including the specified U.S. territories, commenting
that ``[j]ust as higher wages will result in lower turnover and higher
productivity in the 50 US States, so too will economy and efficiency
improve for contracts performed in these areas with the $15 minimum
wage.''
A few commenters, such as Conduent and the Center for Workplace
Compliance, expressed concern with the Department's proposed
interpretation that Executive Order 14026 applies to workers performing
on or in connection with covered contracts in the enumerated U.S.
territories. Such commenters generally asserted that the proposed
coverage of the territories is not compelled by the text of Executive
Order 14026 itself and could cause financial disruptions, including by
adversely affecting private industry, in the territories unless the
Executive order minimum wage rate is phased in over a number of years.
Due to its concern that the NPRM's ``expanded geographic scope may have
unintended consequences given the fact that E.O. 13658 did not apply in
these jurisdictions and the increase in minimum wage may be
significant,'' the Center for Workplace Compliance encouraged the
Department ``to carefully monitor implementation of the E.O. as it
applies to jurisdictions outside of the fifty states and the District
of Columbia and take a flexible approach with covered contractors
through the exercise of enforcement discretion should significant
unintended consequences occur.''
The Department appreciates and has carefully considered all of the
comments submitted regarding the proposed definition of United States
and geographic scope of the rule. After thorough review, the Department
adopts the definition and interpretation as proposed. Although it is
true that the text of Executive Order 14026 does not compel the
determination that the order applies to covered contracts in the
specified U.S. territories, the Department exercised its delegated
discretion to select a definition of United States that aligns with the
FLSA and SCA, as explained in the NPRM. As outlined in the NPRM and
reflected in the final regulatory impact analysis in this final rule,
the Department has further analyzed this issue since its Executive
Order 13658 rulemaking in 2014 and consequently determined that the
Federal Government's procurement interests in economy and efficiency
would be promoted by extending the Executive Order 14026 minimum wage
to workers performing on or in connection with covered contracts in the
enumerated U.S. territories. The vast majority of public comments
received on this issue concur with this determination, including
perhaps most notably a wide variety of stakeholders located in the U.S.
territories themselves. With respect to the comments voicing concern
with potential unintended consequences of such coverage in the U.S.
territories, the Department appreciates such feedback and certainly
intends to monitor the effects of this rule. However, such comments did
not provide compelling qualitative or quantitive evidence for the
assertions that application of the order to the U.S. territories will
result in economic or other disruptions. The Department further views
requests for a gradual phase-in of the Executive Order 14026 minimum
wage rate as beyond the purview of the Department in this
rulemaking.\9\ The Department therefore adopts the proposed definition
of United States, and the related interpretation that Executive Order
14026 applies to covered contracts performed in the specified U.S.
territories, as set forth in the NPRM.
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\9\ Section 3 of Executive Order 14026 explicitly establishes a
gradual phase-in of the full Executive Order minimum cash wage rate
for tipped employees. With that lone exception, the order clearly
requires that, as of January 30, 2022, workers performing on or in
connection with covered contracts must be paid $15 per hour unless
exempt. There is no indication in the Executive order that the
Department has authority to modify the amount or timing of the
minimum wage requirement, except where the Department is expressly
required to implement the future annual inflation-based adjustments
to the wage rate pursuant to the methodology set forth in the order.
---------------------------------------------------------------------------
The Department proposed to define wage determination as including
any determination of minimum hourly wage rates or fringe benefits made
by the Secretary pursuant to the provisions of the SCA or the DBA. This
term included the original determination and any subsequent
determinations modifying, superseding, correcting, or otherwise
changing the provisions of the original determination. The proposed
definition was adopted from 29 CFR 10.2, which itself was derived from
29 CFR 4.1a(h) and 29 CFR 5.2(q). The Department did not receive
comments on this proposed
[[Page 67140]]
definition and therefore adopts it without modification.
The Department proposed to define worker as any person engaged in
performing work on or in connection with a contract covered by the
Executive order, and whose wages under such contract are governed by
the FLSA, the SCA, or the DBA, regardless of the contractual
relationship alleged to exist between the individual and the employer.
The proposed definition also incorporated the Executive order's
provision that the term worker includes any individual performing on or
in connection with a covered contract whose wages are calculated
pursuant to special certificates issued under 29 U.S.C. 214(c). See 86
FR 22835. The proposed definition also would include any person working
on or in connection with a covered contract and individually registered
in a bona fide apprenticeship or training program registered with the
Department's Employment and Training Administration, Office of
Apprenticeship, or with a State Apprenticeship Agency recognized by the
Office of Apprenticeship. See 29 CFR 4.6(p) (SCA); 29 CFR 5.2(n) (DBA).
The Department included in the proposed definition of worker a brief
description of the meaning of working ``on or in connection with'' a
covered contract. Specifically, the definition provided that a worker
performs ``on'' a contract if the worker directly performs the specific
services called for by the contract and that a worker performs ``in
connection with'' a contract if the worker's work activities are
necessary to the performance of a contract but are not the specific
services called for by the contract. As in the NPRM, these concepts are
discussed in greater detail below in the explanation of worker coverage
set forth at Sec. 23.30.
Consistent with the FLSA, SCA, and DBA and their implementing
regulations, the proposed definition of worker excluded from coverage
any person employed in a bona fide executive, administrative, or
professional capacity, as those terms are defined in 29 CFR part 541.
See 29 U.S.C. 213(a)(1) (FLSA); 41 U.S.C. 6701(3)(C) (SCA); 29 CFR
5.2(m) (DBA). The Department's proposed definition of worker was
substantively identical to the definition that appears in the
regulations implementing Executive Order 13658, see 29 CFR 10.2, but
contained additional clarifying language regarding the ``on or in
connection with'' standard in the proposed regulatory text itself.
Consistent with the Department's rulemaking under Executive Order
13658, as well as with the FLSA, DBA, and SCA, the Department
emphasized the well-established principle that worker coverage does not
depend upon the existence or form of any contractual relationship that
may be alleged to exist between the contractor or subcontractor and
such persons. See, e.g., 29 U.S.C. 203(d), (e)(1), (g) (FLSA); 41
U.S.C. 6701(3)(B), 29 CFR 4.155 (SCA); 29 CFR 5.5(a)(1)(i) (DBA). The
Department noted that, as reflected in the proposed definition, the
Executive order is intended to apply to a wide range of employment
relationships. Neither an individual's subjective belief about his or
her employment status nor the existence of a contractual relationship
is determinative of whether a worker is covered by the Executive order.
Several commenters expressed support for the Department's proposed
definition of worker. NELP, for example, noted that this ``broad
definition recognizes that many work activities--not just those
specifically mentioned in the contract--are integral to the performance
of that contract, and that all individuals performing these work
activities should be covered by the E.O..'' NELP further commended the
definition because it ``makes clear that the federal government takes
misidentifying employment status seriously and will look beyond an
employer's labeling of workers as `independent contractors' and make
its own determination of whether such workers are covered.'' The AFL-
CIO and CWA similarly agreed with the proposed definition of worker,
commending it as a ``broad and comprehensive'' definition that comports
with the DBA, FLSA, and SCA, and that is ``necessary to ensure that
contractors and subcontractors that conduct business with the federal
government do not evade the Executive Order's requirements and thereby
undercut the wage floor it is intended to establish.''
Other commenters expressed concern with the proposed definition and
interpretation of the term worker, particularly with respect to the
Department's proposed general coverage of workers performing in
connection with covered contracts. For example, the Chamber
acknowledged that the proposed definition mirrors the definition of
worker in 29 CFR 10.2 but noted that the ``only activities associated
with the federal contract are subject to the new minimum wage. In most
businesses, employees are not allocated exclusively to such a narrow
range of duties and customers, meaning that employers will have to
isolate the time spent on work associated with the federal contract
from time spent doing other duties. This will be a tremendous
administrative burden.'' ABC and Maximus, among others, similarly
expressed concern regarding the proposed definition and interpretation
that workers performing in connection with a covered contract are
generally entitled to the Executive Order 14026 minimum wage, noting
that such an interpretation may cause confusion and increase
administrative burden. Several other commenters requested clarification
as to whether workers in particular factual scenarios, including
apprentices, would qualify as covered workers under the proposed
definition.
The Department has carefully considered all relevant comments
received regarding its proposed definition of worker and has determined
to adopt the definition as set forth in the NPRM. With respect to the
concerns expressed regarding the breadth of the proposed definition and
its applicability to workers performing work ``in connection with''
covered contracts, the Department notes that Executive Order 14026
itself explicitly states its applicability to ``workers working on or
in connection with'' a covered contract. 86 FR 22835. As recognized by
commenters both in support of and opposition to the proposed
definition, this definition also mirrors the definition set forth in
the Department's regulations implementing Executive Order 13658, see 29
CFR 10.2. The Department believes that consistency between the two sets
of regulations, where appropriate, will aid stakeholders in
understanding their rights and obligations under Executive Order 14026,
will enhance compliance assistance, and will minimize the potential for
administrative burden on the part of contracting agencies and
contractors. The potential for administrative burden resulting from the
broad coverage of workers under the Executive order is further
mitigated by the exclusion for FLSA-covered workers performing in
connection with covered contracts for less than 20 percent of their
work hours in a given workweek set forth at proposed 23.40(f), which is
discussed in greater detail in the accompanying preamble discussion for
that exclusion.
The Department therefore adopts the proposed definition of the term
worker as set forth in the NPRM. However, the Department has endeavored
to provide additional clarification regarding worker coverage under
Executive Order 14026, particularly with respect to the ``in connection
with'' standard, as well as examples of the types of individuals that
would qualify as covered workers,
[[Page 67141]]
in the preamble section regarding worker coverage provisions at Sec.
23.30 below.
Finally, the Department proposed to adopt the definitions of the
terms Administrative Review Board, Administrator, Office of
Administrative Law Judges, and Wage and Hour Division set forth in 29
CFR 10.2. The Department did not receive comments on these proposed
definitions; accordingly, they are adopted as proposed.
Section 23.30 Coverage
Proposed Sec. 23.30 addressed and implemented the coverage
provisions of Executive Order 14026. Proposed Sec. 23.30 explained the
scope of the Executive order and its coverage of executive agencies,
new contracts, types of contractual arrangements, and workers. Proposed
Sec. 23.40 implemented the exclusions expressly set forth in section
8(c) of the Executive order and provided other limited exclusions to
coverage as authorized by section 4(a) of the order. 86 FR 22836-37.
Several commenters, such as AGC, the AOA, and the Center for
Workplace Compliance, requested that the Department provide additional
clarification and examples regarding coverage of contracts,
contractors, workers, and work throughout its preamble discussion of
this provision. In response to these comments, and as set forth below,
the Department has endeavored to further clarify the scope of coverage
of Executive Order 14026 in the preamble discussion of Sec. 23.30
below.
Some commenters also requested that the Department determine
whether Executive Order 14026 applies to a wide range of particular
factual arrangements and circumstances. To the extent that such
commenters provided sufficient specific factual information for the
Department to determine a particular coverage issue and such a
discussion of the specific coverage issue would be useful to the
general public, the Department has addressed the specific factual
questions raised in the preamble discussion below. Where the Department
is unable to explicitly address a particular factual question due to a
lack of information provided by the commenter, or where stakeholders
continue to have questions even after reviewing the general coverage
principles addressed in this final rule, the Department encourages
commenters and other stakeholders with specific coverage questions to
contact the Wage and Hour Division for compliance assistance in
determining their rights and responsibilities under Executive Order
14026.
Executive Order 14026 provides that agencies must, to the extent
permitted by law, ensure that contracts, as defined in part 23 and as
described in section 8(a) of the order, include a clause specifying, as
a condition of payment, that the minimum wage paid to workers employed
on or in connection with the contract shall be at least: (i) $15.00 per
hour beginning January 30, 2022; and (ii) beginning January 1, 2023,
and annually thereafter, an amount determined by the Secretary. 86 FR
22835. (See Sec. 23.50 for a discussion of the methodology established
by the Executive order to determine the future annual minimum wage
increases.) Section 8(a) of the Executive order establishes that the
order's minimum wage requirement only applies to a new contract, new
solicitation, extension or renewal of an existing contract, and
exercise of an option on an existing contract (which are collectively
referred to in this rule as ``new contracts''), if: (i)(A) It is a
procurement contract for services or construction; (B) it is a contract
for services covered by the SCA; (C) it is a contract for concessions,
including any concessions contract excluded by the Department's
regulations at 29 CFR 4.133(b); or (D) it is a contract entered into
with the Federal Government in connection with Federal property or
lands and related to offering services for Federal employees, their
dependents, or the general public; and (ii) the wages of workers under
such contract are governed by the FLSA, the SCA, or the DBA. 86 FR
22837. Section 8(b) of the order states that, for contracts covered by
the SCA or the DBA, the order applies only to contracts at the
thresholds specified in those statutes. Id. It also specifies that, for
procurement contracts where workers' wages are governed by the FLSA,
the order applies only to contracts that exceed the micro-purchase
threshold, as defined in 41 U.S.C. 1902(a), unless expressly made
subject to the order pursuant to regulations or actions taken under
section 4 of the order. Id. The Executive order states that it does not
apply to grants; contracts or agreements with Indian Tribes under the
Indian Self-Determination and Education Assistance Act (Pub. L. 93-
638), as amended; or any contracts expressly excluded by the
regulations issued pursuant to section 4(a) of the order. Id.
Proposed Sec. 23.30(a) implemented these coverage provisions by
stating that Executive Order 14026 and part 23 apply to, unless
excluded by Sec. 23.40, any new contract as defined in Sec. 23.20,
provided that: (1)(i) It is a procurement contract for construction
covered by the DBA; (ii) it is a contract for services covered by the
SCA; (iii) it is a contract for concessions, including any concessions
contract excluded by Departmental regulations at 29 CFR 4.133(b); or
(iv) it is a contract in connection with Federal property or lands and
related to offering services for Federal employees, their dependents,
or the general public; and (2) the wages of workers under such contract
are governed by the FLSA, the SCA, or the DBA. 86 FR 22837. Proposed
Sec. 23.30(b) incorporated the monetary value thresholds referred to
in section 8(b) of the Executive order. Id. Finally, proposed Sec.
23.30(c) stated that the Executive order and part 23 only apply to
contracts with the Federal Government requiring performance in whole or
in part within the United States. As in the NPRM, several issues
relating to the coverage provisions of the Executive order and Sec.
23.30 are discussed below.
Coverage of Executive Agencies and Departments
Executive Order 14026 applies to all ``[e]xecutive departments and
agencies, including independent establishments subject to the Federal
Property and Administrative Services Act, 40 U.S.C. 102(4)(A), (5).''
86 FR 22835. As explained above, the Department proposed to define
executive departments and agencies by adopting the definition of
executive agency provided in 29 CFR 10.2 and section 2.101 of the FAR.
48 CFR 2.101. The proposed rule therefore interpreted the Executive
order as applying to executive departments within the meaning of 5
U.S.C. 101, military departments within the meaning of 5 U.S.C. 102,
independent establishments within the meaning of 5 U.S.C. 104(1), and
wholly owned Government corporations within the meaning of 31 U.S.C.
9101. As discussed above, this proposed definition included independent
agencies. Accordingly, independent agencies would be covered
contracting agencies for purposes of Executive Order 14026 and part 23.
Additionally, Section 7(g) of Executive Order 13658 ``strongly
encouraged'' but did not require independent agencies to comply with
its requirements. 79 FR 9853. Therefore, in the final rule implementing
Executive Order 13658, the Department interpreted such language to
exclude independent regulatory agencies as defined in 44 U.S.C. 3502(5)
from coverage of Executive Order 13658. See, e.g., 79 FR 60643, 60646.
Unlike Executive Order 13658, Executive Order
[[Page 67142]]
14026 does not set forth any exclusion for independent agencies.
Executive Order 14026 and part 23 thus apply to a broader universe of
contracting agencies than were covered by Executive Order 13658 and its
implementing regulations at 29 CFR part 10.
Finally, pursuant to the proposed definition, contracts awarded by
the District of Columbia or any Territory or possession of the United
States would not be covered by the order.
As previously discussed in the context of the proposed definition
of executive departments and agencies, the Department received several
comments supporting its proposed coverage of contracting agencies,
particularly with respect to its interpretation that independent
agencies are included within the scope of coverage. A few commenters,
such as the SEIU and the Teamsters, generally expressed support for
this proposed interpretation but requested that the Department
expressly state that the U.S. Postal Service and other agencies and
establishments within the meaning of 40 U.S.C. 102(4)(A) and (5) are
covered by the definition of executive departments and agencies. The
SEIU also asked the Deparment to include a list of independent
establishments, government-owned corporations, and other entities
covered by Executive Order 14026.
As explained above, the plain text of Executive Order 14026
reflects that the order applies to independent establishments but only
to the extent that such establishments are subject to the Procurement
Act, 40 U.S.C. 121 et seq. The Postal Reorganization Act sets forth an
exclusive list of laws Congress applies to the Postal Service, and that
list does not include the Procurement Act. See 39 U.S.C. 410(b). The
Department does not have authority to confer coverage upon U.S. Postal
Service contracts because the U.S. Postal Service is not an independent
establishment subject to the Procurement Act.
As explained above in the discussion of the proposed definition of
executive departments and agencies, the Department declines to provide
a list of covered contracting agencies in this final rule because these
classifications are not static and the Department believes it would be
inadvisable to codify such lists in the regulations themselves. The
Department will endeavor, however, to work with contracting agencies to
ensure awareness of their potential obligations under Executive Order
14026 and to provide compliance assistance to the general public.
The Department therefore affirms its discussion of the proposed
coverage of executive agencies and departments in the final rule.
Coverage of New Contracts With the Federal Government
The Department proposed in Sec. 23.30(a) that the requirements of
the Executive order generally apply to ``contracts with the Federal
Government.'' As discussed above, and consistent with the Department's
regulations implementing Executive Order 13658, the Department proposed
to set forth a broadly inclusive definition of the term contract that
would include all contracts and any subcontracts of any tier
thereunder, whether negotiated or advertised, including any procurement
actions, lease agreements, cooperative agreements, provider agreements,
intergovernmental service agreements, service agreements, licenses,
permits, or any other type of agreement, regardless of nomenclature,
type, or particular form, and whether entered into verbally or in
writing. The Department intended that the term contract be interpreted
broadly as to include, but not be limited to, any contract within the
definition provided in the FAR or applicable Federal statutes. This
definition would include, but not be limited to, any contract that may
be covered under any Federal procurement statute. Contracts may be the
result of competitive bidding or awarded to a single source under
applicable authority to do so. In addition to bilateral instruments,
contracts would include, but would not be limited to, awards and
notices of awards; job orders or task letters issued under basic
ordering agreements; letter contracts; orders, such as purchase orders,
under which the contract becomes effective by written acceptance or
performance; exercised contract options; and bilateral contract
modifications. Unless otherwise noted, the use of the term contract
throughout the Executive order and part 23 included contract-like
instruments and subcontracts of any tier.
As reflected in proposed Sec. 23.30(a), the minimum wage
requirements of Executive Order 14026 would apply only to ``new
contracts'' with the Federal Government within the meaning of sections
8(a) and 9(a) of the order and as defined in part 23. 86 FR 22837.
Section 9 of the Executive order states that the order shall apply to
covered new contracts, new solicitations, extensions or renewals of
existing contracts, and exercises of options on existing contracts, as
described in section 8(a) of the order, where the relevant contract is
entered into, or extended or renewed, or the relevant option will be
exercised, on or after: (i) January 30, 2022, consistent with the
effective date for the action taken by the FARC pursuant to section
4(a) of the order; or (ii) for contracts where an agency action is
taken pursuant to section 4(b) of the order, on or after January 30,
2022, consistent with the effective date for such action. Id. Proposed
Sec. 23.30(a) of this rule therefore stated that, unless excluded by
Sec. 23.40, part 23 would apply to any new contract with the Federal
Government as defined in Sec. 23.20. As explained in the proposed
definition of new contract above, a new contract meant a contract that
is entered into on or after January 30, 2022, or a contract that is
renewed or extended (pursuant to an exercised option or otherwise) on
or after January 30, 2022. For purposes of the Executive order, a
contract that is entered into prior to January 30, 2022 will constitute
a new contract if, on or after January 30, 2022: (1) The contract is
renewed; (2) the contract is extended; or (3) an option on the contract
is exercised. To be clear, for contracts that were entered into prior
to January 30, 2022, the Executive Order 14026 minimum wage requirement
applies prospectively as of the date that such contract is renewed or
extended (pursuant to an exercised option or otherwise) on or after
January 30, 2022; the Executive order does not apply retroactively to
the date that the contract was originally entered into.
The Department noted that the plain language of Executive Order
14026 compels a more expansive definition of the term new contract here
than under Executive Order 13658. For example, Executive Order 13658
coverage was not triggered by the unilateral exercise of a pre-
negotiated option to renew an existing contract by the Federal
Government, see 29 CFR 10.2. However, section 8(a) of this order makes
clear that Executive Order 14026 applies to the ``exercise of an option
on an existing contract'' where such exercise occurs on or after
January 30, 2022. 86 FR 22837. In the NPRM, the Department noted that,
under the SCA and DBA, the Department and the FARC generally require
the inclusion of a new or current prevailing wage determination upon
the exercise of an option clause that extends the term of an existing
contract. See, e.g., 29 CFR 4.143(b); 48 CFR 22.404-1(a)(1); All Agency
Memorandum (AAM) No. 157 (1992); In the Matter of the United States
Army, ARB Case No. 96-133, 1997 WL 399373 (ARB July 17,
[[Page 67143]]
1997).\10\ The SCA's regulations, for example, provide that when the
term of an existing contract is extended pursuant to an option clause,
the contract extension is viewed as a ``new contract'' for SCA
purposes. See 29 CFR 4.143(b). In the NPRM, the Department observed
that the application of Executive Order 14026's minimum wage
requirements to contracts for which an option period is exercised on or
after January 30, 2022 should be easily understood by contracting
agencies and contractors.
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\10\ As stated in AAM 157, the Department does not assert that
the exercise of an option period qualifies as a new contract in all
cases for purposes of the DBA and SCA. See 63 FR 64542 (Nov. 20,
1998). The Department considers the specific contract requirements
at issue in making this determination. For example, under those
statutes, the Department does not consider that a new contract has
been created where a contractor is simply given additional time to
complete its original obligations under the contract. Id.
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Under the proposed rule, a contract awarded under the GSA Schedules
would be considered a ``new contract'' in certain situations. Of
particular note, any covered contracts that are added to the GSA
Schedule on or after January 30, 2022 would generally qualify as ``new
contracts'' subject to the order, unless excluded by Sec. 23.40; any
covered task orders issued pursuant to those contracts would also be
deemed to be ``new contracts.'' This would include contracts to add new
covered services as well as contracts to replace expiring contracts.
Consistent with section 9(c) of the Executive order, agencies are
strongly encouraged to bilaterally modify existing contracts, as
appropriate, to include the minimum wage requirements of this rule even
when such contracts are not otherwise considered to be a ``new
contract'' under the terms of this rule. 86 FR 22838. For example,
pursuant to the order, contracting officers are encouraged to modify
existing indefinite-delivery, indefinite-quantity contracts in
accordance with FAR section 1.108(d)(3) to include the Executive Order
14026 minimum wage requirements.
The Department received a number of comments regarding the proposed
coverage of new contracts under Executive Order 14026. Many commenters,
including the AFL-CIO and CWA, NELP, the SEIU, the Strategic Organizing
Center, and the Teamsters, expressed their strong support for the
Executive order's coverage of new contracts, particularly for its
inclusion of contracts that are entered into prior to January 30, 2022,
if, on or after January 30, 2022, the contract is renewed, the contract
is extended, or an option on the contract is exercised. For example,
NELP commended the proposed interpretation of new contract coverage,
stating that ``adhering to the announced implementation date of January
30, 2022, and attaching the wage increase to any renewals, extensions,
or options on contracts signed before that date is critical to
realizing the benefits of the executive order and to establishing
consistency and equity in a system in which more than 500,000 contract
actions were implemented in low-paying service industries just between
the inauguration of President Biden and the date of the NPRM
publication.'' The Center for Workplace Compliance noted that the
Department's proposed definition and interpretation of new contract
here departs from the interpretation set forth in the regulations
implementing Executive Order 13658, particularly with respect to the
proposed coverage of exercised option periods, but affirmed that such
departure is ``compelled'' by and ``consistent with'' the text of
Executive Order 14026.
Several commenters requested that the Department clarify whether
covered task orders placed on or after January 30, 2022, under
multiple-award contracts (MACs), such as GSA Schedules, Government Wide
Acquisition Contracts, and other indefinite-delivery, indefinite-
quantity contracts, that were entered into prior to January 30, 2022,
qualify as ``new contracts'' covered by Executive Order 14026.
Commenters, such as the SEIU and the Teamsters, requested the
Department to expand the coverage of ``new contracts'' to include such
task orders. AGC requested that, if the Department does clarify or
expand coverage to include such task orders placed under existing IDIQ
contracts, the Department should include an adjustments clause related
to any increase of the Executive order minimum wage rate.
The Department greatly appreciates and has carefully considered the
comments requesting the expansion of ``new contract'' coverage, but for
the reasons explained below, has determined to reaffirm the approach to
``new contract'' coverage set forth in the NPRM. The Department
clarifies in this final rule that task orders placed or issued under
existing MACs (i.e., MACs entered into prior to January 30, 2022) will
only be covered by Executive Order 14026 if and when the MAC itself
becomes subject to Executive Order 14026. This interpretation is
consistent with the approach to coverage of task orders adopted under
the regulations implementing Executive Order 13658. The Department's
treatment of task orders also is consistent with its treatment of
subcontracts, under both the regulations implementing Executive Order
13658 and this part, in that such agreements only are covered by the
Executive order if the master or prime contract under which they are
issued is also covered by the Executive order.
Although it is true that the scope of ``new contract'' coverage
under Executive Order 14026 is more expansive than under Executive
Order 13658, the broadening of contract coverage in the Executive order
did not involve the coverage of task orders; rather, and as reflected
in sections 8 and 9 of the order, the expansion of coverage was
primarily focused on the exercise of option periods on or after January
30, 2022. The Department has thus determined that it would best
effectuate the intent of the Executive order, and promote effective
implementation and administration of the Executive order and this final
rule, to maintain consistency with the coverage of task orders set
forth in the regulations implementing Executive Order 13658 (including
the interim final rule issued by the FARC) as well as with the coverage
of subcontracts explained in those regulations as well as in this part.
At the same time, consistent with section 9(c) of Executive Order
14026, the Department strongly encourages agencies to bilaterally
modify existing MACs, as appropriate, to include the minimum wage
requirements of this rule even when such contracts are not otherwise
considered to be a ``new contract'' under the terms of this rule. See
86 FR 22838. For example, pursuant to section 9(c) of the order,
contracting officers are encouraged to modify existing IDIQ contracts
in accordance with FAR section 1.108(d)(3) to include the Executive
Order 14026 minimum wage requirements. The Department notes that, when
the FARC issued its interim rule amending the FAR to implement
Executive Order 13658 in December 2014, the FARC also expressly stated,
``In accordance with FAR 1.108(d)(3), contracting officers are strongly
encouraged to include the clause in existing indefinite-delivery
indefinite-quantity contracts, if the remaining ordering period extends
at least six months and the amount of remaining work or number of
orders expected is substantial.'' 79 FR 74545. The Department expects,
and strongly encourages, the FARC to include this provision, or a
substantially similar one, in its rule implementing Executive Order
14026.
Although the Department appreciates the comments encouraging an
[[Page 67144]]
expansion of coverage to include all task orders placed on or after
January 30, 2022 regardless of whether the master contract itself
qualifies as a new contract, the Department declines to adopt such an
approach. The Department's determination that task orders placed under
existing MACs only qualify as covered new contracts when the MAC itself
becomes subject to the Executive order is consistent with the approach
adopted by the Department in its regulations implementing Executive
Order 13658. See 79 FR 60649. As noted above, however, the Department
anticipates that many such existing MACs will be covered by Executive
Order 14026 based on the voluntary, but strongly encouraged, action
taken by contracting agencies to insert the Executive Order 14026
contract clause as discussed above.
Relatedly, the Department declines AGC's request to direct that a
contract price adjustment be given to contractors reflecting any higher
short-term labor costs that could arise by applying Executive Order
14026 to new task orders on or after January 30, 2022, that are issued
under master contracts that were entered into prior to January 30,
2022. As a general matter, price adjustments, if appropriate, would
need to be based on the specific nature of the contract. Moreover, as
outlined above, the Department is encouraging, but not requiring,
contracting agencies to modify existing MACs that do not otherwise
qualify as a ``new contract'' to include the relevant contract clause;
until such time as the existing MAC becomes subject to Executive Order
14026, any task orders placed under such master contract are not
required to comply with the order.
With respect to other comments regarding ``new contract'' coverage,
the Professional Services Council (PSC) urged the Department to
reconsider the following sentence set forth in the NPRM: ``Consistent
with section 9(c) of the Executive order, agencies are strongly
encouraged to bilaterally modify existing contracts, as appropriate, to
include the minimum wage requirements of this rule even when such
contracts are not otherwise considered to be a `new contract' under the
terms of this rule.'' In its comment, PSC requested that the Department
delete the above-quoted language regarding bilateral modifications and
instead insert language regarding how and when an agency would modify
an existing contract to ensure contractors have clarity regarding
timelines and requirements for compliance. The Department declines
PSC's request because the sentence at issue is focused on generally
encouraging contracting agencies to voluntarily take appropriate and
permissible action to apply the Executive order minimum wage
requirement even where not required to do so by the order or this part.
The nature and timing of such voluntary action will be inherently fact-
specific and is likely to differ based on the contracting agency and
the underlying type of contract. Because such action is not required by
this rule and will depend on the particular factual arrangement, the
Department declines to set forth specific protocols for how and when
agencies should engage with contractors to proactively insert the
applicable Executive order contract clause in contracts that are not
subject to the order.
Other commenters, such as River Riders, Inc., requested
clarification as to how the Department's interpretation of new contract
coverage affects permits that are currently exempt under Executive
Order 13838. These comments are discussed in the preamble section below
regarding the rescission of Executive Order 13838. To the extent that
other commenters sought clarification regarding whether particular
contractual situations involve a ``new contract'' under this final
rule, such comments did not provide enough information for the
Department to definitively opine on coverage. The Department encourages
such commenters to reach out to the WHD for compliance assistance
regarding their rights and responsibilities under this order.
Because the Department's proposed interpretation of new contract
coverage accurately and appropriately implements the coverage
principles compelled by sections 8(a) and 9(a) of Executive Order
14026, see 86 FR 22837, the Department adopts Sec. 23.30(a) as
proposed.
Interaction With Contract Coverage Under Executive Order 13658
As explained in the NPRM, beginning January 1, 2015, covered
contracts with the Federal Government were generally subject to the
minimum wage requirements of Executive Order 13658 and its implementing
regulations at 29 CFR part 10. Executive Order 13658, which was issued
in February 2014, required Federal contractors to pay workers working
on or in connection with covered Federal contracts at least $10.10 per
hour beginning January 1, 2015 and, pursuant to that order, the minimum
wage rate has increased annually based on inflation. The Executive
Order 13658 minimum wage is currently $10.95 per hour and the minimum
hourly cash wage for tipped employees is $7.65 per hour. See 85 FR
53850. These rates will increase to $11.25 per hour and $7.90 per hour,
respectively, on January 1, 2022. See 86 FR 51683. Executive Order
13658 applies to the same four types of Federal contracts as are
covered by Executive Order 14026. Compare 79 FR 9853 (section 7(d) of
Executive Order 13658) with 86 FR 22837 (section 8(a) of Executive
Order 14026).
Section 6 of Executive Order 14026 states that, as of January 30,
2022, the order supersedes Executive Order 13658 to the extent that it
is inconsistent with this order. 86 FR 22836-37. In the NPRM, the
Department interpreted this language to mean that workers performing on
or in connection with a contract that would be covered by both
Executive Order 13658 and Executive Order 14026 are entitled to be paid
the higher minimum wage rate under this new order. The Department
therefore proposed to include language at Sec. 23.50(d) briefly
discussing the relationship between Executive Order 13658 and this
order, namely to make clear that workers performing on or in connection
with a covered new contract as defined in part 23 must be paid at least
the higher minimum wage rate established by Executive Order 14026
rather than the lower minimum wage rate established by Executive Order
13658.
As explained above, however, Executive Order 14026 and part 23 only
apply to a ``new contract'' with the Federal Government, which means a
contract that is entered into on or after January 30, 2022, or a
contract that is renewed or extended (pursuant to an exercised option
or otherwise) on or after January 30, 2022. As explained in the NPRM,
for some amount of time, the Department anticipates that there will be
some existing contracts with the Federal Government that do not qualify
as a ``new contract'' for purposes of Executive Order 14026 and thus
will remain subject to the minimum wage requirements of Executive Order
13658. For example, an SCA-covered contract entered into on February
15, 2021 is currently subject to the $10.95 minimum wage rate
established by Executive Order 13658. That contract will remain subject
to the minimum wage rate under Executive Order 13658 until such time as
it is renewed or extended, pursuant to an exercised option or
otherwise, on or after January 30, 2022, at which time it will become
subject to the Executive Order 14026 minimum wage rate. For example, if
that contract is subsequently extended on February 15, 2022, the
contract will
[[Page 67145]]
become subject to the $15.00 minimum wage rate established by Executive
Order 14026 on the date of extension, February 15, 2022. In the
proposed rule, the Department stated that it anticipates that, in the
relatively near future, essentially all covered contracts with the
Federal Government will qualify as ``new contracts'' under part 23 and
thus will be subject to the higher Executive Order 14026 minimum wage
rate; until such time, however, Executive Order 13658 and its
regulations at 29 CFR part 10 must remain in place.
In order to minimize potential stakeholder confusion as to whether
a particular contract is subject to Executive Order 13658 or to
Executive Order 14026, the Department proposed to add clarifying
language to the definition of ``new contract'' in the regulations that
implemented Executive Order 13658, see 29 CFR 10.2, to make clear that
a contract that is entered into on or after January 30, 2022, or a
contract that was awarded prior to January 30, 2022, but is
subsequently extended or renewed (pursuant to an option or otherwise)
on or after January 30, 2022, is subject to Executive Order 14026 and
part 23 instead of Executive Order 13658 and the 29 CFR part 10
regulations. The provision at 29 CFR 10.2 currently defines a ``new
contract'' for purposes of Executive Order 13658 to mean ``a contract
that results from a solicitation issued on or after January 1, 2015, or
a contract that is awarded outside the solicitation process on or after
January 1, 2015.'' That definition further provides, inter alia, that
Executive Order 13658 also applies to contracts entered into prior to
January 1, 2015, if, through bilateral negotiation, on or after January
1, 2015, the contract is renewed, extended, or amended pursuant to
certain specified limitations explained in that regulation. Id. To
provide clarity to stakeholders, the Department proposed to amend the
definition of a ``new contract'' under Executive Order 13658 in 29 CFR
10.2 by changing the three references to ``on or after January 1,
2015'' to ``on or between January 1, 2015 and January 29, 2022.'' This
clarifying edit was intended to assist stakeholders in recognizing
that, beginning January 30, 2022, the higher minimum wage requirement
of Executive Order 14026 applies to new contracts.
As previously mentioned, the Department also proposed to add
language to part 23 at Sec. 23.50(d) explaining that, unless otherwise
excluded by Sec. 23.40, workers performing on or in connection with a
covered new contract, as defined in Sec. 23.20, must be paid at least
the higher minimum hourly wage rate established by Executive Order
14026 and part 23 rather than the lower hourly minimum wage rate
established by Executive Order 13658 and its regulations. The
Department further proposed to add substantially similar language to
the Executive Order 13658 regulations at Sec. 10.1 to ensure that the
contracting community is fully aware of which Executive order and
regulations apply to their particular contract. Specifically, the
Department proposed to amend Sec. 10.1 by adding paragraph (d), which
explained that, as of January 30, 2022, Executive Order 13658 is
superseded to the extent that it is inconsistent with Executive Order
14026 and part 23. The proposed new paragraph would further clarify
that a covered contract that is entered into on or after January 30,
2022, or that is renewed or extended (pursuant to an option or
otherwise) on or after January 30, 2022, is generally subject to the
higher minimum wage rate established by Executive Order 14026 and part
23. The Department also proposed to add corresponding information to
Sec. 10.5(c) to ensure that stakeholders were aware of their potential
obligations under Executive Order 14026 and part 23 even if they
inadvertently consult the regulations that were issued under Executive
Order 13658.
As explained in the NPRM, in sum, a Federal contract entered into
on or after January 1, 2015, that falls within one of the four
specified categories of contracts described in part 23 will generally
be subject to the minimum wage requirements of either Executive Order
13658 or Executive Order 14026; the date upon which the relevant
contract was entered into, extended, or renewed will determine whether
the contract qualifies as a ``new contract'' under this Executive order
and part 23 or whether it is subject to the lower minimum wage
requirement of Executive Order 13658 and the part 10 regulations.
In the proposed rule, the Department noted that contracts with
independent regulatory agencies and contracts performed in the
territories (i.e., Puerto Rico, the Virgin Islands, Outer Continental
Shelf lands as defined in the Outer Continental Shelf Lands Act,
American Samoa, Guam, the Commonwealth of the Northern Mariana Islands,
Wake Island, and Johnston Island) are not subject to Executive Order
13658 or part 10; this final rule does not alter that determination.
However, as discussed above, such contracts with the Federal Government
are covered by Executive Order 14026 and part 23 to the extent that
they fall within the four general types of covered contracts and are
entered into, extended, or renewed on or after January 30, 2022. For
example, a concessions contract with the Federal Government that is
performed wholly within Puerto Rico and that was entered into on
October 1, 2020, is not subject to the minimum wage requirement of
Executive Order 13658 or 14026. However, if that contract is renewed on
October 1, 2022, it will become subject to the minimum wage requirement
of Executive Order 14026.
An anonymous commenter asked the Department to clarify that renewed
contracts on or after January 30, 2022 will be subject to the higher
minimum wage rate set forth in Executive Order 14026. Consistent with
the discussion in the NPRM, the Department confirms that, for a
contract currently subject to Executive Order 13658 that was entered
into prior to January 30, 2022, such contract will become subject to
Executive Order 14026 and its higher minimum wage rate if such contract
is renewed or extended (pursuant to an option or otherwise) on or after
January 30, 2022. For example, a DBA-covered construction contract
entered into on October 15, 2020 is currently subject to the $10.95
minimum wage rate established by Executive Order 13658. On January 1,
2022, the wage rate applicable to the contract under Executive Order
13658 will increase to $11.25 based on the annual inflation-based
update to that rate. If that contract is subsequently extended pursuant
to the exercise of an option on October 15, 2022, the contract will
become subject to the $15.00 minimum wage rate established by Executive
Order 14026 on the date of extension, October 15, 2022.
The Department also received several comments regarding Executive
Order 14026's rescission of Executive Order 13838, which will be
discussed below in the preamble section pertaining to that rescission.
Other than these comments, the Department did not receive any
requests for specific clarifications in the proposed regulatory text
discussing the interaction between Executive Order 13658 and Executive
Order 14026. The Department therefore finalizes the corresponding
proposed changes to the regulations implementing Executive Order 13658
at 29 CFR 10.1(d), 29 CFR 10.2 (specifically, the definition of new
contract), and 29 CFR 10.5(c), as well as the proposed regulatory text
at Sec. 23.50(d).
[[Page 67146]]
Coverage of Types of Contractual Arrangements
Proposed Sec. 23.30(a)(1) set forth the specific types of
contractual arrangements with the Federal Government that are covered
by Executive Order 14026. The Department noted that Executive Order
14026 and part 23 are intended to apply to a wide range of contracts
with the Federal Government for services or construction. Proposed
Sec. 23.30(a)(1) would implement the Executive order by generally
extending coverage to procurement contracts for construction covered by
the DBA; service contracts covered by the SCA; concessions contracts,
including any concessions contract excluded by the Department's
regulations at 29 CFR 4.133(b); and contracts in connection with
Federal property or lands and related to offering services for Federal
employees, their dependents, or the general public. The Department
further noted that, as was also the case under the Executive Order
13658 rulemaking, these categories are not mutually exclusive--a
concessions contract might also be covered by the SCA, as might a
contract in connection with Federal property or lands, for example. A
contract that falls within any one of the four categories is covered.
Each of these categories of contractual agreements is discussed in
greater detail below.
Procurement Contracts for Construction: Section 8(a)(i)(A) of the
Executive order extends coverage to ``procurement contract[s]'' for
``construction.'' 86 FR 22837. The proposed rule at Sec.
23.30(a)(1)(i) interpreted this provision of the order as referring to
any contract covered by the DBA, as amended, and its implementing
regulations. The Department noted that this provision reflects that the
Executive order and part 23 apply to contracts subject to the DBA
itself, but do not apply to contracts subject only to the Davis-Bacon
Related Acts, including those set forth at 29 CFR 5.1(a)(2)-(60). This
interpretation is consistent with the discussion of procurement
contracts for construction set forth in the Department's final rule
implementing Executive Order 13658. See 79 FR 60650. For ease of
reference, much of that discussion is repeated here.
The DBA applies, in relevant part, to contracts to which the
Federal Government is a party, for the construction, alteration, or
repair, including painting and decorating, of public buildings and
public works of the Federal Government and which require or involve the
employment of mechanics or laborers. 40 U.S.C. 3142(a). The DBA's
regulatory definition of construction is expansive and includes all
types of work done on a particular building or work by laborers and
mechanics employed by a construction contractor or construction
subcontractor. See 29 CFR 5.2(j). For purposes of the DBA and thereby
the Executive order, a contract is ``for construction'' if ``more than
an incidental amount of construction-type activity'' is involved in its
performance. See, e.g., In the Matter of Crown Point, Indiana
Outpatient Clinic, WAB Case No. 86-33, 1987 WL 247049, at *2 (June 26,
1987) (citing In re: Military Housing, Fort Drum, New York, WAB Case
No. 85-16, 1985 WL 167239 (Aug. 23, 1985)), aff'd sub nom., Building
and Construction Trades Dep't, AFL-CIO v. Turnage, 705 F. Supp. 5
(D.D.C. 1988); 18 Op. O.L.C. 109, 1994 WL 810699, at *5 (May 23, 1994).
The term ``public building or public work'' includes any building or
work, the construction, prosecution, completion, or repair of which is
carried on directly by authority of or with funds of a Federal agency
to serve the interest of the general public. See 29 CFR 5.2(k).
Proposed Sec. 23.30(b) would implement section 8(b) of Executive
Order 14026, 86 FR 22837, which provides that the order applies only to
DBA-covered prime contracts that exceed the $2,000 value threshold
specified in the DBA. See 40 U.S.C. 3142(a). Consistent with the DBA,
there is no value threshold requirement for subcontracts awarded under
such prime contracts.
The Center for Workplace Compliance expressed support for this
proposed interpretation of procurement contracts for construction
because it is consistent with the approach set forth in the regulations
implementing Executive Order 13658, see 29 CFR 10.2. The Center for
Workplace Compliance noted that it supports such consistency because
``compliance with the new E.O. will be simplified to the extent that
the compliance obligations are similar to those under E.O. 13658.'' The
Department did not receive other specific comments regarding this
category of contracts and therefore finalizes Sec. 23.30(a)(1)(i) as
proposed.
Contracts for Services: Proposed Sec. 23.30(a)(1)(ii) provided
that coverage of the Executive order and part 23 encompasses
``contract[s] for services covered by the Service Contract Act.'' This
proposed provision implemented sections 8(a)(i)(A) and (B) of the
Executive order, which state that the order applies respectively to a
``procurement contract . . . for services'' and a ``contract or
contract-like instrument for services covered by the Service Contract
Act.'' 86 FR 22837. The Department interpreted a ``procurement contract
. . . for services,'' as set forth in section 8(a)(i)(A) of the
Executive order, to mean a procurement contract that is subject to the
SCA, as amended, and its implementing regulations. The Department
viewed a ``contract . . . for services covered by the Service Contract
Act'' under section 8(a)(i)(B) of the order as including both
procurement and non-procurement contracts for services that are covered
by the SCA. The Department therefore incorporated sections 8(a)(i)(A)
and (B) of the Executive order in proposed Sec. 23.30(a)(1)(ii) by
expressly stating that the requirements of the order apply to service
contracts covered by the SCA. This interpretation and approach was
consistent with the treatment of service contracts set forth in the
Department's final rule implementing Executive Order 13658. See 79 FR
60650-51. For ease of reference, much of that discussion is repeated
here.
The SCA generally applies to every contract entered into by the
United States that ``has as its principal purpose the furnishing of
services in the United States through the use of service employees.''
41 U.S.C. 6702(a)(3). The SCA is intended to cover a wide variety of
service contracts with the Federal Government, so long as the principal
purpose of the contract is to provide services using service employees.
See, e.g., 29 CFR 4.130(a). As reflected in the SCA's regulations,
where the principal purpose of the contract with the Federal Government
is to provide services through the use of service employees, the
contract is covered by the SCA. See 29 CFR 4.133(a). Such coverage
exists regardless of the direct beneficiary of the services or the
source of the funds from which the contractor is paid for the service
and irrespective of whether the contractor performs the work in its own
establishment, on a Government installation, or elsewhere. Id. Coverage
of the SCA, however, does not extend to contracts for services to be
performed exclusively by persons who are not service employees, i.e.,
persons who qualify as bona fide executive, administrative, or
professional employees as defined in the FLSA's regulations at 29 CFR
part 541. Similarly, a contract for professional services performed
essentially by bona fide professional employees, with the use of
service employees being only a minor factor in contract performance, is
not covered by the SCA and thus would not be covered by the Executive
order or part 23. See 41 U.S.C. 6702(a)(3); 29
[[Page 67147]]
CFR 4.113(a), 4.156; WHD Field Operations Handbook (FOH) ]] 14b05,
14c07.
Although the SCA covers contracts with the Federal Government that
have the ``principal purpose'' of furnishing services in the United
States through the use of service employees regardless of the value of
the contract, the prevailing wage requirements of the SCA only apply to
covered contracts in excess of $2,500. 41 U.S.C. 6702(a)(2)
(recodifying 41 U.S.C. 351(a)). Proposed Sec. 23.30(b) of this rule
would implement section 8(b) of the Executive order, which provides
that for SCA-covered contracts, the Executive order applies only to
those prime contracts that exceed the $2,500 threshold for prevailing
wage requirements specified in the SCA. 86 FR 22837. Consistent with
the SCA, there is no value threshold requirement for subcontracts
awarded under such prime contracts.
In the NPRM, the Department emphasized that service contracts that
are not subject to the SCA may still be covered by the order if such
contracts qualify as concessions contracts or contracts in connection
with Federal property or lands and related to offering services to
Federal employees, their dependents, or the general public pursuant to
sections 8(a)(i)(C) and (D) of the order. Because service contracts may
be covered by the order if they fall within any of these three
categories (e.g., SCA-covered contracts, concessions contracts, or
contracts in connection with Federal property and related to offering
services), the Department anticipated that most contracts for services
with the Federal Government would be covered by the Executive order and
part 23.
The Center for Workplace Compliance commended this interpretation
of service contracts for its consistency with the approach taken in the
regulations implementing Executive Order 13658. The Department also
received a number of comments requesting that the Department opine as
to whether a particular legal instrument is covered by the SCA and thus
by Executive Order 14026. For example, the Cline Williams Law Firm
requested that the Department determine that contracts between the
Federal Government and Federally Qualified Health Centers (FQHCs) to
provide medical services to the public are not covered by Executive
Order 14026 because they are not subject to the SCA.\11\ The Home Care
Association of America also requested that the Department exempt from
SCA and/or Executive Order 14026 coverage home care providers providing
services pursuant to certain agreements with the U.S. Veterans
Administration (VA), including Veterans Care Agreements and services
provided via the VA Community Care Network. Based on the information
provided by these commenters, it does not appear that medical service
contracts with FQHCs or the specified VA contracts would qualify as
concessions contracts or as contracts in connection with Federal
property or lands and related to offering services to Federal
employees, their dependents, or the general public; the key question
then is whether such contracts are subject to the Service Contract Act.
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\11\ In its comment, the Cline Williams Law Firm asserts, inter
alia, that FQHCs are not subject to the SCA because the services
that they provide are essentially professional medical services that
are performed predominantly by healthcare professionals. The
Department confirms that a contract for professional services
performed essentially by bona fide professional employees, with the
use of service employees being only a minor factor in contract
performance, is not covered by the SCA and thus would not be covered
by the Executive Order or this part. See 41 U.S.C. 6702(a)(3); 29
CFR 4.113(a), 4.156; WHD Field Operations Handbook (FOH) ]] 14b05,
14c07. As reflected in the FOH, however, WHD has explained that
``[i]n practice, a 10 to 20 percent guideline has been used to
determine whether there is more than a minor use of service
employees.'' WHD FOH 14c07(b); see also 29 CFR 4.113(a)(3); In re:
Nat'l Cancer Inst., BSCA No. 93-10, 1993 WL 832143 (Dec. 30, 1993).
The Department thus observes that, because their use of service
employees often exceeds that threshold, many federal contracts for
medical services are in fact covered by the SCA.
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The Department notes that, with respect to these and similar
comments seeking an official determination as to the SCA's
applicability to a particular legal agreement, this rulemaking is not
the proper forum for obtaining such a determination. A determination
that a particular contract is covered by the SCA would have
implications beyond this rulemaking, in part because SCA-covered
contracts are also subject to other relevant Executive orders
pertaining to federal contractors, including Executive Order 13658 and
Executive Order 13706, ``Establishing Paid Sick Leave for Federal
Contractors.'' Moreover, and while the comments submitted on these
questions were helpful, the Department lacks sufficient information and
contract-related documentation about these particular legal instruments
to definitively opine on their coverage under the SCA, which requires a
fact-specific analysis. The Department invites stakeholders with
questions regarding potential SCA coverage of particular legal
instruments to follow the procedures set forth in 29 CFR 4.101(g) to
obtain an official ruling or interpretation as to SCA coverage. In the
event that the Department is called upon to issue a coverage
determination under the SCA regarding such contracts and determines
that such contracts are not covered by the SCA, they would not be
subject to Executive Order 14026 if, as appears to be the case, they do
not fall within any other enumerated category of covered contracts. If
such a contract is ultimately determined to be covered by the SCA, it
would also qualify as a covered contract under Executive Order 14026
assuming all other requisite conditions were met (e.g., that the
contract qualified as a ``new contract'' under this part). Because the
Executive order reflects a clear intent to broadly cover federal
service contracts and the Department finds the Home Care Association of
America's general claims of hardship that could result from application
of the order to the specified VA contracts to be inconsistent with the
economy and efficiency rationale underlying Executive Order 14026, the
Department believes that it would be inappropriate to grant a special
exemption from the Executive order for these types of agreements.\12\
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\12\ The Department acknowledges that the VA MISSION Act itself
expressly provides that ``an eligible entity or provider that enters
into [a Veterans Care Agreement] under this section shall not be
treated as a Federal contractor or subcontractor for purposes of
chapter 67 of title 41 (commonly known as the `McNamara-O'Hara
Service Contract Act of 1965').'' 38 U.S.C. 1703A(i)(3). Without
opining more broadly on the other types of contracts discussed by
the Home Care Association of America, the Department confirms that
providers operating under agreements authorized by this specific
statutory provision of the VA MISSION Act are thus not subject to
the SCA and would likewise not be covered by Executive Order 14026.
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The Department notes that it received many comments, largely from
stakeholders in the outdoor recreational industries, pertaining to the
Executive Order's coverage of special use permits issued by the Forest
Service, Commercial Use Authorizations (CUAs) issued by the National
Park Service (NPS), and outfitter and guide permits issued by the
Bureau of Land Management (BLM) and the U.S. Fish and Wildlife Service
(USFWS), respectively. Although these comments are addressed in more
detail in the preamble section pertaining to the coverage of contracts
in connection with Federal property and related to offering services,
the Department notes that such contracts may also be covered by the
SCA.
As recognized by the Department's Administrative Review Board
(ARB), Forest Service special use permits generally qualify as SCA-
covered contracts, unless they fall within the
[[Page 67148]]
SCA exemption for certain concessions contracts contained in 29 CFR
4.133(b). See Cradle of Forestry in America Interpretive Assoc., ARB
Case No. 99-035, 2001 WL 328132, at *5 (ARB March 30, 2001) (stating
that ``whether Forest Service [special use permits] are exempt from SCA
coverage as concessions contracts would need to be evaluated based upon
the specific services being offered at each site''). Thus, because they
generally qualify as SCA-covered contracts, Forest Service special use
permits will typically be subject to Executive Order 14026's
requirements under section 8(a)(i)(B) of the Order and Sec.
23.30(a)(1)(ii). To the extent that the 29 CFR 4.133(b) exemption from
SCA coverage applies with respect to a specific special use permit,
such a contract will nonetheless generally be subject to the Executive
order's requirements under section 8(a)(i)(C) or (D) of the Order and
Sec. 23.30(a)(1)(iii) or (iv).
Many stakeholders in the outdoor recreational industries described
in their comments that they provide critical services to the general
public on federal lands. The Department's understanding is that many
such contractors enter into CUA agreements with the NPS, and outfitter
and guide permit agreements with the BLM and USFWS, respectively. The
principal purpose of these legal instruments (akin to the agreement at
issue in the Cradle of Forestry decision cited above) seems to be
furnishing services through the use of service employees. If this is
true, the SCA and thus Executive Order 14026 may generally cover the
CUA and outfitter and guide permit agreements that contractors enter
into with the NPS, BLM, and USFWS, respectively. The Department notes
that a further discussion of the application of section 8(a)(i)(D) of
the Executive Order to Forest Service special use permits, NPS CUAs,
and BLM and USFWS outfitter and guide permits is set forth below in the
discussion of contracts in connection with Federal property and related
to offering services for Federal employees, their dependents, or the
general public.
The Department did not receive other comments regarding its
proposed coverage of service contracts and thus finalizes Sec.
23.30(a)(1)(ii) as proposed.
Contracts for Concessions: Proposed Sec. 23.30(a)(1)(iii)
implemented Executive Order 14026's coverage of a ``contract or
contract-like instrument for concessions, including any concessions
contract excluded by Department of Labor regulations at 29 CFR
4.133(b).'' 86 FR 22837. The proposed definition of concessions
contract was addressed in the discussion of proposed Sec. 23.20. The
discussion of covered concessions contracts herein is consistent with
the treatment of concessions contracts set forth in the Department's
final rule implementing Executive Order 13658. See 79 FR 60652.
The SCA generally covers contracts for concessionaire services. See
29 CFR 4.130(a)(11). Pursuant to the Secretary's authority under
section 4(b) of the SCA, however, the SCA's regulations specifically
exempt from coverage concession contracts ``principally for the
furnishing of food, lodging, automobile fuel, souvenirs, newspaper
stands, and recreational equipment to the general public.'' 29 CFR
4.133(b); 48 FR 49736, 49753 (Oct. 27, 1983).\13\ Proposed Sec.
23.30(a)(1)(iii) extended coverage of the Executive order and part 23
to all concession contracts with the Federal Government, including
those exempted from SCA coverage. For example, the Executive order
generally covers souvenir shops at national monuments as well as boat
rental facilities and fast food restaurants at National Parks. The
Department noted that Executive Order 14026 and part 23 would cover
contracts in connection with both seasonal recreational services and
seasonal recreational equipment rental when such services and equipment
are offered to the general public on Federal lands. In addition,
consistent with the SCA's implementing regulations at 29 CFR 4.107(a),
the Department noted that the Executive order generally applies to
concessions contracts with nonappropriated fund instrumentalities under
the jurisdiction of the Armed Forces or other Federal agencies.
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\13\ This exemption applies to certain concessions contracts
that provide services to the general public, but does not apply to
concessions contracts that provide services to the Federal
Government or its personnel or to concessions services provided
incidentally to the principal purpose of a covered SCA contract.
See, e.g., 29 CFR 4.130 (providing an illustrative list of SCA-
covered contracts); In the Matter of Alcatraz Cruises, LLC, ARB Case
No. 07-024, 2009 WL 250456 (ARB Jan. 23, 2009) (holding that the SCA
regulatory exemption at 29 CFR 4.133(b) does not apply to National
Park Service contracts for ferry transportation services to and from
Alcatraz Island).
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Proposed Sec. 23.30(b) was substantively identical to the
analogous provision in the regulations implementing Executive Order
13658, see 29 CFR 10.3(b), and implemented the value threshold
requirements of section 8(b) of Executive Order 14026. 86 FR 22837.
Pursuant to that section, the Executive order applies to an SCA-covered
concessions contract only if it exceeds $2,500. Id.; 41 U.S.C.
6702(a)(2). Section 8(b) of the Executive order further provides that,
for procurement contracts or contract-like instruments where workers'
wages are governed by the FLSA, such as any procurement contracts for
concessionaire services that are excluded from SCA coverage under 29
CFR 4.133(b), part 23 applies only to contracts that exceed the $10,000
micro-purchase threshold, as defined in 41 U.S.C. 1902(a). There is no
value threshold for application of Executive Order 14026 and part 23 to
subcontracts awarded under covered prime contracts or for non-
procurement concessions contracts that are not covered by the SCA.
The Department received many comments regarding Executive Order
14026's coverage of concessions contracts. As a threshold matter, a
number of commenters, such as the AOA, the Association of Military
Banks of America (AMBA), and the Defense Credit Union Council (DCUC),
asserted in part that the concessionaires they represent do not qualify
as federal contractors because they do not operate under procurement
contracts and/or are not considered federal contractors subject to the
FAR or other procurement statutes and regulations. As explained in the
NPRM and above, Executive Order 14026 applies to both covered
procurement and non-procurement contracts, including contracts that are
not subject to the FAR.
Consistent with the regulations implementing Executive Order 13658,
the Department has broadly defined a concessions contract as any
contract under which the Federal Government grants a right to use
Federal property, including land or facilities, for furnishing services
without any substantive restrictions on the type of services provided
or the beneficiary of the services rendered. This broad interpretation
of the term ``concessions'' best effectuates the inclusive nature of
Executive Order 14026 and provides clarity and consistency to
stakeholders by mirroring the existing coverage of Executive Order
13658. By expressly applying to both concessions contracts covered by
the SCA as well as concessions contracts exempt from the SCA, Executive
Order 14026 is explicitly intended to cover concessions contracts for
the benefit of the general public as well as for the benefit of the
Federal Government itself and its personnel. The Department would thus
generally view contracts for the provision of noncommercial educational
or interpretive services, energy, transportation, communications, or
water services to the general public as within the scope of concessions
contracts covered by the Order.
[[Page 67149]]
Importantly, and regardless of the scope of the term
``concessions,'' the Department emphasizes that many such concessions
contracts may qualify as SCA-covered contracts and are also likely to
fall within the scope of the fourth category of covered contracts set
forth at section 8(a)(i)(D) of the Executive Order because such
contracts are entered into ``in connection with Federal property'' and
``related to offering services for . . . the general public.'' \14\ At
the same time, the Department recognizes and agrees that the
interpretation of the term ``concessions'' for purposes of Executive
Order 14026 and this final rule, and the resulting determination that
many concessionaires are federal contractors for purposes of this
Executive order and rule, does not mean that such entities and
contracts are covered by other laws pertaining to federal contractors;
the Department's interpretation here is limited to Executive Order
14026.
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\14\ For example, the lease and operating agreement under which
a bank or credit union operates on military installations may
qualify as SCA-covered contracts, concessions contracts, and/or
contracts in connection with Federal property or lands and related
to offering services for Federal employees, their dependents, or the
general public; if such a covered contract also qualifies as a ``new
contract'' as described in this part, it will thus be subject to
Executive Order 14026.
---------------------------------------------------------------------------
The Department received a few comments, including from the U.S.
Small Business Administration's Office of Advocacy (SBA Advocacy),
expressing concern regarding application of Executive Order 14026 to
restaurant franchises on military installations. These comments
generally assert that the order imposes a uniquely burdensome
requirement on fast food restaurants on military bases because the
restaurant owners receive no funding from the Federal Government. They
state that such contractors generally pay rent and a portion of their
sales in exchange for the ability to conduct business on the military
installation. These commenters also assert that, due to restrictions in
their contracts with the Federal Government, they cannot raise the
prices that they charge for products sold on the military base above
the prices offered by competitors in a three-mile radius. A franchise
owner on a military base commented that he owns a small business and
will not be able to absorb the increase in labor costs that may result
from Executive Order 14026. The commenter asserted that being required
to pay the Executive order minimum wage would result in his business
terminating workers or closing store locations, both of which would
affect customer service. This franchise owner also asserted that
application of the Executive Order 14026 minimum wage to business
establishments on military installations would cause them to operate at
a competitive disadvantage because competitor businesses located off
the military base would not be affected. For these reasons, some
commenters urged the Department to exempt from the Executive Order
14026 minimum wage requirements any entities that do not receive direct
funds from the Federal Government (e.g., concessionaires).
The Department received similar comments from the AMBA and the
DCUC, respectively, requesting exemption of banks operating on military
installations and defense credit unions operating on military
installations. These comments raised similar concerns regarding the
adverse economic impact on these types of businesses as the other
concessaires voiced above. The AMBA explained that banks operating on
military installations provide services to both the Federal Government
and the base population pursuant to operating agreements between the
Military Service and the bank, which generally operate under five-year
lease agreements with the Military Service. The AMBA noted that rent is
often increased under such leases. As with the concessionaire comments
discussed above, the AMBA expressed that banks operating on military
bases generally do not receive direct funding from the Federal
Government, are unable to raise the prices for their services, and
cannot negotiate the rent. The AMBA further stated that, under such
operating agreements, the bank is constrained from promoting its
services outside the client base. The AMBA requested that the
Department either exempt banks operating on military installations from
coverage of Executive Order 14026 or require the Federal Government to
offset increased labor costs and the value of bank services from lease
costs. The DCUC similarly commented that defense credit unions
operating on military installations are non-profit entities that
provide their services free of charge as part of their operating
agreement with the installation commander, which means that the credit
unions generally cannot factor government-mandated costs into their
pricing model. Both the AMBA and the DCUC assert that application of
Executive Order 14026 to the businesses that they represent will lead
to more banks and credit unions leaving military bases or otherwise
reduce services being offered to the base.\15\
---------------------------------------------------------------------------
\15\ Many of these same concerns were expressed in comments
pertaining to outfitter and guide permits and licenses. All such
comments regarding such permits and licenses will be addressed in
the discussion of contracts in connection with federal land or
property and related to offering services below.
---------------------------------------------------------------------------
In response to all of the comments received about the economic
impact of Executive Order 14026 upon businesses operating on military
installations under concessions contracts and/or leases, the Department
notes that such comments do not appear to account for several factors
that the Department expects will substantially offset any potential
adverse economic effects on their businesses. In particular, increasing
the minimum wage of workers can reduce absenteeism and turnover in the
workplace, improve employee morale and productivity, reduce supervisory
costs, and increase the quality of services provided to the Federal
Government and the general public. These commenters similarly did not
discuss the potential that increased efficiency and quality of services
will attract more customers, even where the customer base may be
limited due to the enhanced security environment, and result in
increased sales or service fees.
The Department further notes that the types of contracts covered by
Executive Order 14026 are identical to the categories of contracts
covered by Executive Order 13658. While the Department recognizes that
the minimum wage under Executive Order 14026 is higher than that
imposed by Executive Order 13658, contractors operating on military
installations already have familiarity with the principles set forth in
Executive Order 14026 and this rule and likely have already found ways
to maintain their business operations, to reap the economy and
efficiency benefits of the applicable minimum wage, and to absorb or
offset any increased labor costs arising from the prior minimum wage
rate increase. The Department received numerous similar comments
regarding the potential adverse impacts of raising the minimum wage for
concessionaires on military installations during the 2014 rulemaking to
implement Executive Order 13658, see 79 FR 60653; despite the
significant concerns expressed regarding the Executive Order 13658
rulemaking, the Department is not aware of any substantial adverse
economic impact on such contractors resulting from that minimum wage
increase or any widespread closure of such businesses on military
installations due to
[[Page 67150]]
Executive Order 13658 in the seven years since those regulations were
finalized. Indeed, the commenters have not provided anecdotal or other
specific evidence that wage rate increases as a result of Executive
Order 13658 had any adverse economic impact on their operations. The
Department acknowledges that the AMBA presented information
demonstrating a general decline in banks operating on military
installations since 2004 due to ``a number of contributing economic and
operational factors,'' but the stated period of decline began 10 years
before Executive Order 13658 was issued, and AMBA does not refer to and
the Department is not aware of any such closures as a result of
Executive Order 13658 itself. The argument that an entity operating on
a military installation must terminate workers, reduce services, or
close businesses due to the new Executive order minimum wage
requirements therefore overlooks the benefits of the wage increase and
is not supported by the Department's experience in implementing and
enforcing Executive Order 13658.
The Department further notes that, for many contracting agencies
and contractors negotiating new contracts on or after January 30, 2022,
such parties will be aware of Executive Order 14026 and can take into
account any potential economic impact of the order on projected labor
costs. For example, with respect to some commenters' concerns regarding
the restrictions on pricing imposed by their concessions contracts, the
Department notes that contractors may have the ability to negotiate a
lower percentage of sales paid as rent or royalty to the Federal
Government in new contracts prior to application of the Executive order
that could help to offset any costs that may be incurred as a result of
the order. The Department recognizes that these negotiations may not be
possible or feasible for all contractual arrangements, but for at least
some contractors, the assertion that a franchisee must terminate
workers or close businesses due to the Executive Order 14026 minimum
wage requirements overlooks alternatives that may be available through
contract renegotiation.
Section 8(a)(i)(C) of Executive Order 14026 reflects a clear intent
that concessions contracts with the Federal Government be subject to
the minimum wage requirement. The Department therefore declines the
commenters' request to exempt entities that do not receive direct funds
from the Federal Government (e.g., concessionaires), including military
banks and defense credit unions operating on military installations,
because such an exemption would be wholly inconsistent with the
Executive order's express statement that federal concessions contracts
are covered by the order. With respect to AMBA's request that the
Department require the Federal Government to offset increased labor
costs and the value of bank services from lease costs, the Department
lacks such authority. The Department does, however, strongly encourage
contracting agencies to consider the economic impact of Executive Order
14026, particularly during contract negotiations, and to take all
reasonable and legally permissible steps to ensure that individuals
working pursuant to covered contracts are paid in accordance with
Executive Order 14026 and to ensure that the economy and efficiency
benefits of the order are realized.
With respect to general comments requesting additional examples of
concessions contracts that would be covered by Executive Order 14026,
the Department notes that such covered contracts would generally
include fast food restaurants on military bases, equipment rental
facilities at national parks, souvenir shops at national monuments, and
snack or gift shops in federal buildings. The Department notes that
such contracts could also fall within the scope of another specified
category of covered contracts (i.e., they may also qualify as SCA-
covered contracts or contracts in connection with Federal property or
lands and related to offering services for Federal employees, their
dependents, or the general public) because the four categories of
contracts covered by Executive Order 14026 are not mutually exclusive.
As described above, after careful consideration of the comments
received regarding this category of covered contracts, the Department
finalizes its proposed coverage of concessions contracts and the
relevant regulatory text at Sec. 23.30(a)(1)(iii), as set forth in the
NPRM.
Contracts in Connection with Federal Property or Lands and Related
to Offering Services: Proposed Sec. 23.30(a)(1)(iv) implemented
section 8(a)(i)(D) of the Executive order, which extends coverage to
contracts entered into with the Federal Government in connection with
Federal property or lands and related to offering services for Federal
employees, their dependents, or the general public. See 86 FR 22837;
see also 79 FR 60655 (Executive Order 13658 final rule preamble
discussion of identical provisions in Executive Order 13658 and 29 CFR
part 10). To the extent that such agreements are not otherwise covered
by Sec. 23.30(a)(1), the Department interpreted this provision in the
NPRM as generally including leases of Federal property, including space
and facilities, and licenses to use such property entered into by the
Federal Government for the purpose of offering services to the Federal
Government, its personnel, or the general public. In other words, as
the Department explained in the NPRM, a private entity that leases
space in a Federal building to provide services to Federal employees or
the general public would be covered by the Executive order and part 23
regardless of whether the lease is subject to the SCA. Although
evidence that an agency has retained some measure of control over the
terms and conditions of the lease or license to provide services is not
necessary for purposes of determining applicability of this section,
such a circumstance strongly indicates that the agreement involved is
covered by section 8(a)(i)(D) of the Executive order and proposed Sec.
23.30(a)(1)(iv). For example, a private fast food or casual dining
restaurant that rents space in a Federal building and serves food to
the general public would be subject to the Executive order's minimum
wage requirements even if the contract does not constitute a
concessions contract for purposes of the order and part 23. The
Department included in the NPRM additional examples of agreements that
would generally be covered by the Executive order and part 23 under
this approach, regardless of whether they are subject to the SCA, such
as delegated leases of space in a Federal building from an agency to a
contractor whereby the contractor operates a child care center, credit
union, gift shop, health clinic, or fitness center in the space to
serve Federal employees and/or the general public. Consistent with
contract coverage under Executive Order 13658, the Department
reiterated that the four categories of contracts covered by Executive
Order 14026 are not mutually exclusive. A delegated lease of space on a
military base from an agency to a contractor whereby the contractor
operates a barber shop, for example, would likely qualify both as an
SCA-covered contract for services and as a contract entered into with
the Federal Government in connection with Federal property or lands and
related to offering services for Federal employees, their dependents,
or the general public.
Despite this broad definition, the Department noted some
limitations to the order's coverage. Coverage under this section only
extends to contracts
[[Page 67151]]
that are in connection with Federal property or lands. The Department
did not interpret section 8(a)(i)(D)'s reference to ``[F]ederal
property'' to encompass money; as a result, purely financial
transactions with the Federal Government, i.e., contracts that are not
in connection with physical property or lands, would not be covered by
the Executive order or part 23. For example, if a Federal agency
contracts with an outside catering company to provide and deliver
coffee for a conference, such a contract would not be considered a
covered contract under section 8(a)(i)(D), although it would be a
covered contract under section 8(a)(i)(B) if it is covered by the SCA.
In addition, section 8(a)(i)(D) coverage only extends to contracts
``related to offering services for [F]ederal employees, their
dependents, or the general public.'' Therefore, if a Federal agency
contracts with a company to solely supply materials in connection with
Federal property or lands (such as napkins or utensils for a concession
stand), the Department would not consider the contract to be covered by
section 8(a)(i)(D) because it is not a contract related to offering
services. Likewise, because a license or permit to conduct a wedding on
Federal property or lands generally would not relate to offering
services for Federal employees, their dependents, or the general
public, but rather would only relate to offering services to the
specific individual applicant(s), the Department would not consider
such a contract covered by section 8(a)(i)(D).
Pursuant to section 8(b) of Executive Order 14026, 86 FR 22837, and
an analogous provision in the regulations implementing Executive Order
13658, see 29 CFR 10.3(b), proposed Sec. 23.30(b) explained that the
order and part 23 would apply only to SCA-covered prime contracts in
connection with Federal property and related to offering services if
such contracts exceed $2,500. Id.; 41 U.S.C. 6702(a)(2). For
procurement contracts in connection with Federal property and related
to offering services where employees' wages are governed by the FLSA
(rather than the SCA), part 23 would apply only to such contracts that
exceed the $10,000 micro-purchase threshold, as defined in 41 U.S.C.
1902(a). As to subcontracts awarded under prime contracts in this
category and non-procurement contracts in connection with Federal
property or lands and related to offering services for Federal
employees, their dependents, or the general public that are not SCA-
covered, there is no value threshold for coverage under Executive Order
14026 and part 23.
The Department received a number of comments regarding its proposed
coverage of contracts entered into with the Federal Government in
connection with Federal property or lands and related to offering
services for Federal employees, their dependents, or the general
public. Many of these comments pertained to the Executive order's
applicability to outfitters and guides operating on federal property or
lands, although the Department notes that this category of covered
contracts pertains to a much broader array of service contracts and
industries than the outdoor recreational industry. As a threshold
matter, the Department notes that it discusses all comments regarding
the rescission of Executive Order 13838, which exempted certain
recreational service contracts from coverage of Executive Order 13658,
in the next section immediately following this discussion of contracts
in connection with federal lands and related to offering services.
Other relevant comments pertaining to this category of covered
contracts are discussed below.
Several commenters, such as NELP and the Teamsters, expressed
support for Executive Order 14026's coverage of contracts entered into
with the Federal Government in connection with federal property or
lands and related to offering services for federal employees, their
dependents, or the general public, and for the Department's
interpretation of such coverage in this part. However, many other
commenters, including the National Forest Recreation Association and
the National Park Hospitality Association, strongly opposed application
of Executive Order 14026 to these legal arrangements and expressed
skepticism that the President has authority under the Procurement Act
to impose a minimum wage requirement upon non-procurement contracts
falling within the scope of this provision. As previously discussed,
the Department regards comments pertaining to the legality of the
issuance of Executive Order 14026 as beyond the scope of this
rulemaking.
Although many commenters recognized that the proposed coverage of
this category of contracts mirrors the coverage principles enunciated
in the final rule implementing Executive Order 13658, several
commenters questioned whether particular legal instruments, such as
Forest Service special use permits, NPS CUAs, and BLM and USFWS
outfitter and guide permits, constitute ``contracts'' under Executive
Order 14026.
As previously discussed in the context of the proposed definition
of the terms contract and contract-like instrunment, the Department has
defined these terms collectively for purposes of the Executive order as
an agreement between two or more parties creating obligations that are
enforceable or otherwise recognizable at law. This definition broadly
includes all contracts and any subcontracts of any tier thereunder,
whether negotiated or advertised, including but not limited to lease
agreements, licenses, and permits. The types of instruments identified
above (i.e., outfitter and guide permits, SUPs, and CUAs) authorize the
use of Federal land for specific purposes in exchange for the payment
of fees to the Federal Government. Such instruments create obligations
that are enforceable or otherwise recognizable at law and hence
constitute contracts for purposes of Executive Order 14026 and this
part.
The determination of whether an agreement qualifies as a contract
under Executive Order 14026 and this part does not depend upon whether
such agreements are characterized as ``contracts'' for other purposes,
including under the specific programs that authorize and administer
such agreements. However, the Department nonetheless notes that its
conclusion that such instruments are contracts for purposes of
Executive Order 14026 is consistent with relevant precedent. For
example, and as noted above in the preamble discussion of SCA-covered
contracts, the ARB has held that a Forest Service special use permit is
a contract under the SCA, see Cradle of Forestry, 2001 WL 328132, at
*5, and the Department likewise has determined that Forest Service
special use permits constitute contracts for purposes of the FLSA. See
DOL Opinion Letter, WH-449, 1978 WL 51447 (Jan. 26, 1978) (Forest
Service SUP was a contract for purposes of FLSA section 13(a)(3)); DOL
Opinion Letter, 1995 WL 1032476 (March 24, 1995) (Department of
Agriculture license to operate amusement rides constituted a contract
for purposes of FLSA section 13(a)(3)).
In its comment, Colorado Ski Country USA (CSCUSA) urged the
Department to revisit its conclusion in the 2014 rulemaking
implementing Executive Order 13658 that Forest Service ski area permits
qualify as contracts or, if the Department reaffirms such a conclusion,
requested that the Department specify in the final rule that this
determination does not render ski area operators ``federal
contractors'' with respect to other federal laws. In response to such
comments, and as noted elsewhere in this final rule, Executive Order
14026
[[Page 67152]]
expressly applies to nonprocurement contracts that are not subject to
the FAR; the fact that Forest Service ski area permits, or other such
agreements, are not subject to Federal procurement requirements does
not weigh against application of the Executive order to such permits.
Forest Service ski area permits constitute an agreement with the
Federal Government creating obligations that are enforceable or
otherwise recognizable at law; such permits enable the holder to offer
services to the general public on federal land. However, the
Department's conclusion that Forest Service special use permits, CUAs,
and similar instruments constitute contracts under Executive Order
14026 and this final rule does not render the holders of such
agreements ``federal contractors'' with respect to other laws.
Importantly, the fact that permits, licenses, and CUAs qualify as
contracts for purposes of the Executive order does not necessarily mean
individuals performing work on or in connection with such contract are
covered workers. In order for the minimum wage protections of Executive
Order 14026 to extend to a particular worker performing work on or in
connection with a covered contract, that worker's wages must be
governed by the DBA, FLSA, or SCA. The FLSA generally governs the wages
of employees of holders of CUAs issued by the NPS and permits issued by
the Forest Service, BLM and USFWS, at least to the extent such
instruments are not covered by the SCA.
The Department received several comments requesting clarification
as to the relevance under the Executive order of 29 U.S.C. 213(a)(3),
which exempts employees of certain seasonal amusement and recreational
establishments from the FLSA's minimum wage and overtime provisions. As
reflected in the exclusion set forth at Sec. 23.40(e) of this part,
Executive Order 14026 does not apply to employees employed by
establishments that qualify as ``an amusement or recreational
establishment, organized camp, or religious or non-profit educational
conference center'' and meet the criteria for exemption set forth at 29
U.S.C. 213(a)(3), unless such workers are otherwise covered by the DBA
or SCA. That being said, the Department notes that the FLSA's section
13(a)(3) exemption expressly ``does not apply with respect to any
employee of a private entity engaged in providing services or
facilities (other than, in the case of the exemption from section 206
of this title, a private entity engaged in providing services and
facilities directly related to skiing) in a national park or a national
forest, or on land in the National Wildlife Refuge System, under a
contract with the Secretary of the Interior or the Secretary of
Agriculture.'' See 29 U.S.C. 213(a)(3). As explained above, the
Department has concluded that the holders of CUAs issued by the NPS,
and permits issued by the Forest Service, BLM and USFWS, are operating
under a contract with the Secretary of the Interior or the Secretary of
Agriculture. Thus, the FLSA's section 13(a)(3) exemption will typically
not apply to such holders. In sum, to the extent that (i) an entity
satisfies the criteria for the 29 U.S.C. 213(a)(3) exemption under the
FLSA, and (ii) the wages of the entity's workers are also not governed
by the SCA or DBA, Executive Order 14026 would not apply to the
entity's workers.
Numerous commenters asserted that the types of agreements that the
Department has determined fall within the scope of contracts in
connection with federal property or land and related to offering
services, such as Forest Service special use permits and BLM and USFWS
outfitter and guide permits, contain unique provisions or reflect
unique circumstances that render them unlike other more traditional
federal contracts; many such commenters thus urged that such agreements
be exempt from coverage of Executive Order 14026. Many commenters,
including the AOA and SBA Advocacy, noted that, unlike procurement
contracts, these instruments do not contain a mechanism by which the
holder of the instrument can ``pass on'' potential costs related to
operation of the Executive order to contracting agencies; indeed, such
commenters noted that holders of these instruments typically pay the
Federal Government for the opportunity to provide services on federal
lands. Commenters, like the AOA, also noted that the holders of such
instruments may have only limited ability to ``pass on'' increased
labor costs to the public because rates are often subject to government
regulation. In any event, such commenters observed, increasing costs
charged to the general public for such services on federal lands would
run contrary to current policy efforts to expand access to outdoor
recreational opportunities, particularly among traditionally
underrepresented or underserved communities. Such commenters also
generally argued that Executive Order 14026 will cause such permit
holders to operate at a competitive disadvantage because competitor
businesses not operating under contracts covered by the Executive order
would not be affected and covered businesses could therefore lose
customers to competitors.
Other commenters, such as AVA Rafting & Zipline, the Colorado
Adventure Center, and the Nantahala Outdoor Center, noted that
application of Executive Order 14026 to their outfitter and guide
permits would result in their business needing to reduce employee work
hours, reduce services, or increase prices such that only the wealthy
will be able to enjoy the services offered, thereby potentially causing
individuals to attempt excursions on federal lands without the use of
expert guides. A few commenters, like Lasting Adventures, Inc., noted
that Executive Order 14026 will significantly increase the labor costs
of entities performing overnight and/or multi-day excursions in
national parks, where overtime costs will be substantial and are
unavoidable. Several commenters, including AOA and SBA Advocacy, thus
asserted that application of Executive Order 14026 to such instrument
holders, particularly for small businesses, will be financially
devastating. For these reasons, some commenters, including the Clear
Creek Rafting Company, the Colorado River Outfitters Association,
Indian Head Canoes, Lasting Adventures, Inc., Nantahala Outdoor Center,
and Plum Branch Yacht Club, requested that the Department exempt from
coverage of Executive Order 14026 concessionaires, lease holders, and/
or seasonal recreational businesses, or a smaller subset of such
stakeholders, who have contracts and permits on Federal property or
lands.
As a threshold matter, the Department notes that many of these
comments regarding the financial impact of the Executive order upon
this category of covered contracts are addressed in detail in the
economic impact analysis set forth in section IV of the final rule. In
response to these comments regarding the financial impact of Executive
Order 14026 upon such permittees, licensees, and CUA holders, the
Department recognizes and acknowledges that there may be particular
challenges and constraints experienced by non-procurement contractors
that do not exist under more traditional procurement contracts.
Nonetheless, the Department anticipates that the economy and efficiency
benefits of Executive Order 14026 will offset potential costs,
including for the holders of these legal instruments. As with the
comments from businesses operating on military installations under
concessions
[[Page 67153]]
contracts discussed above, these comments generally do not account for
several factors that the Department expects will substantially offset
any potential adverse economic effects on their businesses arising from
application of the Executive order. In particular, these commenters do
not seem to consider that increasing the minimum wage of their workers
can reduce absenteeism and turnover in the workplace, improve employee
morale and productivity, reduce supervisory and training costs, and
increase the quality of services provided to the Federal Government and
the general public. These commenters similarly do not account for the
potential that increased efficiency and quality of services will
attract more customers and result in increased sales. Such benefits may
be realized even where the contractor has limited ability to transfer
costs to the contracting agency or raise prices of the services that it
offers.
With respect to the comments requesting exemption of such contracts
from coverage of Executive Order 14026, the Department notes that
section 8(a)(i)(D) of Executive Order 14026 states that contracts in
connection with Federal property and related to offering services for
federal employees, their dependents, or the general public are subject
to the minimum wage requirement. Moreover, and as discussed in the next
section, Executive Order 14026 expressly rescinds, as of January 30,
2022, Executive Order 13838, which exempted many such contracts from
coverage of Executive Order 13658. Executive Order 14026 thus evinces a
clear intent that such contracts should be subject to its requirements.
For the reasons explained above, the Department therefore declines
commenters' request to create an exemption for permittees, licensees,
and CUA holders.
With respect to commenter requests for clarification as to whether
particular legal arrangements qualify as covered contracts in
connection with federal property or lands and related to offering
services, such comments generally did not provide sufficient
information for the Department to be able to definitively opine on
their coverage. The Department encourages commenters and other
stakeholders with specific coverage questions to contact WHD for
compliance assistance in determining their rights and responsibilities
under Executive Order 14026. However, the Department can address a few
specific questions and hypotheticals in order to provide additional
clarity to the general public regarding the scope of coverage of this
category of contracts. Importantly, coverage of contracts in connection
with federal property or lands set forth in section 8(a)(i)(D) only
extends to contracts ``related to offering services for Federal
employees, their dependents, or the general public.'' Thus, if an
entity obtains a license or permit to provide services on federal
lands, but such services are not being offered to the Federal
Government, federal employees, their dependents, or the general public,
that particular license or permit would not be subject to the Executive
order. For example, the Center for Workplace Compliance requested
clarification as to whether the Executive order would apply if a
federal contractor negotiated a right-of-way to use federal lands, but
that right-of-way was not related to offering services to federal
employees, their dependents, or the general public. The Department
confirms that, if the right-of-way is not in any way related to
offering services to the Federal Government, its employees, their
dependents, or the general public, such a legal instrument would not be
covered by Executive Order 14026.
The Department also received a few comments, such as from MAD
Adventures & Grand Adventures, the Nantahala Outdoor Center, and the
NSAA, requesting clarification about how Executive Order 14026 applies
to recreational service providers that operate businesses on both
private and federal lands, including whether workers performing on
private lands are subject to the Executive order. SBA Advocacy, for
example, questioned how the Executive order would impact an outfitter
providing river tours that has multiple Forest Service permits, but
also operates nearby activities, restaurants, and lodging on private
lands and only 60 percent of their employees work in areas that have
anything to do with the federal permits. In response to these and
similar examples raised by commenters, the Department first emphasizes
that the Executive order minimum wage rate must be paid to workers
performing on or in connection with covered contracts, regardless of
where such workers are located. See 79 FR 60658 (advising that
Executive Order 13658 applies to ``FLSA-covered employees working on or
in connection with DBA-covered contracts regardless of whether such
employees are physically present on the DBA-covered construction
worksite''). For example, assume that a guide operates a business
offering multi-day hiking and camping excursions in a national park
pursuant to a permit that is covered by Executive Order 14026. If,
during the course of the multi-day excursion, the guide briefly must
lead its customers across a stretch of non-federal land that is
technically owned by the state, such worker would still be regarded as
performing ``on'' the covered contract and entitled to the Executive
order minimum wage rate even for the time spent on non-federal land. If
the guide employs a clerk at the company's off-site headquarters to
process payroll for its workers leading excursions in the national
park, that clerk would be regarded as peforming ``in connection with''
the covered contract even though they are not directly working on
federal lands and would be entitled to the Executive order minimum wage
for such time (unless they fall within the scope of the ``20 percent
exemption'' provided at Sec. 23.40(f) and discussed below).
Importantly, however, Executive Order 14026 only requires that
workers be paid the Executive order minimum wage for hours worked on or
in connection with a covered contract. The category of covered
contracts set forth at section 8(a)(i)(D) of the order is limited to
contracts that are in connection with federal lands or property. In the
example presented by SBA Advocacy, the outfitter providing river tours
pursuant to a covered Forest Service permit must pay the applicable
Executive order minimum wage rate to its workers performing on or in
connection with that permit. However, to the extent that the outfitter
conducts separate and distinct activities on private land in the area,
it is unlikely that the Executive order would apply to such activities.
Unless the contractor is operating pursuant to an SCA-covered contract
with the Federal Government, that contractor's separate and distinct
recreational services (or other commercial activities) on private land
would not be subject to Executive Order 14026. (The Department notes
that, to the extent that a permit or license is subject to the SCA
because it is a contract with the Federal Government principally for
services through the use of service employees, such contract would be
covered by the Executive order regardless of whether the services are
performed on public or private land. In the example given, however,
where an outfitter operates river tours in an adjacent state park or
owns a restaurant in a nearby town, for example, there is no indication
that the SCA would apply to such situations.) This same analysis would
apply to the Executive order's coverage of subcontracts.\16\
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\16\ In its comment, the NSAA asserts that ``a unique, industry-
specific federal law'' called the Fee Provision Statute, see 16
U.S.C. 497c, essentially precludes the Department from asserting
Executive Order 14026 coverage over subcontracts for ski areas
operating under Forest Service special use permits that, inter alia,
are performed on private land. The Department disagrees with such an
assertion and perceives no conflict between these two laws.
Executive Order 14026 creates an independent legal obligation that
is distinct from requirements that may exist under the Fee Provision
Statute; neither the Executive order nor this rule modify any
applicable definitions or requirements under the Fee Provision
Statute pertaining to subcontracts. Contrary to the NSAA's
assertion, Executive Order 14026 in no way ``seeks to redefine the
scope of the rental fee provisions within these special use
permits'' as established under that statute.
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[[Page 67154]]
The Department also received several specific requests for the
Department to provide clarification on the Executive order's
application to particular factual circumstances that may fall within
this category of contracts, such as wilderness therapy programs,
outdoor behavioral health services, day and residential youth camps,
and other arrangements for services provided on federal lands. The
Department lacks sufficient factual information regarding these
programs and their authorizing contracts to be able to definitively
determine their coverage in this final rule, but encourages such
stakeholders with questions regarding coverage of their particular
contacts to either informally contact WHD for compliance assistance or
to follow the procedures set forth in this rule to obtain a formal
ruling or interpretation as to coverage.
The Department appreciates the many comments received regarding its
proposed coverage of contracts in connection with federal property or
lands and related to offering services. For the reasons explained
above, the Department adopts Sec. 23.30(a)(1)(iv) as proposed.
Rescission of Executive Order 13838 Exemption for Contracts in
Connection with Seasonal Recreational Services and Seasonal
Recreational Equipment Rental Offered for Public Use on Federal Lands:
As previously discussed, Executive Order 13658 was issued on February
12, 2014, and established a minimum wage rate that applied to the same
four types of Federal contracts to which Executive Order 14026 applies.
On May 25, 2018, Executive Order 13838 amended Executive Order 13658 to
exclude from coverage contracts entered into with the Federal
Government in connection with seasonal recreational services or
seasonal recreational equipment rental for the general public on
Federal lands. On September 26, 2018, the Department implemented
Executive Order 13838 by adding the required exclusion to the
regulations for Executive Order 13658 at 29 CFR 10.4(g). See 83 FR
48537.
Section 6 of Executive Order 14026 revokes Executive Order 13838 as
of January 30, 2022. See 86 FR 22836. The NPRM thus explained that, as
of January 30, 2022, contracts entered into with the Federal Government
in connection with seasonal recreational services or seasonal
recreational equipment rental for the general public on Federal lands
will be subject to the minimum wage requirements of either Executive
Order 13658 or Executive Order 14026 depending on the date that the
relevant contract was entered into, renewed, or extended. (See the
preamble discussion accompanying Sec. 23.30 above for more information
regarding the interaction between Executive Orders 13658 and 14026 with
respect to contract coverage.) Such contracts include contracts in
connection with river running, hunting, fishing, horseback riding,
camping, mountaineering activities, recreational ski services, and
youth camps offered for public use on Federal lands. To effectuate the
rescission of Executive Order 13838, the Department proposed to remove
in its entirety the exclusion of such contracts set forth at Sec.
10.4(g) in the regulations implementing Executive Order 13658.
Consistent with such rescission, the Department also declined to
exclude such contracts in part 23.
The Department received many comments regarding Executive Order
14026's rescission of Executive Order 13838 and the Department's
proposed interpretation of such rescission. Several commenters,
including A Better Balance, the AFL-CIO and CWA, AFSCME, NELP, the
SEIU, and the Teamsters, expressed strong support for this rescission.
NELP, for example, asserted that Executive Order 13838 ``unjustly
excluded those providing recreational service work on federal lands
from the contractor minimum wage'' and commended Executive Order 14026
for restoring minimum wage protections to workers performing on or in
connection with such contracts. The Center for Workplace Compliance did
not express any opinion on the policy decision itself, but stated that
the Department's proposal that ``[c]ertain concessions contracts with
respect to seasonal recreational services or equipment rental are not
excluded from coverage'' pursuant to this rescission is ``compelled
by'' and ``consistent with'' the policy decisions set forth in
Executive Order 14026.
The Department also received many comments, including from the AOA,
Nantahala Outdoor Center, and Tennessee Paddlesports Association,
strongly opposing the rescission of Executive Order 13838 and
requesting that the President or the Department extend the existing
exemption for recreational service contracts under Executive Order
13658 and create a new similar exemption for such contracts under
Executive Order 14026. Several commenters, including the AOA, asserted
that the Department's NPRM ``grossly misstate[d]'' the future
applicability of Executive Order 13658 and Executive Order 14026 to
contracts covered by Executive Order 13838.
As a threshold matter, and as recognized by many commenters,
section 6 of Executive Order 14026 explicitly revokes Executive Order
13838, as of January 30, 2022. See 86 FR 22836. The Executive order
itself thus reflects a clear intent that, as of January 30, 2022,
contracts entered into with the Federal Government in connection with
seasonal recreational services or seasonal recreational equipment
rental for the general public on Federal lands should no longer be
exempt from the minimum wage requirement of Executive Order 13658.
Moreover, section 8 of Executive Order 14026 reflects that such
contracts are intended to be covered by this Executive order to the
extent they qualify as ``new contracts'' on or after January 30, 2022.
The Department therefore does not have the authority to unilaterally
exempt such contracts from either Executive Order 13658 or Executive
Order 14026; such exclusions would be in clear derogation of both the
letter and spirit of Executive Order 14026.
The Department recognizes, however, that some of its statements in
the NPRM could be construed in an overbroad or imprecise manner and
thus endeavors to clarify in this final rule the coverage of contracts
that are currently exempt by Executive Order 13838. In order to do so,
and in response to confusion and concern expressed by some commenters,
such as the AOA and River Riders, Inc., the Department will address
coverage regarding each potential subset of these contracts below:
(1) Recreational Service Contracts Entered Into Prior to January 1,
2015: In its comment, AOA states that there are ``existing contracts in
place pre-dating Executive Order 13658 that would not have been
considered `new' contracts under Executive Order 13658 and thus . . .
would not be subject to the minimum wage requirements of that Executive
Order.'' The Department agrees that, to the extent that an existing
contract was entered into prior to January 1, 2015, and has not been
subsequently renewed, extended, or
[[Page 67155]]
amended pursuant to a modification that is outside the scope of the
contract, such contract would not qualify as a ``new contract'' under
Executive Order 13658 and would not be subject to its minimum wage
requirement. The Department notes that, if such contract is renewed or
extended, pursuant to an exercised option period or otherwise, on or
after January 30, 2022, it would qualify as a ``new contract'' under
Executive Order 14026.
(2) Recreational Service Contracts Entered Into, Renewed, Extended,
or Amended Pursuant to a Modification Outside the Scope Between January
1, 2015 and January 29, 2022: Executive Order 13838 currently exempts
contracts in connection with seasonal recreational services or seasonal
recreational equipment rental for the general public on federal lands
that otherwise would have qualified as ``new contracts'' under
Executive Order 13658 (i.e., contracts that were entered into, renewed,
extended, or amended pursuant to an outside-the-scope modification
between January 1, 2015 and January 29, 2022) from coverage of
Executive Order 13658. The AOA correctly notes that Executive Order
13838 is not rescinded until January 30, 2022, and thus it presently
exempts such contracts from the Executive Order 13658 minimum wage
requirement. As of January 30, 2022, Executive Order 13838 is
rescinded. To implement this rescission, contracting agencies will need
to take steps, to the extent permitted by law, to exercise any
applicable authority to insert the Executive Order 13658 contract
clause into contracts that were entered into, renewed, extended, or
amended pursuant to an outside-the-scope modification between January
1, 2015 and January 29, 2022, and to ensure that those contracts comply
with the requirements of Executive Order 13658 on or after January 30,
2022.
The AOA accurately notes that Executive Order 13838 remains in
place until January 30, 2022; solicitations that are issued and
contracts that are entered into prior to January 30, 2022 thus will not
include the Executive Order 13658 contract clause until on or after
January 30, 2022. To the extent that the AOA suggests it is improper
for the Department to remove the existing regulatory exclusion for
recreational service contracts set forth at Sec. 10.4(g) as part of
this rulemaking, the Department strongly disagrees and notes that the
removal of this provision will not be effective until January 30, 2022,
consistent with the date of rescission stated in Executive Order 14026.
To be clear, the Department is not requiring, or even encouraging,
contracting agencies to take steps to insert (or re-insert) the
Executive Order 13658 minimum wage clause in existing recreational
service contracts until January 30, 2022; the Department agrees with
AOA that action to incorporate the Executive Order 13658 contract
clause into contracts exempted by Executive Order 13838 would not be
permissible until after Executive Order 13838 is officially rescinded.
(3) Recreational Service Contracts Entered Into, Extended, or
Renewed (Pursuant to an Option or Otherwise) On or After January 30,
2022: As recognized by most commenters, and consistent with the general
``new contract'' principles applicable to all covered contracts,
Executive Order 14026 will apply to brand-new recreational service
contracts that are entered into on or after January 30, 2022. Executive
Order 14026 will also apply to recreational service contracts that were
entered into prior to January 30, 2022, if, on or after January 30,
2022: (1) The contract is renewed; (2) the contract is extended; or (3)
an option on the contract is exercised.
The Department expects that these clarifications will resolve much
of the confusion expressed by commenters regarding the rescission of
Executive Order 13838. The Department adopts the provisions
implementing this rescission as proposed in the NPRM, but encourages
contracting agencies, contractors, and workers with questions about the
coverage of recreational service contracts to contact the WHD for
compliance assistance as needed.
Relation to the Walsh-Healey Public Contracts Act: Finally, in the
NPRM, the Department proposed to include as Sec. 23.30(d) a statement
that contracts for the manufacturing or furnishing of materials,
supplies, articles, or equipment to the Federal Government, including
those subject to the Walsh-Healey Public Contracts Act (PCA), 41 U.S.C.
6501 et seq., would not be covered by Executive Order 14026 or part 23.
Consistent with the implementation of Executive Order 13658, see 79 FR
60657, the Department noted that it intends to follow the SCA's
regulations at 29 CFR 4.117 in distinguishing between work that is
subject to the PCA and work that is subject to the SCA (and therefore
Executive Order 14026). The Department similarly proposed to follow the
regulations set forth in the FAR at 48 CFR 22.402(b) in addressing
whether the DBA (and thus the Executive order) would apply to
construction work on a PCA contract. Under that proposed approach,
where a PCA-covered contract involves a substantial and segregable
amount of construction work that is subject to the DBA, workers whose
wages are governed by the DBA or FLSA would be covered by the Executive
order for the hours that they spend performing on such DBA-covered
construction work.
A few commenters, such as the AFL-CIO and CWA, NELP, the SEIU, and
the Teamsters, requested that the Department expand coverage of
Executive Order 14026 to contracts for goods, including contracts that
are covered by the PCA. Although the Department appreciates such
feedback, section 8 of Executive Order 14026 explicitly makes clear
that the order only applies to the four enumerated types of service and
construction contracts under which workers' wages are governed by the
DBA, FLSA, or SCA. The Department does not have the authority in this
rulemaking to expand coverage beyond the terms of the order to PCA-
covered contracts.
Coverage of Subcontracts
Consistent with the rulemaking implementing Executive Order 13658,
see 79 FR 60657-58, the Department noted in the NPRM that the same test
for determining application of Executive Order 14026 to prime contracts
applies to the determination of whether a subcontract is covered by the
order, with the sole distinction that the value threshold requirements
set forth in section 8(b) of the order do not apply to subcontracts. In
other words, in order for the requirements of Executive Order 14026 to
apply to a subcontract, the subcontract must satisfy all of the
following prongs: (1) It must qualify as a contract or contract-like
instrument under the definition set forth in part 23, (2) it must fall
within one of the four specifically enumerated types of contracts set
forth in section 8(a) of the order and Sec. 23.30, and (3) the wages
of workers under the contract must be governed by the DBA, SCA, or
FLSA.
Pursuant to this approach, only covered subcontracts of covered
prime contracts are subject to the requirements of the Executive order.
Just as the Executive order does not apply to prime contracts for the
manufacturing or furnishing of materials, supplies, articles, or
equipment, it likewise does not apply to subcontracts for the
manufacturing or furnishing of materials, supplies, articles, or
equipment. In other words, the Executive order does not apply to
subcontracts for the manufacturing or furnishing of materials,
supplies, articles, or equipment between a manufacturer or other
supplier and a
[[Page 67156]]
covered contractor for use on a covered Federal contract. For example,
a subcontract to supply napkins and utensils to a covered prime
contractor operating a fast food restaurant on a military base is not a
covered subcontract for purposes of this order. The Executive order
likewise does not apply to contracts under which a contractor orders
materials from a construction materials retailer.
Several commenters, including ABC, AOA, and NSAA, requested that
the Department clarify the proposed coverage of subcontracts and
specifically address whether suppliers and vendors are generally
subject to Executive Order 14026. As explained in the NPRM, the
coverage of subcontracts under Executive Order 14026 follows the same
analysis as did subcontract coverage under Executive Order 13658.
Consistent with the rulemaking implementing Executive Order 13658, the
Department affirms that the same test for determining whether a prime
contract is covered by Executive Order 14026 applies to determining
whether a subcontract is covered by the order, with the only difference
being that the value threshold requirements set forth in section 8(b)
of the order do not apply to subcontracts. Pursuant to this approach,
only covered subcontracts of covered prime contracts are subject to the
requirements of Executive Order 14026.
The Department emphasizes that, just as Executive Order 14026 does
not apply to prime contracts for the manufacturing or furnishing of
materials, supplies, articles, or equipment, it likewise does not apply
to subcontracts for the manufacturing or furnishing of materials,
supplies, articles, or equipment. To be clear, the Executive order does
not apply to subcontracts for the manufacturing or furnishing of
materials, supplies, articles, or equipment between a manufacturer or
other supplier and a covered contractor for use on a covered federal
contract. For example, a contract to supply paper to a credit union
operating on a military base is not a covered subcontract for purposes
of Executive Order 14026. Likewise, a contract supplying tents to an
outfitter company operating in a national park would not be a covered
subcontract under the order. The Executive order likewise does not
apply to contracts under which a contractor orders materials from a
construction materials retailer.
With respect to the suggestion made by a few commenters, including
AOA, that the Department amend the regulatory text to more clearly
reflect the above analysis of subcontract coverage, the Department
notes that Sec. 23.30(d) expressly states that ``[t]his part does not
apply to contracts for the manufacturing or furnishing of materials,
supplies, articles, or equipment to the Federal Government, including
those that are subject to the Walsh-Healey Public Contracts Act, 41
U.S.C. 6501 et seq.'' Moreover, Sec. 23.20 defines the term contract
to include all contracts and any subcontracts of any tier thereunder.
The Department believes that the regulatory text is sufficiently clear
for stakeholders to understand that subcontracts for the manufacturing
or furnishing or supplies, materials, and equipment to the Federal
Government are not subject to the Executive order. The same general
coverage principles throughout this part apply to both prime contracts
and subcontracts, with the sole exception of the value threshold; the
Department thus believes that it is most straightforward for the
regulatory text to address prime contracts and subcontracts
collectively, except for the limited instances where the Executive
order compels their disparate treatment.
However, the Department has carefully considered the comments
expressing confusion regarding subcontract coverage and/or the requests
to codify this preamble language. The Department has therefore decided
to amend paragraph (h) of the contract clause set forth in Appendix A
to explicitly add the following sentence: ``Executive Order 14026 does
not apply to subcontracts for the manufacturing or furnishing of
materials, supplies, articles, or equipment, and this clause is not
required to be inserted in such subcontracts.'' The Department believes
that this clarification will mitigate the confusion expressed by some
stakeholders regarding coverage of subcontracts and contractors' flow-
down responsibilities.
Coverage of Workers
Proposed Sec. 23.30(a)(2) implemented section 8(a)(ii) of
Executive Order 14026, which provides that the minimum wage
requirements of the order only apply to contracts covered by section
8(a)(i) of the order if the wages of workers under such contracts are
subject to the FLSA, SCA, or DBA. 86 FR 22837. The Executive order thus
provides that its protections only extend to workers performing on or
in connection with contracts covered by the Executive order whose wages
also are governed by the FLSA, SCA, or DBA. Id. For example, the order
does not extend to workers performing on contracts governed by the PCA.
Moreover, as discussed in the NPRM and below, employees who are exempt
from the minimum wage protections of the FLSA under 29 U.S.C. 213(a)
would similarly not be subject to the minimum wage protections of
Executive Order 14026, unless those workers' wages are calculated
pursuant to section 14(c) certificates or those workers are otherwise
covered by the DBA or SCA. The following discussion of worker coverage
under Executive Order 14026 is consistent with the analysis of worker
coverage that appeared in the Department's final rule implementing
Executive Order 13658, see 79 FR 60658, but is repeated here for ease
of reference.
Workers Whose Wages Are ``Governed By'' the FLSA, SCA, or DBA
In determining whether a worker's wages are ``governed by'' the
FLSA for purposes of section 8(a)(ii) of the Executive order and part
23, the Department interpreted this provision as referring to employees
who are entitled to the minimum wage under FLSA section 6(a)(1),
employees whose wages are calculated pursuant to special certificates
issued under FLSA section 14(c), and tipped employees under FLSA
section 3(t) who are not otherwise covered by the SCA or the DBA. See
29 U.S.C. 203(t), 206(a)(1), 214(c).
In evaluating whether a worker's wages are ``governed by'' the SCA
for purposes of the Executive order, the Department interpreted such
provision as referring to service employees who are entitled to
prevailing wages under the SCA. See 29 CFR 4.150 through 4.156. The
Department noted that workers whose wages are subject to the SCA
include individuals who are employed on an SCA contract and
individually registered in a bona fide apprenticeship program
registered with the Department's Employment and Training
Administration, Office of Apprenticeship, or with a State
Apprenticeship Agency recognized by the Office of Apprenticeship.
The Department also interpreted the language in section 8(a)(ii) of
Executive Order 14026 and proposed Sec. 23.30(a)(2) as extending
coverage to FLSA-covered employees who provide support on an SCA-
covered contract but who are not entitled to prevailing wages under the
SCA. 41 U.S.C. 6701(3).\17\ The
[[Page 67157]]
Department noted that such workers would be covered by the plain
language of section 8(a) of the Executive order because they are
performing in connection with a contract covered by the order and their
wages are governed by the FLSA.
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\17\ The Department notes that, under the SCA, ``service
employees'' directly engaged in providing specific services called
for by the SCA-covered contract are entitled to SCA prevailing wage
rates. Meanwhile, ``service employees'' who do not perform the
services required by an SCA-covered contract but whose duties are
necessary to the contract's performance must be paid at least the
FLSA minimum wage. See 29 CFR 4.150 through 4.155; WHD FOH ]
14b05(c). For purposes of clarity, the Department refers to this
latter category of workers who are entitled to receive the FLSA
minimum wage as ``FLSA-covered'' workers throughout this rule even
though those workers' right to the FLSA minimum wage technically
derives from the SCA itself. See 41 U.S.C. 6704(a).
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In evaluating whether a worker's wages are ``governed by'' the DBA
for purposes of the order, the proposed rule interpreted such language
as referring to laborers and mechanics who are covered by the DBA. This
would include any individual who is employed on a DBA-covered contract
and individually registered in a bona fide apprenticeship program
registered with the Department's Employment and Training
Administration, Office of Apprenticeship, or with a State
Apprenticeship Agency recognized by the Office of Apprenticeship. The
Department also interpreted the language in section 8(a)(ii) of
Executive Order 14026 and proposed Sec. 23.30(a)(2) as extending
coverage to workers performing on or in connection with DBA-covered
contracts for construction who are not laborers or mechanics but whose
wages are governed by the FLSA. Although such workers are not covered
by the DBA itself because they are not ``laborers and mechanics,'' 40
U.S.C. 3142(b), such individuals are workers performing on or in
connection with a contract subject to the Executive order whose wages
are governed by the FLSA and thus are covered by the plain language of
section 8(a) of the Executive order. 86 FR 22837. The proposed rule
would extend this coverage to FLSA-covered employees working on or in
connection with DBA-covered contracts regardless of whether such
employees are physically present on the DBA-covered construction
worksite.
The Department also noted in the NPRM that when state or local
government employees are performing on or in connection with covered
contracts and their wages are subject to the FLSA or the SCA, such
employees are entitled to the protections of the Executive order and
part 23. The DBA does not apply to construction performed by state or
local government employees.
Workers Performing ``On Or In Connection With'' Covered Contracts
Section 1 of Executive Order 14026 expressly states that the
minimum wage requirements of the order apply to workers performing work
``on or in connection with'' covered contracts. 86 FR 22835. Consistent
with the Executive Order 13658 rulemaking, see 79 FR 60659-62, the
Department proposed to interpret these terms in a manner consistent
with SCA regulations, see, e.g., 29 CFR 4.150-4.155. In the proposed
rule, the Department reiterated these interpretations, which are
summarized below and reflected in the regulatory text pertaining to the
definition of worker in Sec. 23.20 for purposes of clarity.
Specifically, the Department noted that workers performing ``on'' a
covered contract are those workers directly performing the specific
services called for by the contract, and whether a worker is performing
``on'' a covered contract would be determined, as explained in the
final rule implementing Executive Order 13658, see 79 FR 60660, in part
by the scope of work or a similar statement set forth in the covered
contract that identifies the work (e.g., the services or construction)
to be performed under the contract. Under this approach, all laborers
and mechanics engaged in the construction of a public building or
public work on the site of the work will be regarded as performing
``on'' a DBA-covered contract, and all service employees performing the
specific services called for by an SCA-covered contract will also be
regarded as performing ``on'' a contract covered by the Executive
order. In other words, any worker who is entitled to be paid prevailing
wages under the DBA or SCA \18\ would necessarily be performing ``on''
a covered contract. For purposes of concessions contracts and contracts
in connection with Federal property or lands and related to offering
services for Federal employees, their dependents, or the general public
that are not covered by the SCA, the Department would regard any worker
performing the specific services called for by the contract as
performing ``on'' the covered contract.
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\18\ This includes workers with disabilities whose commensurate
wage rates calculated pursuant to a section 14(c) certificate are
based upon the applicable SCA prevailing wage rate.
---------------------------------------------------------------------------
The Department further noted that it would consider a worker
performing ``in connection with'' a covered contract to be any worker
who is performing work activities that are necessary to the performance
of a covered contract but who is not directly engaged in performing the
specific services called for by the contract itself. For example, a
payroll clerk who is not a DBA-covered laborer or mechanic directly
performing the construction identified in the DBA contract, but whose
services are necessary to the performance of the contract, would
necessarily be performing ``in connection with'' a covered contract.
This standard, also articulated in the Executive Order 13658
rulemaking, was derived from SCA regulations. See 79 FR 60659 (citing
29 CFR 4.150-4.155).
The Department noted that it proposed to include, as it did in the
Executive Order 13658 rulemaking, an exclusion from coverage for
workers who spend less than 20 percent of their work hours in a
workweek performing ``in connection with'' covered contracts. This
proposed exclusion does not apply to any worker performing ``on'' a
covered contract whose wages are governed by the FLSA, SCA, or DBA. The
proposed exclusion, which appears in Sec. 23.40(f), is explained in
greater detail below in the discussion of the Exclusions section.
The Department stated in the NPRM, that just as in the final rule
implementing Executive Order 13658, the Executive order does not extend
to workers who are not engaged in working on or in connection with a
covered contract. For example, a technician who is hired to repair a
DBA contractor's electronic time system or a janitor who is hired to
clean the bathrooms at the DBA contractor's company headquarters are
not covered by the order because they are not performing the specific
duties called for by the contract or other services or work necessary
to the performance of the contract. Similarly, the Executive order
would not apply to a landscaper at the office of an SCA contractor
because that worker is not performing the specific duties called for by
the SCA contract or other services or work necessary to the performance
of the contract. Similarly, unless the redesign of the sign was called
for by the concessions contract itself or otherwise necessary to the
performance of the contract, the Executive order would not apply to a
worker hired by a covered concessionaire to redesign the storefront
sign for a snack shop in a National Park. The Department noted in the
NPRM that because Executive Order 14026 and part 23 do not apply to
workers of Federal contractors who do no work on or in connection with
a covered contract, a contractor could be required to pay the Executive
order minimum wage to some of its workers but not others. In other
words, it is not
[[Page 67158]]
the case that because a contractor has one or more Federal contracts,
all of its workers or projects are covered by the order.
In the NPRM, the Department further noted that Executive Order
14026's minimum wage requirements only extend to the hours worked by
covered workers performing on or in connection with covered contracts.
As the Department explained in the final rule implementing Executive
Order 13658, see 79 FR 60672, in situations where contractors are not
exclusively engaged in contract work covered by the Executive order,
and there are adequate records segregating the periods in which work
was performed on or in connection with covered contracts subject to the
order from periods in which other work was performed, the Executive
order minimum wage does not apply to hours spent on work not covered by
the order. Accordingly, the proposed regulatory text at Sec. 23.220(a)
emphasized that contractors must pay covered workers performing on or
in connection with a covered contract no less than the applicable
Executive order minimum wage for hours worked on or in connection with
the covered contract.
The Department received a number of comments regarding the coverage
of workers under Executive Order 14026. Many of the comments, including
those submitted by the AFL-CIO and CWA, NELP, and the SEIU, were
strongly supportive of the broad coverage of workers articulated in the
Executive order and the NPRM. The SEIU, for example, commended the
Department's expansive proposed coverage of workers, noting that such
an interpretation ``is necessary to ensure that contractors and
subcontractors that conduct business with the federal government do not
evade the Executive Order's requirements and thereby undercut the wage
floor it is intended to establish.'' NELP observed that the
Department's proposed interpretation of worker coverage ``recognizes
that many work activities--not just those specifically mentioned in the
contract--are integral to the performance of that contract, and that
all individuals performing these work activities should be covered by
the E.O.'' NELP further commended the definition because it ``makes
clear that the federal government takes misidentifying employment
status seriously and will look beyond an employer's labeling of workers
as `independent contractors' and make its own determination of whether
such workers are covered.''
Although several commenters, including ABC, the Chamber, and
Maximus, recognized that the proposed coverage of workers in this rule
is identical to worker coverage under the regulations implementing
Executive Order 13658, they argued that the standard for worker
coverage will cause confusion and impose administrative burdens for the
larger number of contractors affected by the wage increase associated
with this rule. Such commenters expressed particular concern regarding
the Department's proposed coverage of FLSA-covered workers performing
on or in connection with DBA- and SCA-covered contracts. For example,
ABC generally asserted that coverage of FLSA workers ``creates
unnecessary confusion and imposes administrative burdens'' for DBA-
covered contractors by creating new wage and recordkeeping obligations
for workers who are not ``laborers and mechanics'' and therefore are
not subject to the prevailing wage law, and who may not even be
physically present on ``the site of the work.'' Several other
commenters requested clarification as to whether workers in particular
factual scenarios, including apprentices, would qualify as covered
workers under the proposed definition.
As a threshold matter, the Department notes that Executive Order
14026 itself compels the conclusion that FLSA-covered workers
performing on or in connection with DBA- and SCA-covered contracts are
covered by the order. Section 1 of Executive Order 14026 explicitly
states its applicability to ``workers working on or in connection
with'' a covered contract. 86 FR 22835. Moreover, section 8(a) of the
Executive order expressly extends its minimum wage requirements to all
DBA- and SCA-covered contracts where ``the wages of workers under such
contract . . . are governed by the Fair Labor Standards Act.'' In light
of these clear directives, the Department believes that it reasonably
and appropriately interpreted both the plain language and intent of
Executive Order 14026 to cover FLSA-covered employees that provide
support on a DBA- or SCA-covered contract who are not entitled to
prevailing wage rates under those laws but whose wages are governed by
the FLSA.
Moreover, as recognized by commenters both in support of and
opposition to the proposed standard for worker coverage, the
interpretation that the order applies to both workers performing ``on''
a covered contract as well as workers performing ``in connection with''
a covered contract is identical to the worker coverage interpretation
set forth in the Department's regulations implementing Executive Order
13658, see 29 CFR 10.2. The Department believes that consistency
between the two sets of regulations, where appropriate, will aid
stakeholders in understanding their rights and obligations under
Executive Order 14026, will enhance compliance assistance, and will
minimize the potential for administrative burden on the part of
contracting agencies and contractors. For those contractors currently
subject to Executive Order 13658, Executive Order 14026 imposes no new
administrative or recordkeeping requirements beyond what the contractor
is already required to do under Executive Order 13658, including with
respect to the identification of workers performing ``in connection
with'' covered contracts and the segregation of hours worked on covered
and non-covered contracts. For contractors not currently subject to
Executive Order 13658, Executive Order 14026 imposes minimal burden
because its recordkeeping requirements mirror those that already exist
under the DBA, FLSA, and SCA. The Department's proposed recordkeeping
requirements are discussed below in the preamble discussion of proposed
Sec. 23.260.
The potential for administrative burden is further mitigated by the
exclusion for FLSA-covered workers performing in connection with
covered contracts for less than 20 percent of their work hours in a
given workweek set forth at Sec. 23.40(f). The Department adopted this
exclusion in its 2014 final rule implementing Executive Order 13658
based on contractor concerns regarding the administrative burden that
could result from the breadth of worker coverage under that order.
Consistent with the discussion in the NPRM implementing Executive Order
14026, the Department views this exclusion as a reasonable
interpretation that ensures the broad coverage of workers performing on
or in connection with covered contracts directed by Executive Order
14026 while also acknowledging the administrative challenges imposed by
such broad coverage as expressed by contractors. That exclusion is
discussed in greater detail below in the preamble discussion of
proposed Sec. 23.40(f).
The Department has carefully considered all relevant comments
received regarding its proposed coverage of workers and, for the
reasons explained below, has determined to finalize the worker coverage
standard as proposed. The Department endeavors, however, to provide
additional examples of workers performing both ``on'' and ``in
connection with'' each of the four categories of covered contracts to
assist stakeholders in understanding their rights and responsibilities
under
[[Page 67159]]
the order. With respect to a DBA-covered contract for construction, the
laborers and mechanics performing the construction work called for by
the contract at the construction site are covered workers performing
``on'' the contract for purposes of this Executive order. The
construction contractor's off-site fabrication shop workers would be
regarded as performing work ``in connection with'' a covered contract
to the extent their services are necessary to the performance of the
contract. Similarly, a security guard patrolling or monitoring a
construction worksite where DBA-covered work is being performed or a
clerk who processes the payroll for DBA contracts (either on or off the
site of the work) would be viewed as workers performing ``in connection
with'' the covered contract under Executive Order 14026.
With respect to an SCA-covered contract, the service employees
performing the services called for by the contract are covered workers
performing ``on'' the contract for purposes of Executive Order 14026.
An accounting clerk who processes invoices for SCA contracts or a human
resources employee who hires the employees performing work on the SCA-
covered contract would qualify as workers performing ``in connection
with'' the SCA-covered contract.
With respect to concessions contracts and contracts in connection
with Federal property or lands and related to offering services, the
workers performing the specific services called for by the contract
(e.g., the workers operating the concessions stand at a national
monument, the outfitters and guides leading the multi-day excursion in
the national park, the employees working at the dry cleaning
establishment in a federal building) are performing ``on'' the covered
contract. Examples of covered workers performing ``in connection with''
the covered contract could include the clerk who handles the payroll
for a dry cleaner that leases space in a Federal building or the
administrative assistant who handles the billing and advertising for a
multi-day excursion in a national park.
Workers Employed Under FLSA Section 14(c) Certificates
Executive Order 14026 expressly provides that its minimum wage
protections extend to workers with disabilities whose wage rates are
calculated pursuant to special certificates issued under section 14(c)
of the FLSA. See 86 FR 22835. Consistent with the final rule
implementing Executive Order 13658, see 79 FR 60662, the Department
proposed to include language in the contract clause set forth in
Appendix A explicitly stating that workers with disabilities whose
wages are calculated pursuant to special certificates issued under
section 14(c) of the FLSA must be paid at least the Executive Order
14026 minimum wage (or the applicable commensurate wage rate under the
certificate, if such rate is higher than the Executive order minimum
wage) for hours spent performing on or in connection with covered
contracts. All workers performing on or in connection with covered
contracts whose wages are governed by FLSA section 14(c), regardless of
whether they are considered to be ``employees,'' ``clients,'' or
``consumers,'' are covered by the Executive order (unless the 20
percent of hours worked exclusion applies). Moreover, all of the
Federal contractor requirements set forth in this proposed rule apply
with equal force to contractors employing workers under FLSA section
14(c) certificates to perform work on or in connection with covered
contracts.
The Department received several comments pertaining to the coverage
of workers with disabilities whose wage rates are calculated pursuant
to special certificates issued under section 14(c) of the FLSA. Many of
the comments received, including those submitted by the Finger Lakes
Independence Center, the National Industries for the Blind, the SEIU,
and the Teamsters, supported the inclusion of workers employed under
section 14(c) certificates in the scope of the order's coverage. Some
commenters, such as SourceAmerica, stated that they supported the
intent behind the Executive order but expressed concerns that the
inclusion of workers employed under section 14(c) certificates could
potentially lead to a loss of employment, a reduction in work hours, or
the loss of public benefits for those workers. SourceAmerica suggested
that, in order to mitigate these potential unintended consequences, the
Department should increase the income thresholds for receipt of
benefits under Social Security and Medicare and/or Medicaid or
otherwise establish more flexibilities for such individuals who may
depend upon the receipt of such benefits. SourceAmerica also
recommended that the Department work with Congress to implement
technical assistance and transitional funding programs to assist with
the Executive Order 14026 minimum wage increase.
The Department appreciates the concerns raised regarding the
potential loss or reduction of employment or reduction in public
benefits that could result from requiring that the Executive Order
14026 minimum wage be paid to workers who are employed under an FLSA
section 14(c) certificate and who are working on or in connection with
covered contracts. The Department notes that many workers employed
under a section 14(c) certificate performing on or in connection with
covered contracts would be covered by Executive Order 13658 and its
minimum wage requirement in the absence of Executive Order 14026. Thus,
these workers are currently subject to an hourly minimum wage of at
least $10.95 for such covered contract work, mitigating some of the
impact of Executive Order 14026's $15.00 minimum wage. The Department
appreciates the concerns raised regarding a potential loss of public
benefits that could result from application of the Substantial Gainful
Activity limit to workers with disabilities paid at the Executive order
minimum wage. The Department lacks the authority to alter the criteria
used by other federal, state, and local agencies in determining
eligibility for public benefits. However, the Department does not
expect that public benefit eligibility will be significantly impacted
as a result of this rule, particularly given that many workers employed
under section 14(c) certificates, as noted above, may already be
performing on or in connection with contracts covered by Executive
Order 13658.
Finally, the Department notes that a few commenters, such as the DC
Department on Disability Services, more broadly call for the general
prohibition on the issuance of all section 14(c) certificates under the
FLSA. The Department appreciates and will carefully consider such
feedback, but notes that such requests are beyond the scope of the
Department's rulemaking authority to implement Executive Order 14026,
which only applies to federal contract workers. The Department will,
however, continue to provide technical assistance to stakeholders and,
where appropriate, work with Congress and other federal partners to
support the transition of workers with disabilities away from
subminimum wage employment and towards competitive integrated
employment.
Apprentices, Students, Interns, and Seasonal Workers
Consistent with the Department's final rule implementing Executive
Order 13658, see 79 FR 60663, the Department's proposed rule explained
that individuals who are employed on an SCA- or DBA-covered contract
and individually registered in a bona fide
[[Page 67160]]
apprenticeship program registered with the Department's Employment and
Training Administration, Office of Apprenticeship, or with a State
Apprenticeship Agency recognized by the Office of Apprenticeship, are
entitled to the Executive order minimum wage for the hours they spend
working on or in connection with covered contracts.
The Department noted that the vast majority of apprentices employed
by contractors on covered contracts will be individuals who are
registered in a bona fide apprenticeship program registered with the
Department's Employment and Training Administration, Office of
Apprenticeship, or with a State Apprenticeship Agency recognized by the
Office of Apprenticeship. Such apprentices are entitled to receive the
full Executive order minimum wage for all hours worked on or in
connection with a covered contract. The Executive order directs that
the minimum wage applies to workers performing on or in connection with
a covered contract whose wages are governed by the DBA and the SCA.
Moreover, the Department stated its belief that the Federal
Government's interests in economy and efficiency are best promoted by
generally extending coverage of the order to apprentices performing
covered contract work.
In the NPRM, the Department proposed that DBA- and SCA-covered
apprentices are subject to the Executive order but that workers whose
wages are governed by special subminimum wage certificates under FLSA
sections 14(a) and (b) are excluded from the order (i.e., FLSA-covered
learners, apprentices, messengers, and full-time students). Consistent
with the Department's final rule implementing Executive Order 13658,
see 79 FR 60663-64, the Department proposed to interpret the plain
language of the Executive order as excluding workers whose wages are
governed by FLSA sections 14(a) and (b) subminimum wage certificates
(i.e., FLSA-covered apprentices, learners, messengers, and full-time
students). The order expressly states that the minimum wage must ``be
paid to workers employed in the performance of the contract or any
covered subcontract thereunder, including workers whose wages are
calculated pursuant to special certificates issued under section
14(c).'' 86 FR 22835. The Department explained its belief that, in
interpreting whether a worker's wages are governed by the FLSA for
purposes of determining coverage under Executive Order 14026, the
Executive order's explicit inclusion of FLSA section 14(c) workers
reflects an intent to omit from coverage workers whose wages are
calculated pursuant to special certificates issued under FLSA sections
14(a) and (b).
The Department's proposed rule did not contain a general exclusion
for seasonal workers or students. However, except with respect to
workers who are otherwise covered by the SCA or the DBA, the proposed
rule stated that part 23 does not apply to employees who are not
entitled to the minimum wage set forth at 29 U.S.C. 206(a)(1) of the
FLSA pursuant to 29 U.S.C. 213(a) and 214(a)-(b). Pursuant to this
exclusion, the Executive order would not apply to full-time students
whose wages are calculated pursuant to special certificates issued
under section 14(b) of the FLSA, unless they are otherwise covered by
the DBA or SCA. The exclusion would also apply to employees employed by
certain seasonal and recreational establishments pursuant to 29 U.S.C.
213(a)(3).
The Department received a few comments expressing confusion or
concern regarding the Department's proposed coverage of these specific
types of workers. With respect to apprentices, ABC commented that
``[t]he NPRM's treatment of apprentice wages is particularly confusing
and impactful on contractors.'' ABC urged the Department to exclude
from coverage apprentices performing work on DBA or SCA contracts
because such apprentice ``wages are tied to the journeyman rate on
government contracts and there is no need for their wages to be
affected by a new minimum wage.''
The Department has carefully considered ABC's request, but has
decided to adopt its proposed interpretation that DBA- and SCA-covered
apprentices are subject to Executive Order 14026. As a threshold
matter, the Department notes that such apprentices are also covered by
Executive Order 13658 and thus contracting agencies, contractors, and
workers should already be familiar with this coverage principle. As
explained in the NPRM, most apprentices employed by contractors on
covered contracts will be individuals who are registered in a bona fide
apprenticeship program registered with the Department's Employment and
Training Administration, Office of Apprenticeship, or with a State
Apprenticeship Agency recognized by the Office of Apprenticeship. Such
apprentices are entitled to receive the full Executive Order 14026
minimum wage for all hours worked on or in connection with covered
contracts. Executive Order 14026 directs that the minimum wage applies
to workers performing on or in connection with a covered contract whose
wages are governed by the DBA and the SCA; apprentices fall within this
scope. Moreover, the Department believes that the Federal Government's
interests in economy and efficiency are best promoted by extending
coverage of the order to DBA- and SCA-covered apprentices.
To provide further clarification and to minimize stakeholder
confusion, the Department notes that the only group of apprentices who
are expressly excluded from coverage of Executive Order 14026 are
workers whose wages are governed by special subminimum wage
certificates under FLSA section 14(a). The Department notes that there
are very few workers who fall within the scope of this exclusion. This
conclusion is based on the plain language of Executive Order 14026,
which expressly states that the minimum wage must be paid to workers
performing on or in connection with covered contracts, ``including
workers whose wages are calculated pursuant to special certificates
issued under section 14(c) of the Fair Labor Standards Act of 1938''
but does not reference workers whose wages are governed by FLSA
sections 14(a) and (b) subminimum wage certificates (i.e., FLSA-covered
apprentices, learners, messengers, and full-time students). Consistent
with its interpretation of Executive Order 13658, the Department
believes that the explicit inclusion of workers employed under FLSA
section 14(c) certificates as within the scope of Executive Order 14026
reflects an intent to omit from coverage workers whose wages are
calculated pursuant to special certificates issued under FLSA sections
14(a) and (b). This narrow exclusion is codified at Sec. 23.40(e)(1)-
(2) to help provide clarity to stakeholders.
With respect to other comments received regarding particular
categories of workers, a few commenters requested that the Department
clarify whether seasonal workers and students, particularly in the
outdoor recreational industries, are covered by the Executive order and
this part. SBA Advocacy noted that its members found this discussion in
the NPRM to be particularly confusing.
In response to these comments, the Department clarifies that
workers who are covered by the DBA or SCA are subject to Executive
Order 14026, regardless of whether they are students or seasonal
workers. However, if a worker is not subject to the DBA or SCA and is
exempt from the FLSA's minimum wage protections pursuant to 29 U.S.C.
213(a) or 214(a)-(b), that
[[Page 67161]]
worker is exempt from coverage of Executive Order 14026. This
interpretation is set forth in the regulatory text at Sec. 23.40(e).
Pursuant to this exclusion, Executive Order 14026 does not apply to
full-time students whose wages are calculated pursuant to special
certificates issued under FLSA section 14(b), unless they are otherwise
covered by the DBA or SCA. Employees employed by establishments that
qualify as ``an amusement or recreational establishment, organized
camp, or religious or non-profit educational conference center'' and
meet the criteria for exemption set forth at 29 U.S.C. 213(a)(3) are
also exempt from Executive Order 14026, unless such workers are
otherwise covered by the DBA or SCA.
Because the Department does not know the specific relevant facts
regarding the employment of particular seasonal workers and students
employed by the small businesses mentioned in the above comments, the
Department cannot determine whether such workers would be covered by
the order. The Department encourages such commenters to contact the WHD
as necessary for compliance assistance in determining their rights and
responsibilities under the Executive order and the FLSA. Insofar as the
commenters are seeking an exclusion of particular seasonal workers and
students employed by small businesses because of an alleged financial
hardship that would result from application of the Executive order, the
Department disagrees with these assertions and finds that they are
insufficiently persuasive or unique to warrant creation of a broad
exclusion for all seasonal workers or students. Such assertions of
economic hardship fail to account for the economy and efficiency
benefits that the Department expects contractors will realize by paying
their workers, including students and seasonal workers, the Executive
order minimum wage rate. The Department further notes that most
contractors should already be familiar with the proposed general worker
coverage standard under Executive Order 14026, including this
discussion of students and seasonal workers, because it is identical to
the worker coverage standard under Executive Order 13658.
Geographic Scope
Finally, proposed Sec. 23.30(c) provided that the Executive order
and part 23 apply to contracts with the Federal Government requiring
performance in whole or in part within the United States, which as
defined in proposed Sec. 23.20 would mean, when used in a geographic
sense, the 50 States, the District of Columbia, Puerto Rico, the Virgin
Islands, Outer Continental Shelf lands as defined in the Outer
Continental Shelf Lands Act, American Samoa, Guam, the Commonwealth of
the Northern Mariana Islands, Wake Island, and Johnston Island. Under
this approach, the minimum wage requirements of the Executive order and
part 23 would not apply to contracts with the Federal Government to be
performed in their entirety outside the geographical limits of the
United States as thus defined. However, if a contract with the Federal
Government is to be performed in part within and in part outside these
geographical limits and is otherwise covered by the Executive order and
part 23, the minimum wage requirements of the order and part 23 would
apply with respect to that part of the contract that is performed
within these geographical limits.
As explained above in the discussion of the proposed definition of
United States, the geographic scope of Executive Order 14026 and part
23 is more expansive than the regulations implementing Executive Order
13658, which only applied to contracts performed in the 50 States and
the District of Columbia. However, as noted above, each of the
territories listed above is covered by both the SCA, see 29 CFR
4.112(a), and the FLSA. See, e.g., 29 U.S.C. 213(f), 29 CFR 776.7; Fair
Minimum Wage Act of 2007, Public Law 110-28, 121 Stat. 112 (2007).
Contractors operating in those territories will therefore generally
have familiarity with many of the requirements set forth in part 23
based on their coverage by the SCA and/or the FLSA.
As discussed in the context of the Department's proposed definition
of United States above, the Department received a number of comments
regarding its proposed interpretation that workers performing on or in
connection with covered contracts in the specified U.S. territories are
covered by Executive Order 14026. The vast majority of such comments
voiced strong support for the Department's interpretation that
Executive Order 14026 apply to covered contracts being performed in
Puerto Rico, the Virgin Islands, Outer Continental Shelf lands as
defined in the Outer Continental Shelf Lands Act, American Samoa, Guam,
the Commonwealth of the Northern Mariana Islands, Wake Island, and
Johnston Island. A wide variety of stakeholders expressed their
agreement with this proposed geographic scope, including numerous
elected officials, such as the Governor of Guam and several legislators
from Puerto Rico and Guam; labor organizations, including the Labor
Council for Latin American Advancement, AFL-CIO, the AFSCME, the Union
de Profesionales de la Seguridad Privada de Puerto Rico, and the
Teamsters; and other interested organizations, including One Fair Wage,
Oxfam, ROC United; and the Leadership Conference on Civil and Human
Rights. Several of these commenters expressed their concurrence that
expansion of coverage to the enumerated U.S. territories will promote
economy and efficiency in Federal Government procurement. For example,
the Governor of Guam affirmed ``that extending the E.O. 14026 minimum
wage to workers performing contracts in Guam would promote the federal
government's procurement interests in economy and efficiency'' and
``E.O. 14026's application to Guam will improve the morale and quality
of life of 11,800 employees in Guam, Puerto Rico, and the U.S. Virgin
Islands, who are laborers, nursing assistants, and foodservice and
maintenance workers.'' Several legislators in Puerto Rico expressed
similar support for the expansion of coverage to workers in Puerto
Rico. NELP also commended the Department's proposed interpretation to
cover contract work performed in the specified U.S. territories,
commenting that ``[j]ust as higher wages will result in lower turnover
and higher productivity in the 50 US States, so too will economy and
efficiency improve for contracts performed in these areas with the $15
minimum wage.''
As discussed above in the proposed definition of United States, a
few commenters, such as Conduent and the Center for Workplace
Compliance, expressed concern with the Department's proposed
interpretation that Executive Order 14026 applies to workers performing
on or in connection with covered contracts in the enumerated U.S.
territories. Such commenters generally asserted that the proposed
coverage of the territories is not compelled by the text of Executive
Order 14026 itself and could cause financial disruptions, including by
adversely affecting private industry, in the territories unless the
Executive Order minimum wage rate is phased in over a number of years.
Due to its concern that the NPRM's ``expanded geographic scope may have
unintended consequences given the fact that E.O. 13658 did not apply in
these jurisdictions and the increase in minimum wage may be
significant,'' the Center for Workplace Compliance encouraged the
Department ``to carefully monitor implementation of the
[[Page 67162]]
E.O. as it applies to jurisdictions outside of the fifty states and the
District of Columbia and take a flexible approach with covered
contractors through the exercise of enforcement discretion should
significant unintended consequences occur.''
The Department appreciates all of the feedback submitted regarding
the proposed geographic scope of Executive Order 14026 and this rule.
After careful review, the Department adopts its interpretation proposed
in the NPRM that the Executive order applies to work performed on or in
connection with covered contracts in the specified U.S. territories.
Although it is true that the text of Executive Order 14026 does not
compel the determination that the order has such geographic reach, the
Department has exercised its delegated discretion to select a
definition of United States, and corresponding geographic scope, that
tracks the SCA and FLSA, as explained in the NPRM. As outlined in the
NPRM and reflected in the final regulatory impact analysis in this
final rule, the Department has further analyzed this issue since its
Executive Order 13658 rulemaking in 2014 and consequently determined
that the Federal Government's procurement interests in economy and
efficiency would be promoted by expanding the geographic scope of
Executive Order 14026. The vast majority of public comments received on
this issue support this determination, including perhaps most notably a
wide variety of stakeholders located in the U.S. territories
themselves.
With respect to the comments expressing concern regarding potential
unintended consequences of such coverage in the U.S. territories, the
Department appreciates such feedback and certainly intends to monitor
the effects of this rule. However, such comments did not provide
compelling qualitative or quantitive evidence for the assertions that
application of the order to the U.S. territories will result in
economic or other disruptions. As previously discussed, the Department
further views requests for a gradual phase-in of the Executive Order
14026 minimum wage rate as beyond the purview of the Department in this
rulemaking. The Department therefore adopts the proposed geographic
scope of Executive Order 14026 as set forth in the NPRM.
Section 23.40 Exclusions
Proposed Sec. 23.40 addressed and implemented the exclusionary
provisions expressly set forth in section 8(c) of Executive Order 14026
and provided other limited exclusions to coverage as authorized by
section 4(a) of the Executive order. See 86 FR 22836-37. Specifically,
proposed Sec. 23.40(a) through (d) and (g) set forth the limited
categories of contractual arrangements for services or construction
that would be excluded from the minimum wage requirements of the
Executive order and part 23, while proposed Sec. 23.40(e) and (f)
established narrow categories of workers that would be excluded from
coverage of the order and part 23. The Center for Workplace Compliance
expressed its general support for the Department's proposed exclusions
at Sec. 23.40(a)-(f) because such exclusions are consistent with those
that are codified in the regulations implementing Executive Order 13658
at 29 CFR 10.4(a)-(f). Maximus expressed its view that exclusions
generally should be limited so that the Executive order impacts the
greatest number of workers. Each of these exclusions, as well as any
specific comments received on the exclusions, are discussed below.
Exclusion of grants: Proposed Sec. 23.40(a) implemented section
8(c) of Executive Order 14026, which states that the order does not
apply to ``grants.'' 86 FR 22837. Consistent with the regulations
implementing Executive Order 13658, see 29 CFR 10.4(a), the Department
interpreted this provision to mean that the minimum wage requirements
of the Executive order and part 23 do not apply to grants, as that term
is used in the Federal Grant and Cooperative Agreement Act, 31 U.S.C.
6301 et seq. That statute defines a ``grant agreement'' as ``the legal
instrument reflecting a relationship between the United States
Government and a State, a local government, or other recipient'' when
two conditions are satisfied. 31 U.S.C. 6304. First, ``the principal
purpose of the relationship is to transfer a thing of value to the
state or local government or other recipient to carry out a public
purpose of support or stimulation authorized by a law of the United
States instead of acquiring (by purchase, lease, or barter) property or
services for the direct benefit or use of the United States
Government.'' Id. Second, ``substantial involvement is not expected
between the executive agency and the State, local government, or other
recipient when carrying out the activity contemplated in the
agreement.'' Id. Section 2.101 of the FAR similarly excludes
``grants,'' as defined in the Federal Grant and Cooperative Agreement
Act, from its coverage of contracts. 48 CFR 2.101. Several appellate
courts have similarly adopted this construction of ``grants'' in
defining the term for purposes of other Federal statutory schemes. See,
e.g., Chem. Service, Inc. v. Environmental Monitoring Systems
Laboratory, 12 F.3d 1256, 1258 (3d Cir. 1993) (applying same definition
of ``grants'' for purposes of 15 U.S.C. 3710a); East Arkansas Legal
Services v. Legal Services Corp., 742 F.2d 1472, 1478 (D.C. Cir. 1984)
(applying same definition of ``grants'' in interpreting 42 U.S.C.
2996a). If a contract qualifies as a grant within the meaning of the
Federal Grant and Cooperative Agreement Act, it would thereby be
excluded from coverage of Executive Order 14026 and part 23 pursuant to
the proposed rule.
The Cline Williams Law Firm requested that the Department clarify
that Executive Order 14026 does not apply to grants and that,
specifically, the Executive order does not apply to grants received by
Federally Qualified Health Centers (FQHCs) under Section 330 of the
Public Health Services Act (PHSA). In response to this comment, the
Department confirms that the Executive order does not apply to grants
as defined in the Federal Grant and Cooperative Agreement Act, 31
U.S.C. 6301 et seq. The Department further reiterates that the mere
receipt of federal financial assistance by an individual or entity does
not render an agreement subject to the Executive order. Based on the
comment received, the Department currently lacks sufficient information
about the particular grants to FQHCs under Section 330 of the PHSA to
be able to definitively determine whether such grants would be excluded
from coverage of the Executive order. The Department invites the
commenter, and other stakeholders with similar questions, to follow the
procedures set forth at Sec. 23.580 to obtain a ruling of the
Administrator regarding the potential exclusion of such grants if
needed.
The Department did not receive other comments regarding this
proposed exclusion and therefore finalizes it as proposed.
Exclusion of contracts or agreements with Indian Tribes: Proposed
Sec. 23.40(b) implemented the other exclusion set forth in section
8(c) of Executive Order 14026, which states that the order does not
apply to ``contracts, contract-like instruments, or agreements with
Indian Tribes under the Indian Self-Determination and Education
Assistance Act (Pub. L. 93-638), as amended.'' 86 FR 22837. The
Department did not receive any comments on this provision; accordingly,
it is adopted as set forth in the NPRM.
The remaining exclusionary provisions of the rule are derived from
the authority granted to the Secretary
[[Page 67163]]
pursuant to section 4(a) of the Executive order to ``include . . . as
appropriate, exclusions from the requirements of this order'' in
implementing regulations. 86 FR 22836. In issuing such regulations, the
Executive order instructs the Secretary to ``incorporate existing
definitions'' under the FLSA, SCA, DBA, and Executive Order 13658 ``to
the extent practicable.'' Id. Accordingly, the exclusions discussed
below incorporate existing applicable statutory and regulatory
exclusions and exemptions set forth in the FLSA, SCA, DBA, and
Executive Order 13658.
Exclusion for procurement contracts for construction that are
excluded from DBA coverage: As discussed in the coverage section above,
the Department proposed to interpret section 8(a)(i)(A) of the
Executive order, which states that the order applies to ``procurement
contract[s]'' for ``construction,'' 86 FR 22837, as referring to any
contract covered by the DBA, as amended, and its implementing
regulations. See proposed Sec. 23.30(a)(1)(i). In order to provide
further definitional clarity to the regulated community for purposes of
proposed Sec. 23.30(a)(1)(i), and consistent with the regulations
implementing Executive Order 13658, the Department thus established in
proposed Sec. 23.40(c) that any procurement contracts for construction
that are not subject to the DBA are similarly excluded from coverage of
the Executive order and part 23. For example, a prime procurement
contract for construction valued at less than $2,000 would not be
covered by the DBA and thus is not covered by Executive Order 14026 and
part 23. To assist all interested parties in understanding their rights
and obligations under Executive Order 14026, the Department proposed to
make coverage of construction contracts under Executive Order 14026 and
part 23 consistent with coverage under the DBA and Executive Order
13658 to the greatest extent possible.
The Department did not receive comments about this proposed
exclusion and thus adopts it as set forth in the NPRM.
Exclusion for contracts for services that are exempted from SCA
coverage: Similarly, the Department proposed to implement the coverage
provisions set forth in sections 8(a)(i)(A) and (B) of the Executive
order, which state that the order applies respectively to a
``procurement contract . . . for services'' and a ``contract or
contract-like instrument for services covered by the Service Contract
Act,'' 86 FR 22837, by providing that the requirements of the order
apply to all service contracts covered by the SCA. See proposed Sec.
23.30(a)(1)(ii). Proposed Sec. 23.40(d) provided additional
clarification by incorporating, where appropriate, the SCA's exclusion
of certain service contracts into the exclusionary provisions of the
Executive order. This proposed provision would exclude from coverage of
the Executive order and part 23 any contracts for services, except for
those expressly covered by proposed Sec. 23.30(a)(1)(ii)-(iv), that
are exempted from coverage under the SCA. The SCA specifically exempts
from coverage seven types of contracts (or work) that might otherwise
be subject to its requirements. See 41 U.S.C. 6702(b). Pursuant to this
statutory provision, the SCA expressly does not apply to (1) a contract
of the Federal Government or the District of Columbia for the
construction, alteration, or repair, including painting and decorating,
of public buildings or public works; (2) any work required to be done
in accordance with chapter 65 of title 41; (3) a contract for the
carriage of freight or personnel by vessel, airplane, bus, truck,
express, railway line or oil or gas pipeline where published tariff
rates are in effect; (4) a contract for the furnishing of services by
radio, telephone, telegraph, or cable companies, subject to the
Communications Act of 1934, 47 U.S.C. 151 et seq.; (5) a contract for
public utility services, including electric light and power, water,
steam, and gas; (6) an employment contract providing for direct
services to a Federal agency by an individual; or (7) a contract with
the United States Postal Service, the principal purpose of which is the
operation of postal contract stations. Id.; see 29 CFR 4.115-4.122; WHD
FOH ] 14c00.
The SCA also authorizes the Secretary to ``provide reasonable
limitations'' and to prescribe regulations allowing reasonable
variation, tolerances, and exemptions with respect to the chapter but
only in special circumstances where the Secretary determines that the
limitation, variation, tolerance, or exemption is necessary and proper
in the public interest or to avoid the serious impairment of Federal
Government business, and is in accord with the remedial purpose of the
chapter to protect prevailing labor standards. 41 U.S.C. 6707(b); see
29 CFR 4.123. Pursuant to this authority, the Secretary has exempted a
specific list of contracts from SCA coverage to the extent regulatory
criteria for exclusion from coverage are satisfied as provided at 29
CFR 4.123(d) and (e). To assist all interested parties in understanding
their rights and obligations under Executive Order 14026, the
Department proposed to make coverage of service contracts under the
Executive order and part 23 consistent with coverage under the SCA to
the greatest extent possible.
Therefore, the Department provided in proposed Sec. 23.40(d) that
contracts for services that are exempt from SCA coverage pursuant to
its statutory language or implementing regulations would not be subject
to part 23 unless expressly included by proposed Sec. 23.30(a)(1)(ii)-
(iv). For example, the SCA exempts contracts for public utility
services, including electric light and power, water, steam, and gas,
from its coverage. See 41 U.S.C. 6702(b)(5); 29 CFR 4.120. Such
contracts would also be excluded from coverage of the Executive order
and part 23 under the proposed rule. Similarly, certain contracts
principally for the maintenance, calibration, or repair of automated
data processing equipment and office information/word processing
systems are exempted from SCA coverage pursuant to the SCA's
implementing regulations at 29 CFR 4.123(e)(1)(i)(A); such contracts
would thus not be covered by the Executive order or the proposed rule.
However, certain types of concessions contracts are excluded from SCA
coverage pursuant to 29 CFR 4.133(b) but are explicitly covered by the
Executive order and part 23 under proposed Sec. 23.30(a)(1)(iii). 86
FR 22837. Moreover, to the extent that a contract is excluded from SCA
coverage but subject to the DBA (e.g., a contract with the Federal
Government for the construction, alteration, or repair, including
painting and decorating, of public buildings or public works that would
be excluded from the SCA under 41 U.S.C. 6702(b)(1)), such a contract
would be covered by the Executive order and part 23 as a ``procurement
contract'' for ``construction.'' 86 FR 22837; proposed Sec.
23.30(a)(1)(i). In sum, all of the SCA's exemptions are applicable to
the Executive order, unless such SCA-exempted contracts are otherwise
covered by the Executive order and the proposed rule (e.g., they
qualify as concessions contracts or contracts in connection with
Federal land and related to offering services). The Department noted
that subregulatory and other coverage determinations made by the
Department for purposes of the SCA would also govern whether a contract
is covered by the SCA for purposes of the Executive order. This
proposed exclusion was identical to that adopted in the regulations
implementing Executive Order 13658. See 29 CFR 10.4(d).
[[Page 67164]]
Although no commenters objected to this proposed exclusion, a few
commenters, including the AFL-CIO and CWA, the SEIU, and the Teamsters,
urged the Department to clarify the limited scope of SCA's statutory
exemptions under 41 U.S.C. 6702(b)(3)-(5). The Department appreciates
the feedback from these commenters, but declines to further elaborate
on the scope of the SCA's statutory exemptions in this rulemaking.
Subregulatory and other coverage determinations made by the Department
for purposes of the SCA will govern whether a contract is covered by
the SCA for purposes of the Executive order; however, such coverage
determinations are independent of this Executive order and would be
more appropriately addressed in an official ruling or interpretation
under the SCA or in subregulatory guidance issued pursuant to that
statute. Because the Department did not receive any other comments
about this proposed exclusion, it is adopted as proposed.
Exclusion for employees who are exempt from the minimum wage
requirements of the FLSA under 29 U.S.C. 213(a) and 214(a)-(b):
Consistent with the regulations implementing Executive Order 13658, the
Department proposed to provide in Sec. 23.40(e) that, except for
workers whose wages are calculated pursuant to special certificates
issued under 29 U.S.C. 214(c) and workers who are otherwise covered by
the SCA or DBA, employees who are exempt from the minimum wage
protections of the FLSA under 29 U.S.C. 213(a) would similarly not be
subject to the minimum wage protections of Executive Order 14026 and
part 23. Proposed Sec. 23.40(e)(1) through (3), which are discussed
briefly below, highlighted some of the narrow categories of employees
that are not entitled to the minimum wage protections of the order and
part 23 pursuant to this exclusion.
Proposed Sec. 23.40(e)(1) and (2) specifically would exclude from
the requirements of Executive Order 14026 and part 23 workers whose
wages are calculated pursuant to special certificates issued under 29
U.S.C. 214(a) and (b). Specifically, proposed Sec. 23.40(e)(1) would
exclude from coverage learners, apprentices, or messengers employed
under special certificates pursuant to 29 U.S.C. 214(a). Id.; see 29
CFR part 520. Proposed Sec. 23.40(e)(2) also would exclude from
coverage full-time students employed under special certificates issued
under 29 U.S.C. 214(b). Id.; see 29 CFR part 519. Proposed Sec.
23.40(e)(3) provided that the Executive order and part 23 would not
apply to individuals employed in a bona fide executive, administrative,
or professional capacity, as those terms are defined and delimited in
29 CFR part 541. As the Department explained in the NPRM, this proposed
exclusion is consistent with the regulations for Executive Order 13658,
see 29 CFR 10.4(e), as well as with the FLSA, SCA, and DBA and their
implementing regulations. See, e.g., 29 U.S.C. 213(a)(1) (FLSA); 41
U.S.C. 6701(3)(C) (SCA); 29 CFR 5.2(m) (DBA).
Maximus expressed its support for the Department's proposed
exclusion of individuals employed in executive roles as ``necessary and
uncontroversial.'' As discussed above in the preamble section regarding
coverage of apprentices, students, interns, and seasonal workers, the
Department received a few requests for clarification regarding the
potential exclusion of such workers and has addressed those comments
above. Because the Department did not receive any comments requesting
specific revisions to proposed Sec. 23.40(e), the Department adopts
the provision as proposed.
Exclusion for FLSA-covered workers performing in connection with
covered contracts for less than 20 percent of their work hours in a
given workweek: As discussed earlier in the context of the ``on or in
connection with'' standard for worker coverage, proposed Sec. 23.40(f)
established an explicit exclusion for FLSA-covered workers performing
``in connection with'' covered contracts for less than 20 percent of
their hours worked in a given workweek.
This proposed exclusion is identical to the exclusion that appears
in the Department's regulations implementing Executive Order 13658. See
29 CFR 10.4(f). As the Department explained in the final rule for those
regulations, see 79 FR 60660, the Department has used a 20 percent
threshold for coverage determinations in a variety of SCA and DBA
contexts. For example, 29 CFR 4.123(e)(2) exempts from SCA coverage
contracts for seven types of commercial services, such as financial
services involving the issuance and servicing of cards (including
credit cards, debit cards, purchase cards, smart cards, and similar
card services), contracts with hotels for conferences, transportation
by common carriers of persons by air, real estate services, and
relocation services. Certain criteria must be satisfied for the
exemption to apply to a contract, including that each service employee
spend only ``a small portion of his or her time'' servicing the
contract. 29 CFR 4.123(e)(2)(ii)(D). The exemption defines ``small
portion'' in relative terms and as ``less than 20 percent'' of the
employee's available time. Id. Likewise, the Department has determined
that the DBA applies to certain categories of workers (i.e., air
balance engineers, employees of traffic service companies, material
suppliers, and repair employees) only if they spend 20 percent or more
of their hours worked in a workweek performing laborer or mechanic
duties on the covered site. See WHD FOH ]] 15e06, 15e10(b), 15e16(c),
and 15e19.
In light of the exclusion that was adopted in the Department's
regulations implementing Executive Order 13658, as well as the above-
discussed administrative practice under the SCA and the DBA of applying
a 20 percent threshold to certain coverage determinations, the
Department proposed an exclusion in Sec. 23.40(f) whereby any covered
worker performing only ``in connection with'' covered contracts for
less than 20 percent of his or her hours worked in a given workweek
will not be entitled to the Executive Order 14026 minimum wage for any
hours worked.
As explained in the NPRM, this proposed exclusion would not apply
to any worker performing ``on'' a covered contract whose wages are
governed by the FLSA, SCA, or DBA. Such workers will be entitled to the
Executive Order 14026 minimum wage for all hours worked performing on
or in connection with covered contracts. However, for a worker solely
performing ``in connection with'' a covered contract, the Executive
Order 14026 minimum wage requirements would only apply if that worker
spends 20 percent or more of his or her hours worked in a given
workweek performing in connection with covered contracts. Thus, in
order to apply this exclusion correctly, contractors must accurately
distinguish between workers performing ``on'' a covered contract and
those workers performing ``in connection with'' a covered contract
based on the guidance provided in this section. The 20 percent of hours
worked exclusion would not apply to any worker who spends any hours
performing ``on'' a covered contract; rather, it would apply only to
workers performing ``in connection with'' a covered contract who do not
spend any hours worked performing ``on'' the contract in a given
workweek.
For purposes of administering the 20 percent of hours worked
exclusion under the Executive order, the Department views workers
performing ``on'' a covered contract as those workers directly
performing the specific services called for by the contract. Whether a
worker is performing ``on'' a covered contract will be determined in
[[Page 67165]]
part by the scope of work or a similar statement set forth in the
covered contract that identifies the work (e.g., the services or
construction) to be performed under the contract. Specifically,
consistent with the SCA, see, e.g., 29 CFR 4.153, a worker will be
considered to be performing ``on'' a covered contract if the employee
is directly engaged in the performance of specified contract services
or construction. All laborers and mechanics engaged in the construction
of a public building or public work on the site of the work thus will
be regarded as performing ``on'' a DBA-covered contract. All service
employees performing the specific services called for by an SCA-covered
contract will also be regarded as performing ``on'' a contract covered
by the Executive order. In other words, any worker who is entitled to
be paid DBA or SCA prevailing wages is entitled to receive the
Executive Order 14026 minimum wage for all hours worked on covered
contracts, regardless of whether such covered work constitutes less
than 20 percent of his or her overall hours worked in a particular
workweek. For purposes of concessions contracts and contracts in
connection with Federal property and related to offering services that
are not covered by the SCA, the Department would regard any employee
performing the specific services called for by the contract as
performing ``on'' the covered contract in the same manner described
above. Such workers would therefore be entitled to receive the
Executive Order 14026 minimum wage for all hours worked on covered
contracts, even if such time represents less than 20 percent of his or
her overall work hours in a particular workweek.
However, for purposes of the Executive order, the Department would
view any worker who performs solely ``in connection with'' covered
contracts for less than 20 percent of his or her hours worked in a
given workweek to be excluded from the order and part 23. In other
words, such workers would not be entitled to be paid the Executive
order minimum wage for any hours that they spend performing in
connection with a covered contract if such time represents less than 20
percent of their hours worked in a given workweek. For purposes of this
proposed exclusion, the Department would regard a worker performing
``in connection with'' a covered contract as any worker who is
performing work activities that are necessary to the performance of a
covered contract but who are not directly engaged in performing the
specific services called for by the contract itself.
Therefore, and as explained in the NPRM, the 20 percent of hours
worked exclusion may apply to any FLSA-covered employees who are not
directly engaged in performing the specific construction identified in
a DBA contract (i.e., they are not DBA-covered laborers or mechanics)
but whose services are necessary to the performance of the DBA
contract. In other words, workers who may fall within the scope of this
exclusion are FLSA-covered workers who do not perform the construction
identified in the DBA contract either due to the nature of their non-
physical duties and/or because they are not present on the site of the
work, but whose duties would be regarded as essential for the
performance of the contract.
In the context of DBA-covered contracts, workers who may qualify
for this exclusion if they spend less than 20 percent of their hours
worked performing work in connection with covered contracts could
include an FLSA-covered security guard patrolling or monitoring several
construction sites, including one where DBA-covered work is being
performed, or an FLSA-covered clerk who processes the payroll for DBA
contracts (either on or off the site of the work). However, if the
security guard or clerk in these examples also performed the duties of
a DBA-covered laborer or mechanic (for example, by painting or moving
construction materials), the 20 percent of hours worked exclusion would
not apply to any hours worked on or in connection with the contract
because that worker performed ``on'' the covered contract at some point
in the workweek. Similarly, if the security guard or clerk in these
examples spent more than 20 percent of their time in a workweek
performing in connection with DBA- or SCA-covered contracts (e.g., the
security guard exclusively patrolled a DBA-covered construction site),
such workers would be covered by the Executive order and the exclusion
would not apply.
In the proposed rule, the Department also reaffirmed that the
protections of the order do not extend to workers who are not engaged
in working on or in connection with a covered contract. For example, an
FLSA-covered technician who is hired to repair a DBA contractor's
electronic time system or an FLSA-covered janitor who is hired to clean
the bathrooms at the DBA contractor's company headquarters are not
covered by the order because they are not performing the specific
duties called for by the contract or other services or work necessary
to the performance of the contract.
In the context of SCA-covered contracts, the 20 percent of hours
worked exclusion may apply to any FLSA-covered employees performing in
connection with an SCA contract who are not directly engaged in
performing the specific services identified in the contract (i.e., they
are not ``service employees'' entitled to SCA prevailing wages) but
whose services are necessary to the performance of the SCA contract.
Any workers performing work in connection with an SCA contract who are
not entitled to SCA prevailing wages but are entitled to at least the
FLSA minimum wage pursuant to 41 U.S.C. 6704(a) would fall within the
scope of this exclusion.
Examples of workers in the SCA context who may qualify for this
exclusion if they perform in connection with covered contracts for less
than 20 percent of their hours worked in a given workweek include an
accounting clerk who processes a few invoices for SCA contracts out of
thousands of other invoices for non-covered contracts during the
workweek or an FLSA-covered human resources employee who assists for
short periods of time in benefits enrollment of the workers performing
on the SCA-covered contract in addition to benefits enrollment of
workers on other non-covered projects. Neither the Executive order nor
the exclusion would apply, however, to an FLSA-covered landscaper at
the office of an SCA contractor because that worker is not performing
the specific duties called for by the SCA contract or other services or
work necessary to the performance of the contract.
With respect to concessions contracts and contracts in connection
with Federal property or lands and related to offering services, the 20
percent of hours worked exclusion may apply to any FLSA-covered
employees performing work in connection with such contracts who are not
at any time directly engaged in performing the specific services
identified in the contract but whose services or work duties are
necessary to the performance of the covered contract. One example of a
worker who may qualify for this exclusion if the worker performed work
in connection with covered contracts for less than 20 percent of his or
her hours in a given workweek includes an FLSA-covered clerk who
handles the payroll for a fitness center that leases space in a Federal
agency building as well as the center's other locations that are not
covered by the Executive order. Another such example of a worker who
may qualify for this exclusion if the worker
[[Page 67166]]
performed work in connection with covered contracts for less than 20
percent of his or her hours worked in a given workweek would be a job
coach whose wages are governed by the FLSA who assists workers employed
under section 14(c) certificates in performing work at a fast food
franchise located on a military base as well as that franchisee's other
restaurant locations off the base. Neither the Executive order nor the
exclusion would apply, however, to an FLSA-covered employee hired by a
covered concessionaire to redesign the storefront sign for a snack shop
in a national park unless the redesign of the sign was called for by
the SCA contract itself or otherwise necessary to the performance of
the contract.
As explained above, pursuant to this proposed exclusion, if a
covered worker performs work ``in connection with'' contracts covered
by the Executive order as well as on other work that is not within the
scope of the order during a particular workweek, the Executive Order
14026 minimum wage would not apply for any hours worked if the number
of the individual's work hours spent performing in connection with the
covered contract is less than 20 percent of that worker's total hours
worked in that workweek. Importantly, however, this rule is only
applicable if the contractor has correctly determined the hours worked
and if it appears from the contractor's properly kept records or other
affirmative proof that the contractor appropriately segregated the
hours worked in connection with the covered contract from other work
not subject to the Executive order for that worker. See, e.g., 29 CFR
4.169, 4.179. As discussed in greater detail in the preamble pertaining
to rate of pay and recordkeeping requirements in Sec. Sec. 23.220 and
23.260, if a covered contractor during any workweek is not exclusively
engaged in performing covered contracts, or if while so engaged it has
workers who spend a portion but not all of their hours worked in the
workweek in performing work on or in connection with such contracts, it
is necessary for the contractor to identify accurately in its records,
or by other means, those periods in each such workweek when the
contractor and each such worker performed work on or in connection with
such contracts. See 29 CFR 4.179.
The Department noted in the proposed rule that, in the absence of
records adequately segregating non-covered work from the work performed
on or in connection with a covered contract, all workers working in the
establishment or department where such covered work is performed will
be presumed to have worked on or in connection with the contract during
the period of its performance, unless affirmative proof establishing
the contrary is presented. Similarly, in the absence of such records, a
worker performing any work on or in connection with the contract in a
workweek shall be presumed to have continued to perform such work for
all hours worked throughout the workweek, unless affirmative proof
establishing the contrary is presented. Id.
The quantum of affirmative proof necessary to adequately segregate
non-covered work from the work performed on or in connection with a
covered contract--or to establish, for example, that all of a worker's
time associated with a contract was spent performing ``in connection
with'' rather than ``on'' the contract--will vary with the
circumstances. For example, it may require considerably less
affirmative proof to satisfy the 20 percent of hours worked exclusion
with respect to an FLSA-covered accounting clerk who only occasionally
processes an SCA-contract-related invoice than would be necessary to
establish the 20 percent of hours worked exclusion with respect to a
security guard who works on a DBA-covered site at least several hours
each week.
Finally, the Department noted in the NPRM that in calculating hours
worked by a particular worker in connection with covered contracts for
purposes of determining whether this exclusion may apply, contractors
must determine the aggregate amount of hours worked on or in connection
with covered contracts in a given workweek by that worker. For example,
if an FLSA-covered administrative assistant works 40 hours per week and
spends two hours each week handling payroll for each of four separate
SCA contracts, the eight hours that the worker spends performing in
connection with the four covered contracts must be aggregated for that
workweek in order to determine whether the 20 percent of hours worked
exclusion applies; in this example, the worker would be entitled to the
Executive order minimum wage for all eight hours worked in connection
with the SCA contracts because such work constitutes 20 percent of her
total hours worked for that workweek.
The Department received some comments pertaining to this proposed
exclusion. The Center for Workplace Compliance expressed its particular
support for the provision because it is consistent with the exclusion
that was set forth in the regulations implementing Executive Order
13658. A few commenters requested general clarification regarding the
Department's proposed coverage of FLSA-covered employees performing on
or in connection with covered contracts, which the Department has
addressed in the preamble discussion of worker coverage above. In its
comment, Conduent requested clarity with respect to this exclusion and
provided a hypothetical for the Department to address. Conduent stated
its belief that, if an FLSA-covered worker performed work ``in
connection with'' four contracts in a given week, only one of which is
a federal contract, then they must be paid the Executive Order 14026
minimum wage for work performed on all four contracts, even if three of
the contracts are not covered by the order; Conduent then further
elaborated on this hypothetical based on this assumption. However, the
Department clarifies that the basic assumption made by Conduent is
incorrect. As explained in the NPRM, workers are only required to be
paid the Executive Order 14026 wage rate for hours that they spend
performing on or in connection with a covered contract, assuming that
the contractor has appropriately satisfied this rule's recordkeeping
and segregation requirements. In the hypothetical presented by
Conduent, the worker would not be entitled to the Executive order
minimum wage rate for any of the time spent working on the three non-
covered contracts. The worker would be entitled to receive the
Executive order minimum wage for time spent performing work in
connection with the one covered contract, but only if such time
represented 20 percent or more of his or her hours worked in a given
workweek.
For example, an FLSA-covered worker processes payroll and handles
invoices for a construction contractor; each week, that worker performs
work pertaining to one DBA-covered contract for that contractor and
three non-federal contracts. In Week 1, the worker works 40 hours for
the contractor, 10 hours of which are spent processing payroll and
handling the billing in connection with the DBA-covered contract. In
that week, the worker is required to be paid at least the Executive
Order 14026 wage rate for 10 hours that week (the ``20 percent
exclusion'' does not apply because 25 percent of the worker's hours
worked that week were spent performing in connection with the covered
contract). In Week 2, the worker works 40 hours for the contractor,
only 4 of which are spent processing payroll and handling the billing
for the DBA-covered contract.
[[Page 67167]]
In that week, the worker is not required to be paid the Executive order
minimum wage for any hours worked because the worker only performed in
connection with a covered contract for 10 percent of her hours worked
in the workweek and the exclusion would apply.
The Department hopes that these examples further provide clarity
about the applicability of the exclusion. Because the Department did
not receive any comments requesting specific changes to the proposed
exclusion, it is adopted as set forth in the NPRM.
Exclusion for contracts that result from a solicitation issued
before January 30, 2022 and that are entered into on or between January
30, 2022 and March 30, 2022: Section 9(b) of Executive Order 14026
provides that as an ``exception'' to the general coverage of new
contracts, where agencies have issued a solicitation before January 30,
2022, and entered into a new contract resulting from such solicitation
within 60 days of such date, such agencies are strongly encouraged but
not required to ensure that the Executive Order 14026 minimum wage
rates are paid under the new contract. 86 FR 22837-38. The order
further provides, however, that if such contract is subsequently
extended or renewed, or an option is subsequently exercised under that
contract, the Executive order 14026 minimum wage requirements will
apply to that extension, renewal, or option. 86 FR 22838. Accordingly,
the Department proposed to insert at Sec. 23.40(g) an exclusion
providing that part 23 does not apply to contracts that result from a
solicitation issued prior to January 30, 2022, and that are entered
into on or between January 30, 2022 and March 30, 2022. For stakeholder
clarity, and consistent with section 9(b) of the order, the proposed
exclusion stated that, if such a contract is subsequently extended or
renewed, or an option is subsequently exercised under that contract,
the Executive order and part 23 would apply to that extension, renewal,
or option. The Department noted that, based on a plain reading of the
language of section 9(b) of the order, this exclusion is only
applicable to contracts resulting from solicitations that are issued
prior to January 30, 2022, and that are entered into by March 30, 2022.
Any covered contract entered into on or after March 31, 2022, will be
subject to Executive Order 14026 and part 23 regardless of when such
solicitation was issued. Moreover, the Department noted that this
exclusion would not apply to contracts that are awarded outside the
solicitation process.
The National Forest Recreation Association (NFRA) commented that
this proposed exclusion ``results in inconsistent treatment between
original contracts entered into between January 30, 2022 and March 30,
2022 and options entered into in that same time period when in both
cases the contract or underlying contract resulted from a solicitation
issued prior to January 30, 2022.'' The NFRA stated its belief that
original contracts and exercised option periods should be treated in
the same manner for purposes of this exclusion and therefore requested
that the Department expand the exclusion set forth at Sec. 23.40(g) to
apply to both contracts and options entered into between January 30,
2022 and March 30, 2022, where the contract or underlying contract at
issue resulted from a solicitation issued prior to January 30, 2022.
The Department has carefully considered the NFRA's suggestion, but
declines to exempt option periods under covered contracts that are
exercised on or between January 30, 2022 and March 30, 2022. As
explained in the NPRM, the proposed exclusion at Sec. 23.40(g)
implements the narrow exception from general coverage principles set
forth in section 9(b) of Executive Order 14026. See 86 FR 22837-38. The
plain language of section 9(b) reflects that the exclusion only applies
to ``new'' contracts or contract-like instruments that result from a
solicitation issued prior to January 30, 2022, and that are entered
into on or between January 30, 2022 and March 30, 2022. 86 FR 22837.
Section 9(b)'s inapplicability to exercised options is reinforced by
section 9(a) of the Order, which enumerates ``new'' contracts and
contract-like instruments on the one hand and ``exercises of options on
existing contracts or contract-like instruments contracts'' on the
other as separate categories of generally covered contracts. Id.
Moreover, section 9(b) expressly states that where ``an option is
subsequently exercised under that [new] contract or contract-like
instrument,'' Executive Order 14026 will apply to that option. 86 FR
22838. The Executive order itself thus distinguishes between original
contracts and exercised option periods in its discussion of this
limited exclusion. Because the Department's proposed exclusion is based
on the plain language of Executive Order 14026, the Department declines
to expand the exclusion; this provision is therefore adopted as
proposed in the NPRM.
Section 23.50 Minimum Wage for Federal Contractors and Subcontractors
Proposed Sec. 23.50 sets forth the minimum wage rate requirement
for Federal contractors and subcontractors established in Executive
Order 14026. See 86 FR 22835-36. Here, the Department generally
discusses the minimum hourly wage protections provided by the Executive
order for workers performing on or in connection with covered contracts
with the Federal Government, as well as the methodology that the
Secretary will use for determining the applicable minimum wage rate
under the Executive order on an annual basis beginning at least 90 days
before January 1, 2023. The Executive order provides that the minimum
wage beginning January 1, 2023, and annually thereafter, will be an
amount determined by the Secretary. It further provides that such rates
be increased by the annual percentage increase in the CPI for the most
recent month, quarter, or year available as determined by the
Secretary. Consistent with the regulations implementing Executive Order
13658, see 29 CFR 10.5, the Secretary proposed to base such increases
on the most recent year available to minimize the impact of seasonal
fluctuations on the Executive order minimum wage rate. This section
also emphasized that nothing in the Executive order or part 23 shall
excuse noncompliance with any applicable Federal or state prevailing
wage law or any applicable law or municipal ordinance establishing a
minimum wage higher than the minimum wage established under the
Executive order and part 23. See 86 FR 22836.
Finally, the Department proposed at Sec. 23.50(d) to add language
briefly discussing the relationship between Executive Order 13658 and
this order. Consistent with section 6 of Executive Order 14026, see 86
FR 22836-37, the proposed provision explained that, as of January 30,
2022, Executive Order 13658 is superseded to the extent that it is
inconsistent with Executive Order 14026 and part 23. The Department
proposed that, unless otherwise excluded by Sec. 23.40, workers
performing on or in connection with a covered new contract, as defined
in Sec. 23.20, must be paid the minimum hourly wage rate established
by Executive Order 14026 and part 23 rather than the lower hourly
minimum wage rate established by Executive Order 13658 and its
regulations. A more detailed discussion of the interaction between the
Executive orders appears above in the discussion of contract coverage
under Sec. 23.30.
[[Page 67168]]
The Department received several comments regarding proposed Sec.
23.50. A few commenters, including the AOA, the NSAA, and the Tennessee
Paddlesports Association asserted that the Department's proposed
methodology for determining and announcing the annual inflation-based
updates to the Executive Order 14026 wage rate does not afford
contractors, particularly in the outdoor recreation industry,
sufficient advanced notice. Such commenters argued that the annual
adjustments will create uncertainty regarding budget and pricing for
these contracts, especially for small business concessionaires. The AOA
explained, for example, that ``[d]ue to the popularity of some of the
trips that our members provide, bookings can be made a year or more in
advance, which locks in the price of the trip at that time. Moreover,
rates for the services that our members provide under federal contracts
in the National Parks generally are subject to federal rate approval
processes that require long lead times for approval of rate requests.''
Because the Department is not required to publish notice of the annual
updates to the minimum wage rate more than 90 days in advance of the
effective date of the new rates, these commenters argued that the new
wage rate is unlikely to be available when outfitters and guides set
their prices, often in July or August, for the following summer. The
AOA stated that this uncertainty with respect to the annual wage rate
updates has particularly significant ramifications for outfitters and
guides that enter into longer-term contracts. The NSAA requested that,
given the alleged unique seasonality of ski area operations and pricing
challenges as well as the fact that ski seasons straddle two calendar
years, the Department include a provision allowing ski areas to
implement any annual minimum wage increase not on January 1, but rather
on October 1 of the following year after the minimum wage clause is
included in a covered contract.
In response to these comments, the Department notes that the
methodology underlying the annual wage rate updates to the Executive
Order 14026 is established by sections 2(a) and (b) of the order; with
the exception of the discretion accorded to the Department to base such
increases on the most recent month, quarter, or year available, all
other provisions regarding this methodology are directed by the
Executive order itself. The Department thus declines to adopt the
NSAA's request to delay the effective date of any annual wage rate
increase until October 1 of the following year because the methodology
used to determine the applicable wage rate, as well as the effective
date for such rate, are clearly stated in Executive Order 14026 and the
Department does not have discretionary authority to otherwise modify
the amount or timing of such annual updates. With respect to commenter
concerns that the annual update methodology set forth in Executive
Order 14026 makes it difficult for contractors to forecast labor costs
and account for such costs at the time they enter into new contracts,
the Department notes that the methodology that the Department will use
to determine any annual wage rate increase is based on the CPI-W and
clearly set forth in the Executive order and this part. Contractors
concerned about potential increases in the Executive Order 14026
minimum wage rate may thus consult the CPI-W, which the Federal
Government publishes monthly, to monitor the likely magnitude of any
annual increase. Moreover, in anticipating the typical magnitude of the
annual wage rate increases, the Department notes that stakeholders may
consult as a reference the annual wage rate increases that have been
determined and published by the Department for the prior six years
under Executive Order 13658, which sets forth a nearly identical
methodology for determining such increases.
Moreover, the Department has decided to include language in the
required contract clause (provided in Appendix A of this part) that, if
appropriate, requires contractors to be compensated for the increase in
labor costs resulting from the annual inflation-based increases to the
Executive Order 14026 minimum wage beginning on January 1, 2023. This
provision in the contract clause should mitigate at least some
contractors' concerns about unanticipated financial disruptions that
theoretically could occur due to the annual updates.
With respect to proposed Sec. 23.50(c), the AFL-CIO and CWA, as
well as the Center for American Progress, urge the Department to
clarify that the order does not allow noncompliance with higher wages
required under a CBA and that a CBA or wage law requiring a minimum
wage lower than the Executive order's requirement does not allow
noncompliance with the order. The Chamber, on the other hand, urged the
Department to permit the payment of a wage rate lower than the
applicable Executive order minimum wage where reflected in a CBA. These
comments were discussed in the preamble section above regarding
proposed Sec. 23.10(b). As explained in that discussion, after careful
consideration of the comments, the Department has determined to also
add a clarification to Sec. 23.50(c) to ensure full consistency
between the regulatory text and the contract clause on this topic. The
Department therefore amends Sec. 23.50(c) by adding ``or any
applicable contract'' to the provision, such that it reads as follows:
``Nothing in the Executive Order or this part shall excuse
noncompliance with any applicable Federal or state prevailing wage law
or any applicable law or municipal ordinance, or any applicable
contract, establishing a minimum wage higher than the minimum wage
established under the Executive Order and this part.'' Other than this
clarification, the Department adopts Sec. 23.50 as proposed.
Section 23.60 Antiretaliation
Proposed Sec. 23.60 established an antiretaliation provision
stating that it shall be unlawful for any person to discharge or in any
other manner discriminate against any worker because such worker has
filed any complaint or instituted or caused to be instituted any
proceeding under or related to Executive Order 14026 or part 23, or has
testified or is about to testify in any such proceeding. Consistent
with the Executive Order 13658 regulations, see 29 CFR 10.6, this
language was derived from the FLSA's antiretaliation provision set
forth at 29 U.S.C. 215(a)(3) and was consistent with the Executive
order's direction to adopt enforcement mechanisms as consistent as
practicable with the FLSA, SCA, or DBA. The Department believes that
such a provision will help ensure effective enforcement of Executive
Order 14026. Consistent with the Supreme Court's observation in
interpreting the scope of the FLSA's antiretaliation provision,
enforcement of Executive Order 14026 will depend ``upon information and
complaints received from employees seeking to vindicate rights claimed
to have been denied.'' Kasten v. Saint-Gobain Performance Plastics
Corp., 563 U.S. 1, 11 (2011) (internal quotation marks omitted).
Accordingly, the Department proposed to include an antiretaliation
provision based on the FLSA's antiretaliation provision. See 29 U.S.C.
215(a)(3). Importantly, and consistent with the Supreme Court's
interpretation of the FLSA's antiretaliation provision, the
Department's proposed rule would protect workers who file oral as well
as written complaints. See Kasten, 563 U.S. at 17.
Moreover, as under the FLSA, the proposed antiretaliation provision
under part 23 would protect workers
[[Page 67169]]
who complain to the Department as well as those who complain internally
to their employers about alleged violations of the order or part 23.
See, e.g., Greathouse v. JHS Sec. Inc., 784 F.3d 105, 111-16 (2d Cir.
2015); Minor v. Bostwick Labs. Inc., 669 F.3d 428, 438 (4th Cir. 2012);
Hagan v. Echostar Satellite, LLC, 529 F.3d 617, 626 (5th Cir. 2008);
Lambert v. Ackerley, 180 F.3d 997, 1008 (9th Cir. 1999) (en banc);
Valerio v. Putnam Assocs. Inc., 173 F.3d 35, 43 (1st Cir. 1999); EEOC
v. Romeo Comty Sch., 976 F.2d 985, 989 (6th Cir. 1992). The Department
also noted that the antiretaliation provision set forth in the proposed
rule, like the FLSA's antiretaliation provision, would apply in
situations where there is no current employment relationship between
the parties; for example, it would protect a worker from retaliation by
a prospective or former employer, or by a person acting directly or
indirectly in the interest of an employer. See Arias v. Raimondo, 860
F.3d 1185 (9th Cir. 2017); see also WHD Fact Sheet #77A (``Prohibiting
Retaliation Under the Fair Labor Standards Act (FLSA)''), available at
https://www.dol.gov/agencies/whd/fact-sheets/77a-flsa-prohibiting-retaliation.
The Department received many comments, including from the AFL-CIO
and CWA, the Business and Professional Women of St. Petersburg-
Pinellas, Inc., the Leadership Conference on Civil and Human Rights,
the National Urban League, NELP, Oxfam America, the SEIU, and the
Teamsters, expressing strong support for the proposed antiretaliation
provision. In commending this proposed provision, for example, the AFL-
CIO and CWA explained, ``A $15 minimum wage requirement would mean
little if employers could leverage their economic power over employees
to threaten, coerce, or punish workers for seeking to enforce it. The
antiretaliation provision, modeled on the FLSA's, gives effect to the
President's instruction to incorporate FLSA principles into the
governing regulation `to the extent practicable.' '' The Teamsters
similarly noted that workers ``can play a significant role in enforcing
the wage provision by identifying noncompliant employers,'' and that,
without an antiretaliation provision like the one set forth in the
proposed rule, such workers ``would be less likely to speak out.'' The
National Women's Law Center also expressed support for the provision,
but urged the Department to clarify that an oral complaint need not be
``filed'' in a formal process to invoke the provision's protections and
to affirm that these protections apply when an individual has a
reasonable belief that the employer action about which they complain is
a violation, even if that belief ultimately is mistaken. Jobs with
Justice of East Tennessee similarly commended the provision, but
encouraged the Department to ``develop enforcement protocols that are
responsive to questions and complaints and that provide robust
protection against threats and retaliatory action for workers who bring
wage violations to light.''
The Department appreciates this feedback supportive of the proposed
inclusion of an antiretaliation provision in this part and continues to
believe that the antiretaliation provision serves an important purpose
in effectuating and enforcing Executive Order 14026, as it does under
Executive Order 13658. With respect to the National Women's Law
Center's request for additional clarifications, the Department notes
that the Executive order's antiretaliation provision is intended to
mirror the scope of the FLSA's antiretaliation provision, as
interpreted by the Department. For example, the Department regards the
FLSA's antiretaliation provision as extending to internal complaints,
and this final rule reflects that interpretation as well. With respect
to the comment submitted by Jobs with Justice of East Tennessee
encouraging the Department to develop enforcement protocols for this
antiretaliation provision that are responsive to stakeholders and
provide robust protection to workers, the Department agrees with the
need for strong enforcement of this important provision. As explained
in Sec. 23.440(b), if the Administrator determines that any person has
discharged or otherwise discriminated against any worker because that
worker filed any complaint or instituted or caused to be instituted any
proceeding under or related to Executive Order 14026 or these
regulations, or because such worker testified or is about to testify in
any such proceeding, the Administrator may provide for ``any relief to
the worker as may be appropriate, including employment, reinstatement,
promotion, and the payment of lost wages.'' The Department intends to
robustly enforce the antiretaliation provision as explained in this
rule.
The Department therefore adopts the antiretaliation provision at
Sec. 23.60 as proposed without modification.
Section 23.70 Waiver of Rights
Proposed Sec. 23.70 provided that workers cannot waive, nor may
contractors induce workers to waive, their rights under Executive Order
14026 or part 23. The Supreme Court has consistently concluded that an
employee's rights and remedies under the FLSA, including payment of
minimum wage and back wages, cannot be waived or abridged by contract.
See, e.g., Tony & Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290,
302 (1985); Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S.
728, 740 (1981); D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 112-16
(1946); Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 706-07 (1945). The
Supreme Court has reasoned that the FLSA was intended to establish a
``uniform national policy of guaranteeing compensation for all work''
performed by covered employees. Jewell Ridge Coal Corp. v. Local No.
6167, United Mine Workers, 325 U.S. 161, 167 (1945) (internal quotation
marks omitted). Consequently, the Court has held that ``[a]ny custom or
contract falling short of that basic policy, like an agreement to pay
less than the minimum wage requirements, cannot be utilized to deprive
employees of their statutory rights.'' Id. (internal quotation marks
omitted). In Barrentine, the Supreme Court reaffirmed the ``nonwaivable
nature'' of these fundamental FLSA protections and stated that ``FLSA
rights cannot be abridged by contract or otherwise waived because this
would `nullify the purposes' of the statute and thwart the legislative
policies it was designed to effectuate.'' 450 U.S. at 740 (quoting
Brooklyn Sav. Bank, 324 U.S. at 707). Moreover, FLSA rights are not
subject to waiver because they serve an important public interest by
protecting employers against unfair methods of competition in the
national economy. See Tony & Susan Alamo Found., 471 U.S. at 302.
Releases and waivers executed by employees for unpaid wages (and fringe
benefits) due them under the SCA are similarly without legal effect. 29
CFR 4.187(d). Because the public policy interests underlying the
issuance of the Executive order would be similarly thwarted by
permitting workers to waive, or contractors to induce workers to waive,
their rights under Executive Order 14026 or part 23, the Department in
proposed Sec. 23.70 made clear that such waiver of rights is
impermissible.
The Department received several comments, including comments from
the AFL-CIO and CWA, SEIU, and Teamsters, expressing support for the
Department's proposed prohibition on waiver of rights. The SEIU, for
example, stated that it ``supports DOL's inclusion of this provision
because it would protect vulnerable workers against
[[Page 67170]]
potentially unscrupulous contractors' efforts to coerce them into
waiving their rights to receive the minimum wage provided by the
Executive Order. If employers could induce workers to waive their
rights under the Order, the minimum labor standard it imposes would be
shot through with exceptions, undermining the unified contracting
policy.'' The Teamsters similarly expressed that the Department
``correctly imports'' this important FLSA principle into its rule. The
Department did not receive any comments opposing this provision.
Accordingly, the Department adopts Sec. 23.70 as proposed in the NPRM.
Section 23.80 Severability
Section 7 of Executive Order 14026 states that if any provision of
the order, or the application of any such provision to any person or
circumstance, is held to be invalid, the remainder of the order and the
application shall not be affected. See 86 FR 22837. Consistent with
this directive, the Department proposed to include a severability
clause in part 23. Proposed Sec. 23.80 explained that, if any
provision of part 23 is held to be invalid or unenforceable by its
terms, or as applied to any person or circumstance, or stayed pending
further agency action, the provision shall be construed so as to
continue to give the maximum effect to the provision permitted by law,
unless such holding shall be one of utter invalidity or
unenforceability, in which event the provision shall be severable from
part 23 and shall not affect the remainder thereof.
The Department did not receive any specific comments requesting
changes to this provision, and it is therefore adopted as set forth in
the NPRM.
Subpart B--Federal Government Requirements
Subpart B of part 23 establishes the requirements for the Federal
Government to implement and comply with Executive Order 14026. Section
23.110 addresses contracting agency requirements and Sec. 23.120
addresses the requirements placed upon the Department.
Section 23.110 Contracting Agency Requirements
The Department proposed Sec. 23.110(a) to implement section 2 of
Executive Order 14026, which directs that executive departments and
agencies must include a contract clause in any new contracts or
solicitations for contracts covered by the Executive order. 86 FR
22835. The proposed section described the basic function of the
contract clause, which is to require that workers performing work on or
in connection with covered contracts be paid the applicable Executive
order minimum wage. The proposed section stated that for all contracts
subject to Executive Order 14026, except for procurement contracts
subject to the FAR, the contracting agency must include the Executive
order minimum wage contract clause set forth in Appendix A of part 23
in all covered contracts and solicitations for such contracts, as
described in Sec. 23.30. It further stated that the required contract
clause directs, as a condition of payment, that all workers performing
work on or in connection with covered contracts must be paid the
applicable, currently effective minimum wage under Executive Order
14026 and Sec. 23.50. The proposed section additionally provided that
for procurement contracts subject to the FAR, contracting agencies must
use the clause that will be set forth in the FAR to implement this
rule. The FAR clause will accomplish the same purposes as the clause
set forth in Appendix A and be consistent with the requirements set
forth in this rule.
As the Department noted in the rulemaking for Executive Order 13658
and the NPRM preceding this final rule, including the full contract
clause in a covered contract is an effective and practical means of
ensuring that contractors receive notice of their obligations under the
Executive order. See 79 FR 60668. Therefore, the Department advised in
the NPRM that it continues to prefer that covered contracts include the
contract clause in full. However, the Department noted that there could
be instances in which a contracting agency, or a contractor, does not
include the entire contract clause verbatim in a covered contract, but
the facts and circumstances establish that the contracting agency, or
contractor, sufficiently apprised a prime or lower-tier contractor that
the Executive order and its requirements apply to the contract. In such
instances, the Department said it would be appropriate to find that the
full contract clause has been properly incorporated by reference. See
Nat'l Electro-Coatings, Inc. v. Brock, Case No. C86-2188, 1988 WL
125784 (N.D. Ohio 1988); In re Progressive Design & Build, Inc., WAB
Case No. 87-31, 1990 WL 484308 (WAB Feb. 21, 1990). The Department
specifically noted that the full contract clause will be deemed to have
been incorporated by reference in a covered contract if the contract
provides that ``Executive Order 14026 (Increasing the Minimum Wage for
Federal Contractors), and its implementing regulations, including the
applicable contract clause, are incorporated by reference into this
contract as if fully set forth in this contract,'' with a citation to a
web page that contains the contract clause in full, to the provision of
the Code of Federal Regulations containing the contract clause set
forth at Appendix A, or to the provision of the FAR containing the
contract clause promulgated by the FARC to implement Executive Order
14026 and this rule. See 86 FR 38837.
The Center for Workplace Compliance and the National Industry
Liason Group commented in support of the Department's acknowledgement
in the NPRM preamble that the required contract clause can be
incorporated by reference in certain situations. The National Industry
Liason Group requested the Department to amend the language of the
regulation and contract clause to explicitly permit incorporation of
the contract clause by reference, which they asserted would reduce
confusion. The Department declines to adopt such language, as the
Department continues to prefer that contracting agencies and covered
contractors include the required contract clause in full. Inclusion of
the required contract clause in full reduces the risk of confusion or
disputes over whether particular contractors or subcontractors received
adequate notice that Executive Order 14026 and its requirements apply
to their contracts.
Maximus requested that the Department add language ensuring that
contracting agencies ``include the application of this Order to a
contract as a minimum requirement for offering requests for proposals
(RFPs).'' The Department declines this suggestion, because the text of
proposed Sec. 23.110(a) already proposed to require contracting
agencies to include the contract clause in ``solicitations'' for
covered contracts. See also 29 CFR 10.11(a) (establishing the same
requirement for contracting agencies under Executive Order 13658).
The Department did not otherwise receive comments addressing
proposed Sec. 23.110(a), and accordingly finalizes the provision as
proposed.
Proposed Sec. 23.110(b) stated the consequences in the event that
a contracting agency fails to include the contract clause in a covered
contract. Proposed Sec. 23.110(b) provided that if a contracting
agency made an erroneous determination that Executive Order 14026 or
part 23 did not apply to a particular contract or failed to include the
applicable contract clause in a contract to which the Executive order
[[Page 67171]]
applies, the contracting agency, on its own initiative or within 15
calendar days of notification by an authorized representative of the
Department, must include the clause in the contract retroactive to
commencement of performance under the contract through the exercise of
any and all authority that may be needed. The Department noted that the
Administrator possesses analogous authority under the DBA, see 29 CFR
1.6(f), and it stated its belief that a similar mechanism for
addressing an agency's failure to include the contract clause in a
contract subject to the Executive order would enhance its ability to
obtain compliance with the Executive order. See 86 FR 38837-38.
In the NPRM, the Department explained that, where a contract clause
should have been originally inserted by the contracting agency, a
contractor is entitled to an adjustment where necessary to pay any
necessary additional costs when the contracting agency initially omits
and then subsequently includes the contract clause in a covered
contract. This approach, which is consistent with the SCA's
implementing regulations, see 29 CFR 4.5(c), was therefore reflected in
proposed Sec. 23.440(e). The Department recognized that the mechanics
of providing such an adjustment may differ between covered procurement
contracts and the non-procurement contracts that the Department's
contract clause covers. With respect to covered non-procurement
contracts, the Department stated its belief that the authority
conferred on agencies that enter into such contracts under section 4(b)
of the Executive order includes the authority to provide such an
adjustment. The Department noted that such an adjustment is not
warranted under the Executive order or part 23 when a contracting
agency includes the applicable Executive order contract clause but
fails to include an applicable SCA or DBA wage determination. The
proposed rule would require inclusion of a contract clause, not a wage
determination, in covered contracts; thus, unlike the DBA's regulations
at 29 CFR 1.6(f), it is a contracting agency's failure to include the
required contract clause, not a failure to include a wage
determination, that would trigger the entitlement to an adjustment as
described in this paragraph. See 86 FR 38837-38.
The Center for Workplace Compliance expressed support for proposed
Sec. 23.110(b), pointing out its consistency with an analogous
provision in the regulations implementing Executive Order 13658. See 29
CFR 10.11(b). The Department did not otherwise receive commenter
feedback on proposed Sec. 23.110(b), and has finalized the provision
as proposed.
A few commenters requested that the Department clarify whether
contracting agencies would be obligated to provide an equitable price
adjustment to contractors in other circumstances. For example, AGC
requested that the Department ``establish a mandatory clause that will
allow for contract adjustments based on wage rate increases,'' which
they asserted would ``reduce the risks associated with forecasting
operational costs in the pre-award phase of federal construction
projects as well as reduce confusion, delay, cost overruns, and
possible litigation during the project delivery phase.'' Relatedly, AGC
requested the Department to delete or clarify the phrase ``if
appropriate'' in the sentence of the proposed contract clause providing
that: ``[i]f appropriate, the contracting [agency] shall ensure the
contractor is compensated only for the increase in labor costs
resulting from the annual inflation increases in the Executive Order
14026 minimum wage beginning on January 1, 2023.'' Finally, Conduent
requested ``confirmation of a [contractor's] right to an equitable
adjustment if the new minimum wage is extended to [options] contracts
entered into prior to January 30, 2022.''
The Department declines commenter requests to adopt a provision
entitling contractors to mandatory price adjustments. As a threshold
matter, the rules govering price adjustments for procurement contracts
are governed by the FAR and are thus outside the scope of this
rulemaking. If necessary, the FARC can address price adjustments in
their rulemaking to implement Executive Order 14026, which will follow
this rule. See 86 FR 22836. With respect to nonprocurement contracts,
the Department believes that price adjustments are a discretionary tool
that contracting agencies may provide to contractors if appropriate,
based on the specific nature of the contract. If, for example, a multi-
year contract assumes that worker wages will keep pace with economic
inflation over time, the contractor presumably should not receive a
price adjustment in response to an inflation-based increase in the
Executive Order 14026 minimum wage rate. Among other things, the
parties presumably would address whether and to what extent a
contractor's increased labor costs will likely be mitigated or offset
by efficiency gains and other benefits, discussed in Section IV(c)(4).
For this reason, the Department has declined to add regulatory language
addressing price adjustments to proposed Sec. 23.110, and has retained
the phrase ``if appropriate'' in paragraph (b)(2) of the required
contract clause.
Proposed Sec. 23.110(c) addressed the obligations of a contracting
agency in the event that the contract clause had been included in a
covered contract but the contractor may not have complied with its
obligations under the Executive order or part 23. Specifically,
proposed Sec. 23.110(c) provided that the contracting agency must,
upon its own action or upon written request of an authorized
representative of the Department, withhold or cause to be withheld from
the prime contractor under the contract or any other Federal contract
with the same prime contractor, so much of the accrued payments or
advances as may be necessary to pay workers the full amount of wages
required by the Executive order. As explained in the NPRM, both the SCA
and DBA provide for withholding to ensure the availability of monies
for the payment of back wages to covered workers when a contractor or
subcontractor has failed to pay the full amount of required wages. 29
CFR 4.6(i); 29 CFR 5.5(a)(2). The Department reasoned that withholding
is likewise an appropriate remedy under the Executive order for all
covered contracts because the order directs the Department to adopt SCA
and DBA enforcement processes to the extent practicable and to exercise
authority to obtain compliance with the order. 86 FR 22836. Consistent
with withholding procedures under the SCA and DBA, proposed Sec.
23.110(c) allowed the contracting agency and the Department to withhold
or cause to be withheld funds from the prime contractor not only under
the contract on which covered workers were not paid the Executive order
minimum wage, but also under any other contract that the prime
contractor has entered into with the Federal Government. Finally, the
Department noted that a withholding remedy would be consistent with the
requirement in section 2(a) of the Executive order that compliance with
the specified obligations is an express ``condition of payment'' to a
contractor or subcontractor. 86 FR 22835.
One commenter, the PSC, objected to the requirement in proposed
Sec. 23.110(c) that contracting agencies withhold funds from ``any
other Federal contract with the same prime contractor'' where such
withholding is necessary to pay workers the full amount of wages owed
under a different contract. While agreeing that ``[w]ithholdings
against `bad wage actors' on individual contracts may be reasonable and
proper,'' PSC asserted that ``the withholding of payments, and by flow-
[[Page 67172]]
down, operations on well-performing contracts may adversely affect the
economy and efficiency in federal procurement by potentially stopping
work on other important federal activities under unrelated contracts.''
Relatedly, the PSC asked for additional regulatory language clarifying
``at what point and under what grounds a withholding decision will be
imposed.''
While the Department appreciates PSC's concerns about the potential
consequences of cross-withholding, such withholding is a well-
established and essential method of ensuring that workers receive the
wages owed to them when insufficient funds are available under the
contract on which they are working. Moreover, as explained in the NPRM,
requiring contracting agencies to withhold funds from different
government contracts involving the same prime contractor is essentially
identical to the regulations implementing the DBA and SCA, as well as
the text of the SCA itself and the regulations implementing Executive
Order 13658. See 29 CFR 10.11(c). Consistent with the Executive order's
command to ``incorporate existing . . . procedures, remedies, and
enforcement processes'' under the DBA, SCA, and Executive Order 13658,
see 86 FR 22836, the Department declines PSC's request to remove
language authorizing cross-withholding from proposed Sec. 23.110(c).
In response to PSC's request for additional language clarifying the
circumstances when withholding actions will be initiated, the
Department believes that the language in proposed Sec. 23.110(c)--
which mirrors language implementing Executive Order 13658 at 29 CFR
10.11(c)--is sufficiently clear and detailed, and that further
elaboration is not necessary, particularly since Sec. 23.120(d)
provides that in the event of a withholding request by the
Administrator, the Administrator and/or the contracting agency shall
notify the affected prime contractor of the Administrator's withholding
request. Accordingly, the Department has adopted proposed Sec.
23.110(c) without change.
Proposed Sec. 23.110(d) described a contracting agency's
responsibility to forward to the WHD any complaint alleging a
contractor's non-compliance with Executive Order 14026, as well as any
information related to the complaint. The Department recognized that,
in addition to filing complaints with WHD, some workers or other
interested parties may file formal or informal complaints concerning
alleged violations of the Executive order or part 23 with contracting
agencies. Proposed Sec. 23.110(d) therefore specifically required the
contracting agency to transmit the complaint-related information
identified in Sec. 23.110(d)(1)(ii)(A)-(E) to the WHD's Division of
Government Contracts Enforcement within 14 calendar days of receipt of
a complaint alleging a violation of the Executive order or part 23, or
within 14 calendar days of being contacted by the WHD regarding any
such complaint, consistent with the Department's regulations
implementing Executive Order 13658. See 29 CFR 10.11(d). The Department
posited that adoption of the language in proposed Sec. 23.110(d),
which includes an obligation to send such complaint-related information
to WHD even absent a specific request (e.g., when a complaint is filed
with a contracting agency rather than with the WHD), is appropriate
because prompt receipt of such information from the relevant
contracting agency will allow the Department to fulfill its charge
under the order to implement enforcement mechanisms for obtaining
compliance with the order. 86 FR 22836.
One commenter, Maximus, expressed concern that ``opening the
complaints process to those without a direct current or former
employment relationship could lead to spurious, meritless claims that
burden the Department, agencies, and contractors resources,'' and
recommended the Department to ``accept complaints only from those with
a direct current or former employment relationship, or their legally
recognized representative.'' The Department declines this request to
bar third-party complaints. Although the Department has safeguards in
place to protect worker complainants,\19\ the Department's enforcement
experience underscores that workers are often reluctant to approach the
government with valid wage and hour complaints due to fears of
retaliation or other adverse consequences. For this reason, the
Department has historically accepted third-party wage and hour
complaints,\20\ which in the Department's experience can provide
valuable information to enhance the Department's enforcement efforts.
Accordingly, consistent with its implementation of Executive Order
13658, the Department will accept third-party complaints with respect
to alleged violations of Executive Order 14026.
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\19\ For example, WHD generally does not disclose the reasons
why it begins particular investigations (approximately half of all
investigations are initiated without a prior complaint), and will
generally neither confirm nor deny the existence of complaint
records in response to information requests submitted under the
Freedom of Information Act. See 5 U.S.C. 552(b)(7)(D).
\20\ See https://www.dol.gov/agencies/whd/contact/complaints/third-party.
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The Department did not receive any other comments addressing
proposed Sec. 23.110(d), and has finalized the provision without
change.
Section 23.120 Department of Labor Requirements
Proposed Sec. 23.120 addressed the Department's requirements under
the Executive order. Pursuant to the Executive order, proposed Sec.
23.120(a) set forth the Secretary's obligation to establish the
Executive order minimum wage on an annual basis, while proposed Sec.
23.120(b) explained that the Secretary will determine the applicable
minimum wages on an annual basis by using the method set forth in
proposed Sec. 23.50(b).
In response to these provisions, Maximus recommended that the
Department ``update all rates for all roles [under the DBA and SCA] to
address the wage compression within and across job category wage
determinations to ensure consistency across all contractors.'' PSC
similarly requested the Department to ``harmonize wage determinations''
with Executive Order 14026 to maintain wage differentiation among
classes of workers subject to the DBA and SCA. The Department declines
these requests because they are outside the scope of this rulemaking,
as Executive Order 14026's minimum wage requirement is a separate and
distinct legal obligation from the DBA and SCA's prevailing wage
requirements. The Department did not otherwise receive any comments
germane to proposed Sec. 23.120(a) and (b), and has finalized these
provisions as proposed.
Proposed Sec. 23.120(c) explained how the Secretary will provide
notice to contractors and subcontractors of the applicable Executive
order minimum wage on an annual basis. The proposed section indicated
that the WHD Administrator will publish a notice in the Federal
Register on an annual basis at least 90 days before any new minimum
wage is to take effect. Additionally, the proposed provision stated
that the Administrator will publish and maintain on https://alpha.sam.gov/content/wage-determinations, or any successor website,
the applicable minimum wage to be paid to workers performing on or in
connection with covered contracts, including the cash wage to be paid
to tipped employees. The proposed section further stated that the
Administrator may also publish the applicable wage to be paid to
workers performing on or in
[[Page 67173]]
connection with covered contracts, including the cash wage to be paid
to tipped employees, on an annual basis at least 90 days before any
such minimum wage is to take effect in any other manner the
Administrator deems appropriate.
Consistent with the rulemaking implementing Executive Order 13658,
see 29 CFR 10.12(c), the Department noted its intent to publish a
prominent general notice on SCA and DBA wage determinations, stating
the Executive Order 14026 minimum wage and that it applies to all DBA-
and SCA-covered contracts. The Department stated its intention to
update this general notice on all DBA and SCA wage determinations
annually to reflect any inflation-based adjustments to the Executive
order minimum wage. As discussed in more detail in the preamble section
pertaining to proposed Sec. 23.290 in subpart C, the Department also
proposed developing a poster regarding the Executive order minimum wage
for contractors with FLSA-covered workers performing on or in
connection with a covered contract, as it did in response to Executive
Order 13658. See 79 FR 60670. The Department proposed requiring that
contractors provide notice of the Executive order minimum wage to FLSA-
covered workers performing work on or in connection with covered
contracts via posting of the poster that will be provided by the
Department. This notice provision is discussed in the preamble section
pertaining to Sec. 23.290, and is also consistent with the rule
implementing Executive Order 13658. See 29 CFR 10.29(b).
The Department did not receive any comments regarding the
Department's methods for announcing future changes to the Executive
Order 14026 wage rate, and has accordingly finalized Sec. 23.120(c) as
proposed.
Consistent with the regulations implementing Executive Order 13658,
proposed Sec. 23.120(d) addressed the Department's obligation to
notify a contractor in the event of a request for the withholding of
funds. Under proposed Sec. 23.110(c), the WHD Administrator may direct
that payments due on the covered contract or any other contract between
the contractor and the Federal Government may be withheld as may be
considered necessary to pay unpaid wages. If the Administrator
exercises his or her authority under Sec. 23.110(c) to request
withholding, proposed Sec. 23.120(d) would require the Administrator
or the contracting agency to notify the affected prime contractor of
the Administrator's withholding request to the contracting agency. The
Department noted that both the Administrator and the contracting agency
may notify the contractor in the event of a withholding even though
notice is required from only one of them.
As discussed earlier in response to Maximus' request for additional
guidance on withholding actions in proposed Sec. 23.110(c), the
Department believes that the language in proposed Sec. 23.120(d)--
which discusses the Department's role in withholding actions and which
is identical to the corresponding language in the regulations
implementing Executive Order 13658--is sufficiently clear. The
Department did not otherwise receive any other comments relevant to
proposed Sec. 23.120(d), and has finalized this provision as proposed.
Subpart C--Contractor Requirements
Subpart C articulates the requirements that contractors must comply
with under Executive Order 14026 and part 23. The subpart sets forth
the general obligation to pay no less than the applicable Executive
order minimum wage to workers for all hours worked on or in connection
with the covered contract, and to include the Executive order minimum
wage contract clause in all contracts and subcontracts of any tier
thereunder. Subpart C also sets forth contractor requirements
pertaining to permissible deductions, frequency of pay, and
recordkeeping, as well as a prohibition against taking kickbacks from
wages paid on covered contracts.
Section 23.210 Contract Clause
Proposed Sec. 23.210(a) required the contractor, as a condition of
payment, to abide by the terms of the Executive order minimum wage
contract clause described in proposed Sec. 23.110(a). The contract
clause contains the obligations with which the contractor must comply
on the covered contract and is reflective of the contractor's
requirements as stated in the proposed regulations. Proposed Sec.
23.210(b) articulated the obligation that contractors and
subcontractors must insert the Executive order minimum wage contract
clause in any covered subcontracts and must require, as a condition of
payment, that subcontractors include the clause in all lower-tier
subcontracts. Under the proposal, the prime contractor and upper-tier
contractor would be responsible for compliance by any covered
subcontractor or lower-tier subcontractor with the Executive order
minimum wage contract clause, consistent with analogous requirements
under the SCA, DBA, and Executive Order 13658. See 29 CFR 4.114(b)
(SCA); 29 CFR 5.5(a)(6) (DBA); 29 CFR 10.21 (Executive Order 13658).
Finally, consistent with the rulemaking implementing Executive Order
13658, proposed Sec. 23.210(b) advised that a contractor under part 23
would be responsible for compliance by all covered lower-tier
subcontractors. This obligation would apply whether or not the
contractor has included the Executive order contract clause, regardless
of the number of covered lower-tier subcontractors, and regardless of
how many levels of subcontractors separate the responsible prime or
upper-tier contractor from the subcontractor that failed to comply with
the Executive order.
The Department received a number of comments concerning proposed
Sec. 23.210. For example, AGC requested the Department to create a
``safe harbor'' from liability for prime and higher-tier subcontractors
that properly flow down the required contract clause to their direct
subcontractors, asserting that ``it is inequitable to hold such
contractors responsible for all lower-tier subcontractors'
noncompliance with the minimum wage requirements . . . when the higher-
tier contractor has complied with the language flow-down requirement.''
The AOA similarly requested that the Department modify proposed Sec.
23.210 so that ``contractors have no further obligation with respect to
enforcement and compliance by any subcontractor with the Executive
Order's minimum wage requirements'' beyond including the required
contract clause, stating that ``contractors lack the enforcement
authority of a governmental entity.'' However, NELP specifically
complimented the ``flow-down'' language in proposed Sec. 23.210(b),
observing that such language ``ensur[es] that federal contractors
cannot plead ignorance to any minimum wage violations that their
subcontracted workers face.''
After careful consideration, the Department has decided to adopt
proposed Sec. 23.210 as set forth in the NPRM. Specifically, the
Department declines to adopt the request to provide a safe harbor from
flow-down liability to a contractor that includes the contract clause
in its contracts with subcontractors. As discussed more fully in the
preamble section for Sec. 29.440, which discusses remedies and
sanctions under this part, neither the SCA nor DBA nor Executive Order
13658, all of which permit the Department to hold a contractor
responsible for compliance by any lower-tier contractor, contain a safe
harbor. Furthermore, the Executive Order directs the Department to look
to the DBA, SCA, and Executive Order 13658 in adopting remedies. A safe
[[Page 67174]]
harbor could diminish the level of care contractors exercise in
selecting subcontractors on covered contracts and reduce contractors'
monitoring of the performance of subcontractors--two ``vital
functions'' served by the flowdown responsibility. In the Matter of
Bongiovanni, WAB Case No. 91-08, 1991 WL 494751 (WAB April 19, 1991).
Additionally, a contractor's responsibility for the compliance of its
lower-tier subcontractors enhances the Department's ability to obtain
compliance with the Executive Order. For these reasons, the Department
rejected similar requests for a safe harbor provision in the 2014 final
rule implementing Executive Order 13658. See 79 FR 60671.
As discussed earlier in the context of contracting agency
responsibilities under Sec. 23.110(a), the Department acknowledges
that the contract clause can be considered incorporated by reference in
certain circumstances, including in subcontracts. However, because the
Department recommends that contracting agencies and covered contractors
include the required contract clause in full to reduce the risk of
confusion or disputes over whether the contract clause was properly
incorporated, the Department declines the National Industry Liason
Group's request to add regulatory language explicitly allowing for
incorporation of the contract clause by reference.
Section 23.220 Rate of Pay
Proposed Sec. 23.220 addressed contractors' obligations to pay the
Executive order minimum wage to workers performing work on or in
connection with a covered contract under Executive Order 14026.
Proposed Sec. 23.220(a) stated the general obligation that contractors
must pay workers the applicable minimum wage under Executive Order
14026 for all hours spent performing work on or in connection with the
covered contract. The proposed section also provided that workers
performing work on or in connection with contracts covered by the
Executive order must receive not less than the minimum hourly wage of
$15.00 beginning January 30, 2022.
Two commenters, ABC and AGC, requested that the Department modify
the regulations so that the Executive Order 14026 wage rate at the
onset of a multi-year contract would remain fixed for the duration of
the contract, consistent with the treatment of wage determinations
under the DBA. AGC asserted that applying minimum wage increases after
contract award would create uncertainty and problems in the procurement
process.
The Department rejects this request. As we advised in the NPRM, the
Department believes that the applicable minimum wage rate under
Executive Order 14026 must be subject to annual increases for the
duration of multi-year contracts. This is consistent with the text of
Executive Order 14026 as well as with the Department's interpretation
of Executive Order 13658, as nothing in either Executive order suggests
that the minimum wage requirement should remain stagnant during the
span of a covered multi-year contract. See 79 FR 60673 (discussing
Executive Order 13658). Allowing the applicable minimum wage to
increase throughout the duration of multi-year contracts fulfills the
Executive order's intent to raise the minimum wage of workers according
to annual increases in the CPI-W. It additionally ensures simultaneous
application of the same minimum wage rate to all covered workers, a
simplicity that has presumably benefited contractors and workers alike
in the application of Executive Order 13658. The Department further
notes that contractors concerned about potential increases in the
minimum wage provided under the Executive order may consult the CPI-W,
which the Federal Government publishes monthly, to monitor the likely
magnitude of the annual increase. Furthermore, as discussed in further
detail in relation to Sec. 23.440(e), the language of the required
contract clause contained in Appendix A will require contracting
agencies to ensure, if appropriate, that the contractor is compensated
for an increase in labor costs resulting from annual inflation
increases in the Executive Order 14026 minimum wage beginning on
January 1, 2023. This provision in the contract clause should mitigate
any potential contractor concerns about unanticipated financial burdens
associated with annual increases in the Executive order minimum wage.
The Department notes that, in order to comply with the Executive
order's minimum wage requirement, a contractor can compensate workers
on a daily, weekly, or other time basis (no less often than semi-
monthly), or by piece or task rates, so long as the measure of work and
compensation used, when translated or reduced by computation to an
hourly basis each workweek, would provide a rate per hour that is no
lower than the applicable Executive order minimum wage. Whatever system
of payment is used, however, must ensure that each hour of work in
performance of the contract is compensated at not less than the
required minimum rate. Failure to pay for certain hours at the required
rate cannot be transformed into compliance with the Executive order or
part 23 by reallocating portions of payments made for other hours that
are in excess of the specified minimum.
In determining whether a worker is performing within the scope of a
covered contract, the Department proposed that all workers who are
engaged in working on or in connection with the contract, either in
performing the specific services called for by its terms or in
performing other duties necessary to the performance of the contract,
would be subject to the Executive order and part 23 unless a specific
exemption is applicable. This standard was derived from the SCA's
implementing regulations at 29 CFR 4.150, and is consistent with
Executive Order 13658's implementing regulations at 29 CFR 10.22. As
discussed earlier, the Department acknowledges commenter criticisms of
the Executive Order's coverage of workers performing ``in connection
with'' covered contracts, but notes that the Executive Order explicitly
applies to such workers. In any event, the 20 percent exclusion
codified in in Sec. 23.40(f) should allay these concerns.
Proposed Sec. 23.220(a) explained that the contractor's obligation
to pay the applicable minimum wage to workers on or in connection with
covered contracts does not excuse noncompliance with any applicable
Federal or state prevailing wage law, or any applicable law or
municipal ordinance establishing a minimum wage higher than the minimum
wage established under Executive Order 14026. This proposed provision
would implement section 2(c) of the Executive order. 86 FR 22836.
As explained earlier, the minimum wage requirements of Executive
Order 14026 are separate and distinct legal obligations from the
prevailing wage requirements of the SCA and the DBA. If a contract is
covered by the SCA or DBA and the wage rate on the applicable SCA or
DBA wage determination for the classification of work the worker
performs is less than the applicable Executive order minimum wage, the
contractor must pay the Executive order minimum wage in order to comply
with the Order and part 23. If, however, the applicable SCA or DBA
prevailing wage rate exceeds the Executive order minimum wage rate, the
contractor must pay that prevailing wage rate to the SCA- or DBA-
covered
[[Page 67175]]
worker in order to be in compliance with the SCA or DBA.\21\
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\21\ The Department further noted in the NPRM that if a contract
is covered by a state prevailing wage law that establishes a higher
wage rate applicable to a particular worker than the Executive order
minimum wage, the contractor must pay that higher prevailing wage
rate to the worker. Section 2(c) of the order expressly provides
that it does not excuse noncompliance with any applicable state
prevailing wage law or any applicable law or municipal ordinance
establishing a minimum wage higher than the Executive order minimum
wage.
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The minimum wage requirements of Executive Order 14026 are also
separate and distinct from the commensurate wage rates under 29 U.S.C.
214(c). If the commensurate wage rate paid to a worker performing on or
in connection with a covered contract whose wages are calculated
pursuant to a special certificate issued under 29 U.S.C. 214(c),
whether hourly or piece rate, is less than the Executive Order 14026
minimum wage, the contractor must pay the Executive Order 14026 minimum
wage rate to achieve compliance with the order. The Department noted in
the NPRM that if the commensurate wage due under the certificate is
greater than the Executive Order 14026 minimum wage, the contractor
must pay the worker the greater commensurate wage. Paragraph (b)(5) of
the contract clause states this point explicitly. A more detailed
discussion of that provision was included in the preamble section of
the NPRM for Appendix A.
As in the rulemaking implementing Executive Order 13658, the
Department noted that in the event that a collectively bargained wage
rate is below the applicable DBA rate, a DBA-covered contractor must
pay no less than the applicable DBA rate to covered workers on the
project. See 79 FR 60673. Although a successor contractor on an SCA-
covered contract is required under the SCA only to pay wages and fringe
benefits not less than those contained in the predecessor contractor's
CBA even if an otherwise applicable area-wide SCA wage determination
contains higher wage and fringe benefit rates, that requirement was
derived from a specific statutory provision that expressly bases SCA
obligations on the predecessor contractor's CBA wage and fringe benefit
rates in particular circumstances. See 41 U.S.C. 6707(c); 29 CFR 4.1b.
There is no similar indication in the Executive order of an intent to
permit a CBA rate lower than the Executive order minimum wage rate to
govern the wages of workers covered by the order. The Department
accordingly proposed that the Executive order minimum wage would apply
to a covered contract even if the contractor has negotiated a CBA wage
rate lower than the order's minimum wage.
Proposed Sec. 23.220(b) explained how a contractor's obligation to
pay the applicable Executive order minimum wage would apply to workers
who receive fringe benefits. It proposed that a contractor may not
discharge any part of its minimum wage obligation under the Executive
order by furnishing fringe benefits or, with respect to workers whose
wages are governed by the SCA, the cash equivalent thereof. Under the
proposed rule, contractors must pay the Executive order minimum wage
rate in monetary wages, and may not receive credit for the cost of
fringe benefits furnished.
ABC criticized proposed 23.220(b) on the grounds that it would be
inconsistent with the treatment of fringe benefits under the DBA, where
contractors can satisfy prevailing wage requirements with any
combination of wages and bona fide fringe benefits as long as the wage
component matches or exceeds the FLSA minimum wage.\22\ ABC alleged
that requiring DBA-covered contractors to satisfy Executive Order
14026's minimum wage requirement through wages alone would be
``confusing to administer and will lead to needless burdens on
contractors.''
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\22\ See Chapter 15f07, Discharging minimum wage and fringe
benefit obligations under DBRA, U.S. Department of Labor Field
Operations Handbook (March 31, 2016), https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/FOH_Ch15.pdf; see also 40 U.S.C.
3141(2).
---------------------------------------------------------------------------
The Department declines ABC's request to allow contractors to
credit fringe benefits towards the Executive Order 14026 minimum wage
requirement. By repeatedly referencing that it is establishing a higher
``hourly minimum wage'' without any reference to fringe benefits, the
text of the Executive order makes clear that a contractor cannot
discharge its minimum wage obligation by furnishing fringe benefits.
See 86 FR 22835. This interpretation is consistent with the SCA, which
does not permit a contractor to meet its minimum wage obligation
through the furnishing of fringe benefits, but rather imposes distinct
``minimum wage'' and ``fringe benefit'' obligations on contractors. 41
U.S.C. 6703(1)-(2); 29 CFR 4.177(a). Similarly, the FLSA does not allow
a contractor to meet its minimum wage obligation through the furnishing
of fringe benefits. Although the DBA specifically includes fringe
benefits within its definition of minimum wage, thereby allowing a
contractor to meet its minimum wage obligation, in part, through the
furnishing of fringe benefits, 40 U.S.C. 3141(2), Executive Order 14026
contains no similar provision expressly authorizing a contractor to
discharge its Executive order minimum wage obligation through the
furnishing of fringe benefits. Consistent with the Executive order, and
the Department's regulations implementing Executive Order 13658, see 29
CFR 10.22(b), the Department has decided to finalize Sec. 23.220(b) as
proposed, precluding a contractor from discharging its minimum wage
obligation by furnishing fringe benefits.
Proposed Sec. 23.220(b) also prohibited a contractor from
discharging its Executive order minimum wage obligation to workers
whose wages are governed by the SCA by furnishing the cash equivalent
of fringe benefits. As noted, the SCA imposes distinct ``minimum wage''
and ``fringe benefit'' obligations on contractors. 41 U.S.C. 6703(1)-
(2); 29 CFR 4.177(a). A contractor cannot satisfy any portion of its
SCA minimum wage obligation by furnishing fringe benefits or their cash
equivalent. Id. Consistent with the treatment of fringe benefits or
their cash equivalent under the SCA, proposed Sec. 23.220(b) would not
allow contractors to discharge any portion of their minimum wage
obligation under the Executive order to workers whose wages are
governed by the SCA through the provision of either fringe benefits or
their cash equivalent. The Department did not receive any comments on
this aspect of proposed Sec. 23.220(b), and has adopted this language
without change.
Finally, proposed Sec. 23.220(c) stated that a contractor may
satisfy the wage payment obligation to a tipped employee under the
Executive order through a combination of paying not less than a
determined hourly cash wage and taking a credit toward the minimum wage
required by the order based on tips received by such employee, pursuant
to the provisions in proposed Sec. 23.280. Contractors may not credit
employee tips toward their minimum wage obligation after January 1,
2024, when 100 percent of the minimum wage required under the order
must be paid as a cash wage. See Sec. 23.280(a)(1)(iii). The
Department did not receive any comments on proposed Sec. 23.220(c),
and has finalized it as proposed.
Section 23.230 Deductions
Proposed Sec. 23.230 explained that deductions that reduce a
worker's wages below the Executive order minimum wage rate may only be
made under the limited circumstances set forth in this section.
Proposed Sec. 23.230(a) permitted deductions required by Federal,
state, or local law, including Federal or state withholding of income
taxes. See 29
[[Page 67176]]
CFR 531.38 (FLSA); 29 CFR 4.168(a) (SCA); 29 CFR 3.5(a) (DBA). Proposed
Sec. 23.230(b) permitted deductions for payments made to third parties
pursuant to court orders. Permissible deductions made pursuant to a
court order may include such deductions as those made for child
support. See 29 CFR 531.39 (FLSA); 29 CFR 4.168(a) (SCA); 29 CFR 3.5(c)
(DBA). Proposed Sec. 23.230(b) echoed the principle established under
the FLSA, SCA, and DBA that only garnishment orders made pursuant to an
``order of a court of competent and appropriate jurisdiction'' may
deduct a worker's hourly wage below the minimum wage set forth under
the Executive order. 29 CFR 531.39(a) (FLSA); 29 CFR 4.168(a) (SCA)
(permitting garnishment deductions ``required by court order''); 29 CFR
3.5(c) (DBA) (permitting garnishment deductions ``required by court
process''). For purposes of deductions made under Executive Order
14026, the phrase ``court order'' includes orders issued by Federal,
state, local, and administrative courts.
Consistent with the rulemaking implementing previous Executive
Order 13658, see 79 FR 60674, the Executive order minimum wage will not
affect the formula for establishing the maximum amount of wage
garnishment permitted under the Consumer Credit Protection Act (CCPA),
which is derived in part from the FLSA minimum wage. See 15 U.S.C.
1673(a)(2).
Proposed Sec. 23.230(c) permitted deductions directed by a
voluntary assignment of the worker or his or her authorized
representative. See 29 CFR 531.40 (FLSA); 29 CFR 4.168(a) (SCA); 29 CFR
5.5(a)(1) (DBA). Deductions made for voluntary assignments include
items such as, but not limited to, deductions for the purchase of U.S.
savings bonds, donations to charitable organizations, and the payment
of union dues. Deductions made for voluntary assignments must be made
for the worker's account and benefit pursuant to the request of the
worker or his or her authorized representative. See 29 CFR 531.40
(FLSA); 29 CFR 4.168(a) (SCA); 29 CFR 5.5(a)(1) (DBA).
Deductions for health insurance premiums that reduce a worker's
wages below the minimum wage required by the Executive order are
generally impermissible under proposed Sec. 23.220(b). However, a
contractor may make deductions for health insurance premiums that
reduce a worker's wages below the Executive order minimum wage if the
health insurance premiums are the type of deduction that 29 CFR
531.40(c) permits to reduce a worker's wages below the FLSA minimum
wage. The regulations at 29 CFR 531.40(c) allow deductions for
insurance premiums paid to independent insurance companies provided
that such deductions occur as a result of a voluntary assignment from
the employee or his or her authorized representative, where the
employer is under no obligation to supply the insurance and derives,
directly or indirectly, no benefit or profit from it. The Department
reiterated, however, that in accordance with proposed Sec. 23.220(b),
a contractor may not discharge any part of its minimum wage obligation
under the Executive order by furnishing fringe benefits or, with
respect to workers whose wages are governed by the SCA, the cash
equivalent thereof. This provision similarly would not change a
contractor's obligation under the SCA to furnish fringe benefits
(including health insurance) or the cash equivalent thereof ``separate
from and in addition to the specified monetary wages'' under that Act.
29 CFR 4.170.
Finally, proposed Sec. 23.230(d) permitted deductions made for the
reasonable cost or fair value of board, lodging, and other facilities.
See 29 CFR part 531 (FLSA); 29 CFR 4.168(a) (SCA); 29 CFR 5.5(a)(1)
(DBA). Deductions made for these items must be in compliance with the
regulations in 29 CFR part 531. The Department noted that an employer
may take credit for the reasonable cost or fair value of board,
lodging, or other facilities against a worker's wages, rather than
taking a deduction for the reasonable cost or fair value of these
items. See 29 CFR part 531.
The Department did not receive any comments addressing proposed
Sec. 23.230 or the general topic of deductions. Accordingly, the
Department has finalized Sec. 23.230 as proposed.
Section 23.240 Overtime Payments
Proposed Sec. 23.240(a) explained that workers who are covered
under the FLSA or the Contract Work Hours and Safety Standards Act
(CWHSSA) must receive overtime pay of not less than one and one-half
times the regular hourly rate of pay or basic rate of pay,
respectively, for all hours worked over 40 hours in a workweek. See 29
U.S.C. 207(a); 40 U.S.C. 3702(a). These statutes, however, do not
require workers to be compensated on an hourly rate basis; workers may
be paid on a daily, weekly, or other time basis, or by piece rates,
task rates, salary, or some other basis, so long as the measure of work
and compensation used, when reduced by computation to an hourly basis
each workweek, will provide a rate per hour (i.e., the regular rate of
pay) that will fulfill the requirements of the Executive order or
applicable statute. The regular rate of pay under the FLSA is generally
determined by dividing the worker's total earnings in any workweek by
the total number of hours actually worked by the worker in that
workweek for which such compensation was paid. See 29 CFR 778.5 through
778.7, 778.105, 778.107, 778.109, 778.115 (FLSA); 29 CFR 4.166, 4.180
through 4.182 (SCA); 29 CFR 5.32(a) (DBA).
Proposed Sec. 23.240(b) addressed the payment of overtime premiums
to tipped employees who are paid with a tip credit. In calculating
overtime payments, the regular rate of an employee paid with a tip
credit would consist of both the cash wages paid and the amount of the
tip credit taken by the contractor. Overtime payments would not be
computed based solely on the cash wage paid. For example, if on or
after January 30, 2022, a contractor pays a tipped employee performing
on a covered contract a cash wage of $10.50 and claims a tip credit of
$4.50, the worker is entitled to $22.50 per hour for each overtime hour
($15.00 x 1.5), not $15.75 ($10.50 x 1.5). Accordingly, as of January
30, 2022, for contracts covered by the Executive order, if a contractor
pays the minimum cash wage of $10.50 per hour and claims a tip credit
of $4.50 per hour, then the cash wage due for each overtime hours would
be $18.00 ($22.50-$4.50). Tips received by a tipped employee in excess
of the amount of the tip credit claimed are not considered to be wages
under the Executive order and are not included in calculating the
regular rate for overtime payments.
The AFL-CIO and CWA, the SEIU, and the Teamsters commented in
support of the Department's interpretation in proposed Sec. 23.240(b)
that tipped employees who work overtime are entitled to time and half
based on both the cash wages paid and the amount of the tip credit the
contractor takes. Specifically, these commenters opined that including
the tip credit in a tipped employee's regular rate of pay will ensure
that tipped employees are paid appropriately for overtime work and will
promote the broader efficiency interests motivating the Executive
order. The Department agrees, and further notes that the interpretation
in proposed Sec. 23.240(b) is consistent with the treatment of tipped
employees under the FLSA, see 29 CFR 531.60, as well as an analogous
provision implementing Executive order 13658. See 29 CFR 10.24(b).
The Department did not otherwise receive any comments addressing
[[Page 67177]]
proposed Sec. 23.240 or the mechanics of how to determine overtime pay
for workers covered by Executive Order 14026. Accordingly, the
Department has finalized Sec. 23.240 as proposed.
Section 23.250 Frequency of Pay
Proposed Sec. 23.250 described how frequently the contractor must
pay its workers. Under the proposed rule, wages must be paid no later
than one pay period following the end of the regular pay period in
which such wages were earned or accrued. Proposed Sec. 23.250 also
provided that a pay period under the Executive order may not be of any
duration longer than semi-monthly. (The Department noted in the NPRM
that workers whose wages are governed by the DBA must be paid no less
often than once a week and reiterated that compliance with the
Executive order does not excuse noncompliance with applicable FLSA,
SCA, or DBA requirements.) The Department derived proposed Sec. 23.250
from the contract clauses applicable to contracts subject to the SCA
and the DBA, see 29 CFR 4.6(h) (SCA); 29 CFR 5.5(a)(1) (DBA). While the
FLSA does not expressly specify a minimum pay period duration, it is a
violation of the FLSA not to pay a worker on his or her regular payday.
See Biggs v. Wilson, 1 F.3d 1537, 1538 (9th Cir. 1993) (holding that
``under the FLSA wages are `unpaid' unless they are paid on the
employees' regular payday''). See also 29 CFR 778.106 (``The general
rule is that overtime compensation earned in a particular workweek must
be paid on the regular pay day for the period in which such workweek
ends.''). As the Department's experience suggested that most covered
contractors pay no less frequently than semi-monthly, the Department
stated its belief that Sec. 23.250 as proposed will not be a burden to
FLSA-covered contractors.
Maximus recommended adding clarifying language to proposed Sec.
23.250 advising that, should a payroll error occur, it is the
responsibility of the contractor to make good faith efforts to
compensate employees and adhere to state-by-state pay laws. The
Department agrees that a contractor would be required to ensure that it
had properly compensated its employees in accordance with this final
rule in the event of a payroll error, but declines to add additional
language to proposed Sec. 23.250 because the regulatory text at Sec.
23.50(c) and Sec. 23.220(a) already makes sufficiently clear that this
rule does not excuse noncompliance with applicable state laws. The
Department did not otherwise receive comments on proposed Sec. 23.250
and has finalized it as proposed.
Section 23.260 Records To Be Kept by Contractors
Proposed Sec. 23.260 explained the recordkeeping and related
requirements for contractors. The obligations set forth in proposed
Sec. 23.260 were derived from and consistent across the FLSA, SCA,
DBA, and regulations implementing Executive Order 13658. See 29 CFR
516.2(a) (FLSA); 29 CFR 4.6(g)(1) (SCA); 29 CFR 5.5(a)(3)(i) (DBA); 29
CFR 10.26 (Executive Order 13658). Proposed Sec. 23.260(a) stated that
contractors and subcontractors shall make and maintain, for three
years, records containing the information enumerated in that section
for each worker. The proposed section further provided that contractors
performing work subject to the Executive order must make such records
available for inspection and transcription by authorized
representatives of the WHD.
The recordkeeping requirements enumerated in proposed Sec.
23.260(a)(1)-(6) required that contractors maintain records reflecting
each worker's (1) name, address, and social security number; (2)
occupation or classification (or occupations/classifications); (3) rate
or rates of wages paid; (4) number of daily and weekly hours worked;
(5) any deductions made; and (6) total wages paid. Contractor
obligations to maintain these records were derived from and consistent
across the FLSA, SCA, and DBA, and were identical to the recordkeeping
requirements enumerated in 29 CFR 10.26(a), which implemented Executive
Order 13658. These recordkeeping requirements thus imposed no new
burdens on contractors.\23\ The Department noted that while the concept
of ``total wages paid'' is consistent in the FLSA's, SCA's, and DBA's
implementing regulations, the exact wording of the requirement varies
(``total wages paid each pay period,'' see 29 CFR 516.2(a)(11) (FLSA);
``total daily or weekly compensation of each employee,'' see 29 CFR
4.6(g)(1)(ii) (SCA); ``actual wages paid,'' see 29 CFR 5.5(a)(3)(i)
(DBA)). The Department opted to use the language ``total wages paid''
in the proposed rule for simplicity; however, compliance with this
recordkeeping requirement would be determined in relation to the
applicable statute (FLSA, SCA, and/or DBA).
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\23\ To alleviate any potential concerns that Sec. 23.260 might
impose any new recordkeeping burdens on employers, the Department is
specifically providing here the FLSA, SCA, and DBA regulatory
citations from which these recordkeeping obligations are derived.
The citations for all records named in the proposed rule are as
follows: Name, address, and Social Security number (see 29 CFR
516.2(a)(1)-(2) (FLSA); 29 CFR 4.6(g)(1)(i) (SCA); 29 CFR
5.5(a)(3)(i) (DBA)); the occupation or occupations in which employed
(see 29 CFR 516.2(a)(4) (FLSA); 29 CFR 4.6(g)(1)(ii) (SCA); 29 CFR
5.5(a)(3)(i) (DBA)); the rate or rates of wages paid to the worker
(see 29 CFR 516.2(a)(6)(i)-(ii) (FLSA); 29 CFR 4.6(g)(1)(ii) (SCA);
29 CFR 5.5(a)(3)(i) (DBA)); the number of daily and weekly hours
worked by each worker (see 29 CFR 516.2(a)(7) (FLSA); 29 CFR
4.6(g)(1)(iii) (SCA); 29 CFR 5.5(a)(3)(i) (DBA)); any deductions
made (see 29 CFR 516.2(a)(10) (FLSA); 29 CFR 4.6(g)(1)(iv) (SCA); 29
CFR 5.5(a)(3)(i) (DBA)).
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Proposed Sec. 23.260(b) required the contractor to permit
authorized representatives of the WHD to conduct interviews of workers
at the worksite during normal working hours. Proposed Sec. 23.260(c)
provided that nothing in part 23 limits or otherwise would modify a
contractor's payroll and recordkeeping obligations, if any, under the
FLSA, SCA, or DBA, or their implementing regulations, respectively.
Because workers covered by Executive Order 14026 are entitled to
its minimum wage protections for all hours spent performing work on or
in connection with a covered contract, a computation of their hours
worked on or in connection with the covered contract in each workweek
is essential. See 29 CFR 4.178. For purposes of the Executive order,
the hours worked by a worker generally include all periods in which the
worker is suffered or permitted to work, whether or not required to do
so, and all time during which the worker is required to be on duty or
to be on the employer's premises or to be at a prescribed workplace.
Id. The hours worked which are subject to the minimum wage requirement
of the Executive order are those in which the worker is engaged in
performing work on or in connection with a contract subject to the
Executive order. Id.
In the NPRM, the Department noted that in situations where
contractors are not exclusively engaged in contract work covered by
Executive Order 14026, and there are adequate records segregating the
periods in which work was performed on or in connection with contracts
subject to the order from periods in which other work was performed,
the minimum wage requirement of Executive Order 14026 need not be paid
for hours spent on work not covered by the order. See 29 CFR 4.169,
4.178, and 4.179; see also 79 FR 60672 (discussing the documentation of
employee work not covered by Executive Order 13658). However, in the
absence of records adequately segregating non-covered work from the
work performed on or in connection with a covered contract, all
[[Page 67178]]
workers working in the establishment or department where such covered
work is performed shall be presumed to have worked on or in connection
with the contract during the period of its performance, unless
affirmative proof establishing the contrary is presented. Id.
Similarly, a worker performing any work on or in connection with the
covered contract in a workweek shall be presumed to have continued to
perform such work throughout the workweek, unless affirmative proof
establishing the contrary is presented. Id.
The Department noted in the proposed rule that if a contractor
desires to segregate covered work from non-covered work under the
Executive order for purposes of applying the minimum wage established
in the order, the contractor must identify such covered work accurately
in its records or by other means. The Department stated its belief that
the principles, processes, and practices reflected in the SCA's
implementing regulations, which incorporate the principles applied
under the FLSA as set forth in 29 CFR part 785, will be useful to
contractors in determining and segregating hours worked on contracts
with the Federal Government subject to the Executive order. See 29 CFR
4.169, 4.178, and 4.179; WHD FOH ]] 14c07, 14g00-01.\24\ In this
regard, an arbitrary assignment of time on the basis of a formula, as
between covered and non-covered work, is not sufficient. However, if
the contractor does not wish to keep detailed hour-by-hour records for
segregation purposes under the Executive order, it may be possible in
certain circumstances to segregate records on the wider basis of
departments, work shifts, days, or weeks in which covered work was
performed. For example, if on a given day no work covered by the
Executive order was performed by a contractor, that day could be
segregated and shown in the records. See WHD FOH ] 14g00.
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\24\ In the rulemaking implementing Executive Order 13658, the
Department noted that contractors subject to the Executive order are
likely already familiar with these segregation principles and
should, as a matter of usual business practices, already have
recordkeeping systems in place that enable the segregation of hours
worked on different contracts or at different locations. 79 FR
60672, n.8. The Department further expressed its belief that such
systems will enable contractors to identify and pay for hours worked
subject to the Executive order without having to employ additional
systems or processes. Id.
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Finally, the Department noted that the Supreme Court has held that
when an employer has failed to keep adequate or accurate records of
employees' hours under the FLSA, employees should not effectively be
penalized by denying them recovery of back wages on the ground that the
precise extent of their uncompensated work cannot be established. See
Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 687 (1946).
Specifically, the Supreme Court concluded that where an employer has
not maintained adequate or accurate records of hours worked, an
employee need only prove that ``he has in fact performed work for which
he was improperly compensated'' and produce ``sufficient evidence to
show the amount and extent of that work as a matter of just and
reasonable inference.'' Id. Once the employee establishes the amount of
uncompensated work as a matter of ``just and reasonable inference,''
the burden then shifts to the employer ``to come forward with evidence
of the precise amount of work performed or with evidence to negative
the reasonableness of the inference to be drawn from the employee's
evidence.'' Id. at 687-88. If the employer fails to meet this burden,
the court may award damages to the employee ``even though the result be
only approximate.'' Id. at 688. These principles for determining hours
worked and accompanying back wage liability apply with equal force to
the Executive order.
The Department received a few comments pertaining to the NPRM's
discussion of the segregation of work that is covered by the Executive
order from work that is not covered. Specifically, the AOA asserted
that it would be ``absurdly unrealistic to believe that a company could
pay an employee engaged in work both on and apart from a covered
contract one wage for their time they spend working on or in connection
with a covered contract and a different wage for the time they spend
working on other activities,'' opining that ``even if it were
practically feasible, the recordkeeping alone associated with doing so
would be cost-prohibitive.'' The Department respectfully disagrees with
this comment, as it is fairly routine for contractors subject to the
SCA's and DBA's prevailing wage requirements to segregate and document
employee work that is and is not covered by those laws. Indeed, the
well-established recordkeeping requirements under the SCA and DBA may
be more substantial than those under the order, particularly since
workers on SCA- and DBA-covered contracts may perform work in multiple
classifications with different prevailing wage rates. See, e.g., 29 CFR
5.5(a)(1) (``Laborers or mechanics performing work in more than one
classification may be compensated at the rate specified for each
classification for the time actually worked therein; Provided, That the
employer's payroll records accurately set forth the time spent in each
classification in which work is performed''). Moreover, the
recordkeeping obligations imposed by Executive Order 14026 are
consistent with those that already exist under Executive Order 13658.
In any event, Executive Order 14026 does not require employers to pay
workers a different wage rate for work that is not covered by the
order, and such voluntary business practices are outside the scope of
this rulemaking.
The Department therefore finalizes Sec. 23.260 as proposed, with
one technical correction to change reference from regulations ``in this
chapter'' to ``in this title.''
Section 23.270 Anti-Kickback
Consistent with the regulations implementing Executive Order 13658,
see 29 CFR 10.27, proposed Sec. 23.270 made clear that all wages paid
to workers performing on or in connection with covered contracts must
be paid free and clear and without subsequent deduction (unless set
forth in proposed Sec. 23.230), rebate, or kickback on any account.
Kickbacks directly or indirectly to the contractor or to another person
for the contractor's benefit for the whole or part of the wage would
also be prohibited. This proposal was intended to ensure full payment
of the applicable Executive order minimum wage to covered workers. The
Department also noted that kickbacks may be subject to civil penalties
pursuant to the Anti-Kickback Act, 41 U.S.C. 8701-8707. The Department
received no comments related to proposed Sec. 23.270 and has
accordingly retained the section in its proposed form.
Section 23.280 Tipped Employees
Proposed Sec. 23.280 explained how tipped workers must be
compensated under the Executive order on covered contracts. As
described earlier, section 3 of Executive Order 14026 provides that, as
of January 30, 2022, contractors must pay tipped workers covered by the
Executive order performing on covered contracts a cash wage of at least
$10.50, provided that each tipped worker receives enough tips to equal
or surpass the initial $15.00 minimum wage under section 2, when
combined with their cash wage. See 86 FR 22836. On January 1, 2023, the
required minimum cash wage increases to 85 percent of the applicable
minimum wage under section 2 of the Executive order, rounded to the
nearest multiple of $0.05. Id. For subsequent years, beginning on
January 1, 2024, the cash
[[Page 67179]]
wage for tipped employees is 100 percent of the applicable Executive
Order 14026 minimum wage--i.e., eliminating a contractor's ability to
claim a tip credit under Executive Order 14026. Id. When a contractor
is using a tip credit to meet a portion of its wage obligations under
the Executive order, the amount of tips received by the employee must
equal at least the difference between the required cash wage paid and
the Executive order minimum wage. If the employee does not receive
sufficient tips, the contractor must increase the cash wage paid so
that the cash wage in combination with the tips received equals the
Executive order minimum wage. Id.
For purposes of Executive Order 14026 and part 23, tipped workers
(or tipped employees) are defined by section 3(t) of the FLSA. See 29
U.S.C. 203(t). The FLSA defines a tipped employee as ``any employee
engaged in an occupation in which he customarily and regularly receives
more than $30 a month in tips.'' Id. Section 3 of the Executive order
sets forth a wage payment method for tipped employees that is similar
to the tipped employee wage provision of the FLSA. 29 U.S.C.
203(m)(2)(A). As with the FLSA's ``tip credit'' provision, the
Executive order permits contractors to take a partial credit against
their wage payment obligation to a tipped employee under the order
based on tips received by the employee, until the Executive Order 14026
tip credit is phased out on January 1, 2024. In other words, the wage
paid to a tipped employee to satisfy the Executive Order 14026 minimum
wage comprises both the cash wage paid under section 3(a) of the
Executive order and the amount of tips used for the tip credit, which
is limited to the difference between the cash wage paid and the
Executive order minimum wage. Because contractors with a contract
subject to the Executive order may be required by the SCA or any other
applicable law or regulation to pay a cash wage in excess of the
Executive order minimum wage, section 3(b) of the order provides that
in such circumstances contractors must pay the difference between the
Executive order minimum wage and the higher required wage in cash to
the tipped employees and may not make up the difference with additional
tip credit. See 86 FR 22836.
In the proposed regulations implementing section 3 of the Executive
order, the Department set forth principles and procedures that closely
follow the FLSA requirements for payment of tipped employees with which
employers are already familiar. This was consistent with the directive
in section 4(c) of the Executive order that regulations issued pursuant
to the order should, to the extent practicable, incorporate existing
principles and procedures from the FLSA, SCA, and DBA. See 86 FR 22836.
Proposed Sec. 23.280(a) set forth the provisions of section 3 of
the Executive order explaining how contractors can meet their wage
payment obligations under section 2 for tipped employees. Under no
circumstances may a contractor claim a higher tip credit than the
difference between the required cash wage and the Executive order
minimum wage to meet its minimum wage obligations; contractors may,
however, pay a higher cash wage than required by section 3 and claim a
lower tip credit. Because the sum of the cash wage paid and the tip
credit equals the Executive order minimum wage, any increase in the
amount of the cash wage paid will result in a corresponding decrease in
the amount of tip credit that may be claimed, except as provided in
proposed Sec. 23.280(a)(4). For example, if on January 30, 2022, a
contractor on a contract subject to the Executive order paid a tipped
worker a cash wage of $11.50 per hour instead of the minimum
requirement of $10.50, the contractor would only be able to claim a tip
credit of $3.50 per hour to reach the $15.00 Executive order minimum
wage. If the tipped employee does not receive sufficient tips in the
workweek to equal the amount of the tip credit claimed, the contractor
must increase the cash wage paid so that the amount of cash wage paid
and tips received by the employee equal the section 2 minimum wage for
all hours in the workweek. To clarify, contractors with tipped
employees do not need to claim a tip credit; contractors can comply
with Executive Order 14026 by simply paying their tipped employees a
cash wage that meets or exceeds the applicable minimum wage rate,
including the $15.00 per hour rate in effect in 2022.
Proposed Sec. 23.280(a)(3) of the regulations made clear that a
contractor may pay a higher cash wage than required by subsection
(3)(a)(i) of the Executive order--and claim a correspondingly lower tip
credit--but may not pay a lower cash wage than that required by section
3(a)(i) of the Executive order and claim a higher tip credit. In order
for the contractor to claim a tip credit the employee must receive tips
equal to at least the amount of the credit claimed. If the employee
receives less in tips than the amount of the credit claimed, the
contractor must pay the additional cash wages necessary to ensure the
employee receives the Executive order minimum wage in effect under
section 2 on the regular pay day.
Proposed Sec. 23.280(a)(4) explained a contractors' wage payment
obligation when the cash wage required to be paid under the SCA or any
other applicable law or regulation is higher than the Executive order
minimum wage. In such circumstances, the contractor must pay the tipped
employee additional cash wages equal to the difference between the
Executive order minimum wage and the highest wage required to be paid
by other applicable state or Federal law or regulation. This additional
cash wage is on top of the cash wage paid under proposed Sec.
23.280(a)(1) and any tip credit claimed. Unlike raising the cash wage
paid under Sec. 23.280(a)(1), additional cash wages paid under
proposed Sec. 23.280(a)(4) would not impact the calculation of the
amount of tip credit the employer may claim.
Proposed Sec. 23.280(c) provided that the same definitions and
requirements set forth in 29 CFR 10.28(b)-(f) generally apply with
respect to tipped employees performing on or in connection with covered
contracts under this Executive order.\25\ These definitions and
requirements address the tip credit, the characteristics of tips,
service charges, tip pooling, and notice. To the extent that Sec.
10.28(f) requires that an employer provide notice of the ``amount of
the cash wage that is to be paid by the employer, which cannot be lower
than the cash wage required by paragraph (a)(1) of this section,'' the
proposed regulation specified that the minimum required cash wage shall
be the minimum required cash wage described in proposed Sec.
23.280(a)(1), rather than in Sec. 10.28(a)(1). The definitions and
requirements incorporated in Sec. 23.280(b) generally follow
definitions and requirements under the FLSA, and are familiar to
employers of tipped employees generally, as well as to employers
subject to Sec. 10.28.
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\25\ On June 23, 2021, the Department issued a notice of
proposed rulemaking, Tip Regulations Under the Fair Labor Standards
Act (FLSA); Partial Withdrawal, proposing changes to 29 CFR
10.28(b).
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The Department received numerous comments regarding the Executive
order's treatment of tipped employees, but few comments specifically
relevant to proposed Sec. 23.280. For example, the AFL-CIO, the SEIU,
and the Teamsters commended the order for ``ensuring that tipped
workers receive more predictable and reliable cash wages in addition to
tips,'' which they asserted would ``promot[e] the Order's policies in
support of increased employee productivity and morale and reducing
turnover and absenteeism.'' Other
[[Page 67180]]
worker advocacy groups, including A Better Balance, One Fair Wage, ROC
United, and Workplace Fairness, asserted that the Executive order's
phase-out of the tip credit constituted a step towards ending ``long
standing discriminatory practices'' in federal contracting. Similarly,
one commenter who identified themselves as a tipped employee wrote that
``[t]ipping for services keeps folks impoverished, propagates racial
and gender inequities and makes restaurants undesirable places to
work.'' By contrast, the National Park Hospitality Association asserted
that ``increasing the base wage of tipped employees may result in
concessioners having to increase wages of many other employees
currently paid more than minimum wage to reflect the higher total
amount received by tipped employees,'' which they alleged would result
in higher costs for visitors to national parks. As mentioned earlier,
the Chamber asserted that the Executive order's phase-out of the tip
credit on covered contracts conflicts with the FLSA because it ``would
eliminate the credit employers are allowed to take in compensating
tipped employees'' under the FLSA.
Comments addressing the alleged conflict between the FLSA and
Executive Order 14026 with respect to the treatment of tipped employees
are addressed elsewhere in this final rule. The Department notes,
however, that it does not have the discretion to deviate from the
explicit terms of the Executive order, including its gradual phase-out
of the tip credit for covered workers who receive tips.
Specific to the proposed regulatory language in Sec. 23.280, the
AFL-CIO, the SEIU, and the Teamsters commented favorably upon proposed
Sec. 23.280 for ``set[ing] forth procedures that mirror the FLSA's
requirements for the payment of tipped employees,'' which they opined
``will facilitate compliance with the Order's requirements.'' The
Department did not otherwise receive comments germane to proposed Sec.
23.280, and has finalized the provision as proposed.
Section 23.290 Notice
As discussed earlier in the preamble section for Sec. 23.120(c) in
subpart B, proposed Sec. 23.290 required that contractors notify all
workers performing on or in connection with a covered contract of the
applicable minimum wage rate under Executive Order 14026. The
regulations implementing the FLSA, SCA, DBA, and Executive Order 13658
each contain separate notice requirements for the employers covered by
those laws, so the Department stated its belief that a similar notice
requirement is necessary for effective implementation of the Executive
order. See, e.g., 29 CFR 516.4 (FLSA); 29 CFR 4.6(e) (SCA); 29 CFR
5.5(a)(1)(i) (DBA); 29 CFR 10.29 (Executive Order 13658). Because the
Executive Order 14026 minimum wage rate will increase annually based on
inflation, the Department proposed to require contractors to provide
notice on at least an annual basis of the currently applicable rate.
Moreover, in the proposed rule, the Department strongly encouraged
contractors to engage in regular outreach to workers performing on or
in connection with covered contracts, particularly in the time period
immediately before and after the annual minimum wage increase, to
ensure such workers are aware of their rights and the wages to which
they are entitled.
Consistent with the regulations implementing Executive Order 13658,
see 29 CFR 10.29, the Department explained that contractors could
satisfy this proposed notice requirement in a variety of ways. For
example, with respect to service employees on contracts covered by the
SCA and laborers and mechanics on contracts covered by the DBA,
proposed Sec. 23.290(a) clarified that contractors may meet the notice
requirement by posting, in a prominent and accessible place at the
worksite, the applicable wage determination.\26\ As stated earlier, the
Department intends to publish a prominent general notice on all SCA and
DBA wage determinations informing workers of the applicable Executive
order minimum wage rate, to be updated on an annual basis in the event
of any inflation-based increases to the rate pursuant to Sec.
23.50(b)(2). Because contractors covered by the SCA and DBA are already
required to display the applicable wage determination in a prominent
and accessible place at the worksite pursuant to those statutes, see 29
CFR 4.6(e) (SCA), 29 CFR 5.5(a)(1)(i) (DBA), the Department explained
that the notice requirement in proposed Sec. 23.290 would not impose
any additional burden on contractors with respect to those workers
already covered by the SCA, DBA, or Executive Order 13658.
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\26\ SCA contractors are required by 29 CFR 4.6(e) to notify
workers of the minimum monetary wage and any fringe benefits
required to be paid, or to post the wage determination for the
contract. DBA contractors similarly are required by 29 CFR
5.5(a)(1)(i) to post the DBA wage determination and a poster at the
site of the work in a prominent and accessible place where they can
be easily seen by the workers. The Department noted in the NPRM that
SCA and DBA contractors may use these same methods to notify workers
of the Executive order minimum wage under proposed Sec. 23.290.
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Proposed Sec. 23.290(b) provided that contractors with FLSA-
covered workers performing on or in connection with a covered contract
could satisfy the notice requirement by displaying a poster provided by
the Department of Labor in a prominent or accessible place at the
worksite. The Department explained that this poster would be
appropriate for contractors with FLSA-covered workers performing work
``in connection with'' a covered SCA or DBA contract, as well as for
contractors with FLSA-covered workers performing on or in connection
with concessions contracts and contracts in connection with Federal
property or lands and related to offering services for Federal
employees, their dependents, or the general public. The Department
expressed its intent to make the poster available on the WHD website
and provide the poster in a variety of languages. The Department noted
that the poster would be updated annually to reflect any inflation-
based increases to the Executive Order 14026 minimum wage rate that is
published by the Department, and that contractors must display the
currently applicable poster.
Finally, proposed Sec. 23.290(c) provided that contractors that
customarily post notices to workers electronically may post the notice
required by this section electronically, provided that such electronic
posting is displayed prominently on any website that is maintained by
the contractor, whether external or internal, and is customarily used
for notices to workers about terms and conditions of employment. The
Department explained that this kind of an electronic notice could be
made in lieu of physically displaying the notice poster in a prominent
or accessible place at the worksite.
As discussed earlier in the preamble section for proposed Sec.
23.30, some FLSA-covered workers performing ``in connection with'' a
covered contract may not work at the site of the work with other
covered workers. The NPRM explained that these covered off-site workers
would nonetheless be entitled to adequate notice of the Executive order
minimum wage rate under proposed Sec. 23.290. For example, an off-site
administrative assistant spending more than 20 percent of her weekly
work hours processing paperwork for a DBA-covered contract would be
entitled to notice under this section separate from the physical
posting of the DBA wage determination at the main worksite where the
DBA-covered laborers and mechanics perform ``on'' the contract. The
Department proposed
[[Page 67181]]
that contractors must notify these off-site workers of the Executive
order minimum wage rate, either by displaying the poster for FLSA-
covered workers described in proposed Sec. 23.290(b) at the off-site
worker's location, or if they customarily post notices to workers
electronically, by providing an electronic notice that meets the
criteria described in proposed Sec. 23.290(c).
The Department further noted that contractors may have additional
obligations under other laws, such as the Americans with Disabilities
Act of 1990, to ensure that the notice required by proposed part 23 is
provided in an accessible format to workers with disabilities.
The Department anticipated that this proposed notice requirement
would not impose a significant burden on contractors. As mentioned
earlier, contractors are already required to notify workers of the
required minimum wage and/or to display the applicable wage
determination for workers covered by the SCA, DBA, or Executive Order
13658 in a prominent and accessible place at the worksite. To the
extent that proposed Sec. 23.290 imposed a new notice requirement with
respect to workers whose wages are governed by the FLSA but were not
covered by Executive Order 13658, the Department explained that such a
requirement is not significantly different from the existing notice
requirement for FLSA-covered workers provided at 29 CFR 516.4, which
requires employers to post a notice explaining the FLSA in conspicuous
places in every establishment where such employees are employed.
Moreover, the Department stated it would update and provide the
Executive Order 14026 minimum wage poster. The Department noted that,
if display of the poster is necessary at more than one site in order to
ensure that it is seen by all workers performing on or in connection
with covered contracts, additional copies of the poster could be
obtained without cost from the Department. Moreover, as discussed
above, the Department proposed to permit contractors that customarily
post notices electronically to use electronic posting of the notice.
The Department explained that its experience enforcing the FLSA, SCA,
and DBA indicated that this notice provision would serve an important
role in obtaining and maintaining contractor compliance with the
Executive order.
The Department received numerous comments from worker advocacy
organizations who asserted that ``[i]n addition to the posting
suggested by the proposed rules, there should be opportunities to fully
educate employers on their responsibilities and workers on their
rights.'' These commenters did not provide specific suggestions to
further educate workers and employers regarding their rights and
obligations under Executive Order 14026 beyond the notice requirement
provided in proposed Sec. 23.290. However, the Department fully
intends to engage with contractors, industry associations, worker
advocacy groups, and other members of the public about the requirements
of Executive Order 14026, just as it has in implementing and enforcing
Executive Order 13658.
The NSAA requested the Department to ``create notices and posters
specific to seasonal employers that reference that [the order's]
minimum wage rate may not apply to employees if they are exempt under
the seasonal recreation exemption under FLSA 29 U.S.C. 213(a) et
seq.,'' which they asserted would ``eliminate employee confusion and
prevent unnecessary or unauthorized claims against employers who are
legally exempt from this Executive Order.'' The Department declines
this request. Given the breadth of industries, contractors, workers,
and job classifications covered by Executive Order 14026, the
Department believes that compliance with the order is best promoted by
providing a single uniform poster explaining worker rights under
Executive Order 14026 in order to ensure that affected workers are
being notified of the most important information that they need to know
regarding their rights. It would be infeasible for the Department to
create separate industry-specific posters for all potentially affected
contractors and could be confusing for stakeholders to know which
poster would be most appropriate for their particular circumstances.
Moreover, the Department notes that the Executive Order 14026 poster
appropriately advises that the order ``may not apply to certain . . .
occupations and workers.'' This language is sufficient to alert both
contractors and workers that they may need to reach out to the WHD for
further compliance assistance if they have questions; the poster also
provides the WHD's contact information.
Having received no other comments in response to proposed Sec.
23.290 and its notice requirement, the Department finalizes the
provision as proposed. However, the Department made a number of non-
substantive edits to the Executive Order 14026 poster that published in
the NPRM, to improve the poster's readability. An image of the revised
Executive Order 14026 poster is included as an appendix to this final
rule and will be available on the WHD website.
Subpart D Enforcement
Section 5 of Executive Order 14026, titled ``Enforcement,'' grants
the Secretary ``authority for investigating potential violations of and
obtaining compliance with th[e] order.'' 86 FR 22836. Section 4(c) of
the order directs that the regulations issued by the Secretary should,
to the extent practicable, incorporate existing definitions,
principles, procedures, remedies, and enforcement processes under the
FLSA, SCA, DBA, Executive Order 13658, and the regulations issued to
implement Executive Order 13658. Id.
In accordance with these requirements, subpart D of part 23 is
consistent with the analogous subpart of the implementing regulations
for Executive Order 13658, see 29 CFR 10.41 through 10.44, and
incorporates FLSA, SCA, and DBA remedies, procedures, and enforcement
processes that the Department believes will facilitate investigations
of potential violations of the order, address and remedy violations of
the order, and promote compliance with the order. Most of the
enforcement procedures and remedies contained in part 23 accordingly
are based on the implementing regulations for Executive Order 13658,
which in turn were based on the statutory text or implementing
regulations of the DBA, FLSA, and SCA.
Section 23.410 Complaints
The Department proposed a procedure for filing complaints in
proposed Sec. 23.410. Proposed Sec. 23.410(a) outlined the procedure
to file a complaint with any office of the WHD. It additionally
provided that a complaint may be filed orally or in writing and that
the WHD will accept a complaint in any language. Proposed Sec.
23.410(b) stated the well-established policy of the Department with
respect to confidential sources. See 29 CFR 4.191(a); 29 CFR 5.6(a)(5).
Maximus commented that only a current or former employee or an
employee's legally recognized representative should be allowed to file
a complaint under this provision. As discussed earlier in the preamble
to Sec. 23.110(d), the Department declines to adopt this limitation.
Section 23.410, as proposed, is identical to the corresponding
provision in the regulations implementing Executive Order 13658, which
was in turn based on the regulations implementing the SCA. Thus, the
Department believes that this provision, as proposed, is
[[Page 67182]]
consistent with the Executive order's instruction to incorporate
existing procedures and enforcement remedies under the SCA and the
regulations issued to implement Executive Order 13658.
The Department appreciates Maximus' concern that there will be
``spurious, meritless'' claims if the complaint process is opened up to
those without a current or former employment relationship. However, in
the Department's enforcement experience under identical or nearly
identical complaint provisions, the Department has not experienced a
high volume of spurious or meritless complaints. Moreover, the
Department accepts third party wage and hour complaints because the
Department understands that some workers may be reluctant to file a
complaint on their own behalf. The Department believes that allowing
those without a current or former employment relationship to file
complaints will ensure effective enforcement of and compliance with
Executive Order 14026. Therefore, while the Department appreciates the
commenter's recommendation, it declines to adopt Maximus' suggestion.
NELA commented that within 30 days of any employee complaint
regarding work on a covered contract for which an employee was
improperly compensated, the Department should automatically send a
letter to the contractor seeking a response to the allegations and
documentary evidence that the contractor had in fact paid the Executive
order minimum wage. While the Department appreciates NELA's suggestion,
as the Department always endeavours to improve internal processes, the
conduct of WHD's internal management of complaints and any responses to
those complaints is more properly addressed in internal enforcement
directives or subregulatory guidance. In addition, the provision, as
proposed, is identical to the corresponding provision in the final rule
implementing Executive Order 13658. The Department believes that the
corresponding provision under Executive Order 13658 has worked well to
effectuate that order's intent, and should thus be retained in this
rulemaking.
For the reasons explained above, the Department has adopted Sec.
23.410 as proposed.
Section 23.420 Wage and Hour Division Conciliation
The Department proposed in Sec. 23.420 to establish an informal
complaint resolution process for complaints filed with the WHD. The
provision would allow the WHD, after obtaining the necessary
information from the complainant regarding the alleged violations, to
contact the party against whom the complaint is lodged and attempt to
reach an acceptable resolution through conciliation. The Department
received no comments pertinent to Sec. 23.420 and has adopted the
section as proposed.
Section 23.430 Wage and Hour Division Investigation
Proposed Sec. 23.430, which outlined WHD's investigative
authority, would permit the Administrator to initiate an investigation
either as the result of a complaint or at any time on his or her own
initiative. As part of the investigation, the Administrator would be
able to inspect the relevant records of the applicable contractors (and
make copies or transcriptions thereof) as well as interview the
contractors. The Administrator would additionally be able to interview
any of the contractors' workers at the worksite during normal work
hours, and require the production of any documentary or other evidence
deemed necessary for inspection to determine whether a violation of
part 23 (including conduct warranting imposition of debarment) has
occurred. The section would also require Federal agencies and
contractors to cooperate with authorized representatives of the
Department in the inspection of records, in interviews with workers,
and in all aspects of investigations.
Maximus commented that the Department should add language that any
investigations, inspections, and interviews ``be produced no earlier
than two business weeks from the date the notice of complaint is
received by the contractor, as opposed to when postmarked/date of
letter sent by the WHD to the contractor.'' While the Department
appreciates the suggestion, this section does not set time frames for
investigations, inspections, and interviews because such particulars of
WHD's investigative procedures are most appropriately established
outside the rulemaking process, and the Administrator's ability to
initiate investigations is not contingent upon receipt of a complaint.
Instead, pursuant to this section, the Administrator can initiate an
investigation at any time on his or her own initiative. In addition,
the enforcement provisions of the regulations implementing the DBA,
FLSA, SCA, and Executive Order 13658 do not provide details regarding
when investigations, inspections, and interviews under those
authorities will occur. Thus, the Department believes that this
provision is consistent with the Executive order's directive to
incorporate existing procedures and enforcement processes under the
DBA, FLSA, SCA, and Executive Order 13658.
For the reasons explained above, the Department has adopted Sec.
23.430 as proposed.
Section 23.440 Remedies and Sanctions
The Department proposed remedies and sanctions to assist in
enforcement of the Executive order in Sec. 23.440. Proposed Sec.
23.440(a), provided that when the Administrator determines a contractor
has failed to pay the Executive order's minimum wage to workers, the
Administrator will notify the contractor and the applicable contracting
agency of the violation and request the contractor to remedy the
violation. It additionally stated that if the contractor does not
remedy the violation, the Administrator would direct the contractor to
pay all unpaid wages identified in the Administrator's investigative
findings letter issued pursuant to proposed Sec. 23.510. Proposed
Sec. 23.440(a) further provided that the Administrator could
additionally direct that payments due on the contract or any other
contract between the contractor and the Government be withheld as
necessary to pay unpaid wages, and that, upon the final order of the
Secretary that unpaid wages are due, the Administrator may direct the
relevant contracting agency to transfer the withheld funds to the
Department for disbursement. To the extent the Department received
comments specifically related to withholding, it has discussed them in
the preamble to Sec. 23.110(c). Because the Department received no
comments directly related to Sec. 23.440(a), the final rule adopts the
section as proposed.
Proposed Sec. 23.440(b), which the Department derived from the
FLSA's antiretaliation provision set forth at 29 U.S.C. 215(a)(3),
stated that the Administrator could provide for any relief appropriate,
including employment, reinstatement, promotion and payment of lost
wages, when the Administrator determined that any person had discharged
or in any other manner discriminated against a worker because such
worker had filed any complaint or instituted or caused to be instituted
any proceeding under or related to Executive Order 14026 or part 23, or
had testified or was about to testify in any such proceeding. See 29
U.S.C. 215(a)(3), 216(b). Consistent with the Supreme Court's
observation in interpreting the scope of the FLSA's antiretaliation
provision, enforcement of Executive Order 14026 will depend
[[Page 67183]]
``upon information and complaints received from employees seeking to
vindicate rights claimed to have been denied.'' Kasten, 563 U.S. at 11
(internal quotation marks omitted). For the reasons described in the
preamble to subpart A, the Department believes that this
antiretaliation provision will promote and ensure effective compliance
with the Executive order, and has accordingly retained the provision as
proposed.
Proposed Sec. 23.440(c) provided that if the Secretary determines
a contractor has disregarded its obligations to workers under the
Executive order or part 23, a standard the Department derived from the
DBA implementing regulations at 29 CFR 5.12(a)(2), the Secretary would
order that the contractor and its responsible officers, and any firm,
corporation, partnership, or association in which the contractor or
responsible officers have an interest, will be ineligible to be awarded
any contract or subcontract subject to the Executive order for a period
of up to three years from the date of publication of the name of the
contractor or responsible officer on the ineligible list. Proposed
Sec. 23.440(c) further provided that neither an order for debarment of
any contractor or responsible officer from further Government contracts
nor the inclusion of a contractor or its responsible officers on a
published list of noncomplying contractors under this section will be
carried out without affording the contractor or responsible officers an
opportunity for a hearing before an Administrative Law Judge.
As the DBA, SCA, and the regulations implementing Executive Order
13658 contain debarment provisions, inclusion of a debarment provision
in this final rule reflects both the Executive order's instruction that
the Department incorporate remedies from the DBA, FLSA, SCA, and the
regulations implementing Executive Order 13658 to the extent
practicable and the Executive order's conferral of authority on the
Secretary to adopt an enforcement scheme that will both remedy
violations and obtain compliance with the order. Debarment is a long-
established remedy for a contractor's failure to fulfill its labor
standard obligations under the DBA and the SCA. 41 U.S.C. 6706(b); 40
U.S.C. 3144(b); 29 CFR 4.188(a); 29 CFR 5.5(a)(7); 29 CFR 5.12(a)(2).
The possibility that a contractor will be unable to obtain Government
contracts for a fixed period of time due to debarment promotes
contractor compliance with the DBA and the SCA, and, as similarly
expressed in the rulemaking implementing Executive Order 13658, the
Department expects such a remedy will enhance contractor compliance
with Executive Order 14026. Since debarment to promote contractor
compliance is among the remedies in the Government contract statutes
that the Executive order instructs the Department to incorporate, the
Department has also included debarment as a remedy for certain
violations of the Executive order by covered contractors.
AGC recommended that the final rule include ``knowingly or
recklessly'' in front of the term ``disregard'' throughout Sec.
23.520. The commenter expressed concern that, without this limitation,
the provision could lead to debarment proceedings involving ``minor or
inadvertent mistakes.'' As the NPRM stated, the Department originally
derived the ``disregard of obligations'' standard from the DBA's
implementing regulations, and the Department used this standard in the
final rule implementing Executive Order 13658, see 29 CFR 10.52. The
Administrative Review Board (ARB) interprets this standard to require a
level of culpability beyond mere negligence in order to justify
debarment. See, e.g., Thermodyn Mech. Contractors, Inc., ARB Case No.
96-116, 1996 WL 697838, at *4 (ARB Oct. 25, 1996) (noting that ``[t]o
support a debarment order, the evidence must establish a level of
culpability beyond mere negligence''). The Department intends for the
same standard to apply under this Executive order. The requirement to
show some form of culpability beyond mere negligence confirms this
debarment standard is not one involving strict liability. However, for
example, a showing of ``knowing or reckless'' disregard of obligations
is not necessary in order to justify a debarment. Adopting a ``knowing
or reckless disregard'' standard would constitute a departure from the
DBA's debarment standard as well as from the SCA's debarment standard
(under which debarment is warranted for SCA violations unless the
Secretary of Labor recommends otherwise because of ususual
circumstances), and would therefore be inconsistent with the Executive
order's directive to adopt remedies and enforcement processes from the
DBA, FLSA, SCA, and the regulations implementing Executive Order 13658
to the extent practicable. The Department accordingly declines to adopt
AGC's request to require a showing of ``knowing or reckless'' disregard
to justify debarment under Executive Order 14026.
One individual commenter requested clarification whether an
individual or firm debarred under this part may request removal from
the ineligible list after six months from the date the person or firm's
name appears on the ineligible list. This commenter observed that this
right exists when the Secretary has debarred a contractor for
aggravated or willful violations of the labor standards provisions of
the applicable statutes listed in 29 CFR 5.1 other than the DBA
(``Davis-Bacon Related Acts''). 29 CFR 5.12(c). The commenter stated
that such a provision ``discourages compliance'' and should not be
included in the rule. In response to this comment, the Department
clarifies that, as was true for the NPRM, the final rule does not
contain a provision such as the one applicable to the Davis-Bacon
Related Acts, and that those debarred pursuant to this part do not have
the right to request removal from the debarment list after six months.
As this right does not exist under the DBA, SCA, or regulations
implementing Executive Order 13658, the Department's decision not to
create such a right is consistent with the Executive order's
instruction to incorporate existing principles, remedies, and
enforcement processes under the DBA, SCA, and regulations implementing
Executive Order 13658. In addition, the Department believes that
debarment is an important enforcement mechanism under the DBA, SCA, and
Executive Order 13658; thus, the Department does not see reason to
depart from those regulatory schemes.
ABC sought a ``safe harbor'' from debarment for contractors that
can demonstrate their wages are in compliance with the DBA, FLSA, and
SCA. Debarment, as discussed above, is an important remedy to obtain
compliance with the Executive order, and is a remedy that exists
without a safe harbor provision under the DBA, SCA, and the regulations
implementing Executive Order 13658. Moreover, as discussed previously,
the minimum wage requirements of Executive Order 14026 are separate and
distinct legal obligations from the prevailing wage requirements of the
DBA and SCA; a contractor's compliance with the DBA or SCA therefore
does not absolve it of responsibility to also comply with Executive
Order 14026 on covered contracts. The Department is accordingly
unwilling to provide a waiver from a possible debarment remedy for
violations of the Executive order.
The Department therefore adopts proposed 23.440(c) in this final
rule without change.
Proposed Sec. 23.440(d), which was identical to 29 CFR 10.44(d),
which the Department had in turn derived from the SCA, 41 U.S.C.
6705(b)(2), would
[[Page 67184]]
allow for initiation of an action, following a final order of the
Secretary, against a contractor in any court of competent jurisdiction
to collect underpayments when the amounts withheld under Sec.
23.110(c) are insufficient to reimburse workers' lost wages. Proposed
Sec. 23.440(d) would also authorize initiation of an action, following
the final order of the Secretary, in any court of competent
jurisdiction when there are no payments available to withhold. This is
particularly necessary because the Executive order covers concessions
and other contracts under which the contractor may not receive payments
from the Federal Government and in some instances, the Administrator
may be unable to direct withholding of funds because at the time the
Administrator discovers that a contractor owes wages to workers, it may
be that no payments remain owing under the contract or another contract
between the same contractor and the Federal Government. With respect to
such contractors, there will be no funds to withhold. Proposed Sec.
23.440(d) accordingly provided that the Department may pursue an action
in any court of competent jurisdiction to collect underpayments against
such contractors. Proposed Sec. 23.440(d) additionally provided that
any sums the Department recovers would be paid to affected workers to
the extent possible, but that sums not paid to workers because of an
inability to do so within three years would be transferred into the
Treasury of the United States. The Department received no comments on
proposed Sec. 23.440(d) and has adopted the language as proposed.
In proposed Sec. 23.440(e), the Department addressed what remedy
will be available when a contracting agency fails to include the
contract clause in a contract subject to the Executive order. The
section provided that the contracting agency will, on its own
initiative or within 15 calendar days of notification by the
Department, incorporate the clause retroactive to commencement of
performance under the contract through the exercise of any and all
authority necessary. As the NPRM noted, this incorporation would
provide the Administrator authority to collect underpayments on behalf
of affected workers on the applicable contract retroactive to
commencement of performance under the contract. The NPRM noted that the
Administrator possesses comparable authority under the DBA, 29 CFR
1.6(f), and that the Department believed a similar mechanism for
addressing a failure to include the contract clause in a contract
subject to the Executive order will further the interest in both
remedying violations and obtaining compliance with the Executive order.
The Department did not receive comments relating to this section and
has therefore adopted the language as proposed.
Proposed Sec. 23.440(e) also reflected that a contractor is
entitled to an adjustment when a contracting agency initially omits and
then subsequently includes the contract clause in a covered contract.
This approach is consistent with the SCA's implementing regulations,
see 29 CFR 4.5(c) and the regulations implementing Executive Order
13658. The Department recognizes that the mechanics of effectuating
such an adjustment may differ between covered procurement contracts and
the non-procurement contracts that the Department's contract clause
covers. With respect to covered non-procurement contracts, the
Department believes that the authority conferred on agencies that enter
into such contracts under section 4(b) of the Executive order includes
the authority to provide such an adjustment.
The Department believes that the remedies it proposed in its NPRM
and adopts here will be sufficient to obtain compliance with the
Executive order.
The AOA asked the Department to clarify whether contractors have
any obligations with respect to enforcement and compliance by any
subcontractor other than including the required contract clause in any
covered subcontract. The Department reiterates, as it noted in the
NPRM, its intent to follow the general practice of holding contractors
responsible for compliance by any covered lower-tier subcontractor(s)
with the Executive order minimum wage. In other words, a contractor's
responsibility for compliance flows down to all covered lower-tier
subcontractors. Thus, to the extent a lower-tier subcontractor fails to
pay its workers the applicable Executive order minimum wage even though
its subcontract contains the required contract clause, an upper-tier
contractor may still be responsible for any back wages owed to the
workers. Similarly, a contractor's failure to fulfill its
responsibility for compliance by covered lower-tier subcontractors may
warrant debarment if the contractor's failure constituted a disregard
of obligations to workers and/or subcontractors. For example, a
contractor that included the contract clause in a subcontract but then
purposely ignored clear violations of the minimum wage requirements of
Executive Order 14026 and this part by its subcontractor, despite
actual knowledge of those violations, would not have fulfilled its
obligations under the Executive order and this part. The Department
notes that its general practice under the DBA and SCA is to seek
payment of back wages from the subcontractor that directly committed
the violation before seeking payment from the prime contractor or any
other upper-tier subcontractors.
The Department's experience under the DBA, SCA, and Executive Order
13658 has demonstrated that the ``flow-down'' model is an effective
means to obtain compliance. As the Executive order charges the
Department with the obligation to adopt remedies and enforcement
processes from the DBA, SCA, and Executive Order 13658's implementing
regulations (and/or FLSA) to obtain compliance with the order, the
final rule reflects the flow-down approach to compliance responsibility
contained in the DBA, SCA, and Executive Order 13658 regulations.
Finally, as noted in the preamble section for subpart A, the
Executive order covers certain non-procurement contracts. Because the
FAR does not apply to all contracts covered by Executive Order 14026,
there will be instances where, pursuant to section 4(b) of the
Executive order, a contracting agency must take steps to the extent
permitted by law, including but not limited to insertion of the
contract clause set forth in Appendix A, to exercise any applicable
authority to ensure that covered contracts as described in sections
8(a)(i)(C) and (D) of the Executive order comply with the requirements
set forth in sections 2 and 3 of the Executive order, including payment
of the Executive order minimum wage. In such instances, the enforcement
provisions contained in subpart D (as well as the remainder of part 23)
would fully apply to the covered contract, consistent with the
Secretary's authority under section 5 of the Executive order to
investigate potential violations of, and obtain compliance with, the
order.
Subpart E--Administrative Proceedings
Section 5 of Executive Order 14026, titled ``Enforcement,'' grants
the Secretary ``authority for investigating potential violations of and
obtaining compliance with th[e] order.'' 86 FR 22836. Section 4(c) of
the order directs that the regulations the Secretary issues should, to
the extent practicable, incorporate existing definitions, principles,
procedures, remedies, and enforcement processes under the FLSA, SCA,
and DBA, and regulations issued
[[Page 67185]]
to implement Executive Order 13658. Id.
Accordingly, subpart E of part 23 incorporates, to the extent
practicable, the DBA and SCA administrative procedures that the
regulations issued to implement Executive Order 13658 also
incorporated, which are necessary to remedy potential violations and
ensure compliance with the Executive order. Thus, the administrative
procedures in this subpart are identical to the administrative
procedures in the regulations issued to implement Executive Order
13658. The administrative procedures included in this subpart also
closely adhere to existing procedures of the Office of Administrative
Law Judges and the Administrative Review Board.
Section 23.510 Disputes Concerning Contractor Compliance
Proposed Sec. 23.510, which the Department derived primarily from
29 CFR 5.11, addressed how the Administrator will process disputes
regarding a contractor's compliance with part 23. Proposed Sec.
23.510(a) provided that the Administrator or a contractor may initiate
a proceeding covered by Sec. 23.510. Proposed Sec. 23.510(b)(1)
provided that when it appears that relevant facts are at issue in a
dispute covered by Sec. 23.510(a), the Administrator will notify the
affected contractor (and the prime contractor, if different) of the
investigation's findings by certified mail to the last known address.
Pursuant to the NPRM, if the Administrator determined there were
reasonable grounds to believe the contractor should be subject to
debarment, the investigative findings letter would so indicate. The
Department did not receive any comments on proposed Sec. 23.510. The
final rule therefore adopts the section as proposed.
Proposed Sec. 23.510(b)(2) provided that a contractor desiring a
hearing concerning the investigative findings letter is required to
request a hearing by letter postmarked within 30 calendar days of the
date of the Administrator's letter. It further required the request set
forth those findings which are in dispute with respect to the
violation(s) and/or debarment, as appropriate, and to explain how such
findings are in dispute, including by reference to any applicable
affirmative defenses. The Department received no comments on proposed
Sec. 23.510(b)(2) and adopts the language as proposed.
Proposed Sec. 23.510(b)(3) provided that the Administrator, upon
receipt of a timely request for hearing, will refer the matter to the
Chief Administrative Law Judge (ALJ) by Order of Reference for
designation of an ALJ to conduct such hearings as may be necessary to
resolve the disputed matter in accordance with the procedures set forth
in 29 CFR part 6. It also required the Administrator to attach a copy
of the Administrator's letter, and the response thereto, to the Order
of Reference that the Administrator sends to the Chief ALJ. The
Department did not receive any comments on this proposed provision. The
final rule therefore adopts the provision as proposed.
Proposed Sec. 23.510(c)(1) would apply when it appears there are
no relevant facts at issue and there was not at that time reasonable
cause to institute debarment proceedings. It required the Administrator
to notify the contractor, by certified mail to the last known address,
of the investigative findings and to issue a ruling on any issues of
law known to be in dispute. Proposed Sec. 23.510(c)(2)(i) would apply
when a contractor disagrees with the Administrator's factual findings
or believes there are relevant facts in dispute. It allowed the
contractor to advise the Administrator of such disagreement by letter
postmarked within 30 calendar days of the date of the Administrator's
letter, and required that the response explain in detail the facts
alleged to be in dispute and attach any supporting documentation. The
Department did not receive any comments on this proposed provision. The
final rule therefore adopts the provision as proposed.
Proposed Sec. 23.510(c)(2)(ii) required the Administrator to
examine the information timely submitted in the response alleging the
existence of a factual dispute. Where the Administrator determines
there is a relevant issue of fact, the Administrator will refer the
case to the Chief ALJ as under Sec. 23.510(b)(3). If the Administrator
determines there is no relevant issue of fact, the Administrator will
so rule and advise the contractor(s) accordingly. The Department did
not receive any comments on this proposed provision. The final rule
therefore adopts the provision as proposed.
Proposed Sec. 23.510(d) provided that the Administrator's
investigative findings letter becomes the final order of the Secretary
if a timely response to the letter was not made or a timely petition
for review was not filed. It additionally provided that if a timely
response or a timely petition for review was filed, the investigative
findings letter would be inoperative unless and until the decision is
upheld by the ALJ or the ARB, or the letter otherwise became a final
order of the Secretary. The Department received no comments on this
provision and the final rule adopts the provision as proposed.
Section 23.520 Debarment Proceedings
Proposed Sec. 23.520, which the Department primarily derived in
the Executive Order 13658 rulemaking from 29 CFR 5.12, see 79 FR 60683,
addressed debarment proceedings. Proposed Sec. 23.520(a) provided that
whenever any contractor is found by the Administrator to have
disregarded its obligations to workers or subcontractors under
Executive Order 14026 or part 23, such contractor and its responsible
officers, and/or any firm, corporation, partnership, or association in
which such contractor or responsible officers have an interest, will be
ineligible for a period of up to three years to receive any contracts
or subcontracts subject to the Executive order from the date of
publication of the name or names of the contractor or persons on the
ineligible list.
Proposed Sec. 23.520(b)(1) provided that where the Administrator
finds reasonable cause to believe a contractor has committed a
violation of the Executive order or part 23 that constitutes a
disregard of its obligations to its workers or subcontractors, the
Administrator will notify by certified mail to the last known address
the contractor and its responsible officers (and/or any firms,
corporations, partnerships, or associations in which the contractor or
responsible officers are known to have an interest) of the finding.
Pursuant to proposed Sec. 23.520(b)(1), the Administrator will
additionally furnish those notified a summary of the investigative
findings and afford them an opportunity for a hearing regarding the
debarment issue. Those notified must request a hearing on the debarment
issue, if desired, by letter to the Administrator postmarked within 30
calendar days of the date of the letter from the Administrator. The
letter requesting a hearing must set forth any findings which are in
dispute and the reasons therefore, including any affirmative defenses
to be raised. Proposed Sec. 23.520(b)(1) also required the
Administrator, upon receipt of a timely request for hearing, to refer
the matter to the Chief ALJ by Order of Reference, to which would be
attached a copy of the Administrator's investigative findings letter
and the response thereto, for designation of an ALJ to conduct such
hearings as may be necessary to determine the matters in dispute.
Proposed Sec. 23.520(b)(2) provided that hearings under Sec. 23.520
would be conducted in accordance with 29 CFR part 6. If no timely
request for
[[Page 67186]]
hearing was received, the Administrator's findings would become the
final order of the Secretary. The Department did not receive any
comments on this proposed provision. The final rule adopts the
provision as proposed.
Section 23.530 Referral to Chief Administrative Law Judge; Amendment of
Pleadings
The Department derived proposed Sec. 23.530 from the DBA and SCA
rules of practice for administrative proceedings in 29 CFR part 6.
Proposed Sec. 23.530(a) provided that upon receipt of a timely request
for a hearing under Sec. 23.510 (where the Administrator has
determined that relevant facts are in dispute) or Sec. 23.520
(debarment), the Administrator would refer the case to the Chief ALJ by
Order of Reference, to which would be attached a copy of the
investigative findings letter from the Administrator and the response
thereto, for designation of an ALJ to conduct such hearings as may be
necessary to decide the disputed matters. It further provided that a
copy of the Order of Reference and attachments thereto would be served
upon the respondent and the investigative findings letter and the
response thereto would be given the effect of a complaint and answer,
respectively, for purposes of the administrative proceeding.
Proposed Sec. 23.530(b) stated that at any time prior to the
closing of the hearing record, the complaint or answer may be amended
with permission of the ALJ upon such terms as the ALJ shall approve,
and that for proceedings initiated pursuant to Sec. 23.510, such an
amendment could include a statement that debarment action was warranted
under Sec. 23.520. It further provided that such amendments would be
allowed when justice and the presentation of the merits are served
thereby, provided there was no prejudice to the objecting party's
presentation on the merits. It additionally stated that when issues not
raised by the pleadings were reasonably within the scope of the
original complaint and were tried by express or implied consent of the
parties, they would be treated as if they had been raised in the
pleadings, and such amendments could be made as necessary to make them
conform to the evidence. Proposed Sec. 23.530(b) further provided that
the presiding ALJ could, upon reasonable notice and upon such terms as
are just, permit supplemental pleadings setting forth transactions,
occurrences, or events which had happened since the date of the
pleadings and which are relevant to any of the issues involved. It also
authorized the ALJ to grant a continuance in the hearing, or leave the
record open, to enable the new allegations to be addressed. The
Department received no comments related to proposed Sec. 23.530 and
the final rule adopts the provision as proposed.
Section 23.540 Consent Findings and Order
Proposed Sec. 23.540, which the Department derived from 29 CFR
6.18 and 6.32, provided a process whereby parties may at any time prior
to the ALJ's receipt of evidence or, at the ALJ's discretion, at any
time prior to issuance of a decision, agree to dispose of the matter,
or any part thereof, by entering into consent findings and an order.
Proposed Sec. 23.540(b) identified four requirements of any agreement
containing consent findings and an order. Proposed Sec. 23.540(c)
provided that within 30 calendar days of receipt of any proposed
consent findings and order, the ALJ would accept the agreement by
issuing a decision based on the agreed findings and order, provided the
ALJ is satisfied with the proposed agreement's form and substance. As
the Department received no comments related to proposed Sec. 23.540,
the final rule adopts the provision as proposed.
Section 23.550 Proceedings of the Administrative Law Judge
Proposed Sec. 23.550, which the Department primarily derived from
29 CFR 6.19 and 6.33, addressed the ALJ's proceedings and decision.
Proposed Sec. 23.550(a) provided that the Office of Administrative Law
Judges has jurisdiction to hear and decide appeals concerning questions
of law and fact from the Administrator's determinations issued under
Sec. 23.510 or Sec. 23.520. It further provided that any party can,
when requesting an appeal or during the pendency of a proceeding on
appeal, timely move an ALJ to consolidate a proceeding initiated
thereunder with a proceeding initiated under the DBA or SCA. The
purpose of the proposed language was to allow the Office of
Administrative Law Judges and interested parties to efficiently dispose
of related proceedings arising out of the same contract with the
Federal Government.
Proposed Sec. 23.550(b) provided that each party may file with the
ALJ proposed findings of fact, conclusions of law, and a proposed
order, together with a brief, within 20 calendar days of filing of the
transcript (or a longer period if the ALJ permits). It also provided
that each party would serve such proposals and brief on all other
parties.
Proposed Sec. 23.550(c)(1) required an ALJ to issue a decision
within a reasonable period of time after receipt of the proposed
findings of fact, conclusions of law, and order, or within 30 calendar
days after receipt of an agreement containing consent findings and an
order disposing of the matter in whole. It further provided that the
decision must contain appropriate findings, conclusions of law, and an
order and be served upon all parties to the proceeding. Proposed Sec.
23.550(c)(2) provided that if the Administrator requested debarment,
and the ALJ concluded the contractor has violated the Executive order
or part 23, the ALJ would issue an order regarding whether the
contractor is subject to the ineligible list that would include any
findings related to the contractor's disregard of its obligations to
workers or subcontractors under the Executive order or part 23.
Proposed Sec. 23.550(d) provided that the Equal Access to Justice
Act (EAJA), as amended, 5 U.S.C. 504, does not apply to proceedings
under part 23. In the NPRM, the Department explained that the
proceedings proposed in subpart E were not required by an underlying
statute to be determined on the record after an opportunity for an
agency hearing. Therefore, an ALJ would have no authority to award
attorney's fees and/or other litigation expenses pursuant to the
provisions of the EAJA for any proceeding under part 23.
Proposed Sec. 23.550(e) provided that if the ALJ concluded a
violation occurred, the final order would require action to correct the
violation, including, but not limited to, monetary relief for unpaid
wages. It also required an ALJ to determine whether an order imposing
debarment was appropriate, if the Administrator has sought debarment.
Proposed Sec. 23.550(f) provided that the ALJ's decision would become
the final order of the Secretary, provided a party does not timely
appeal the matter to the ARB.
The Department received no comments related to Sec. 23.550. The
final rule accordingly adopts the provision as proposed.
Section 23.560 Petition for Review
Proposed Sec. 23.560, which the Department derived from 29 CFR
6.20 and 6.34, described the process to apply to petitions for review
to the ARB from ALJ decisions. Proposed Sec. 23.560(a) provided that
within 30 calendar days after the date of the decision of the ALJ, or
such additional time as the ARB granted, any party aggrieved thereby
who desired review would need to file
[[Page 67187]]
a petition for review with supporting reasons in writing to the ARB
with a copy thereof to the Chief ALJ. It further required that the
petition refer to the specific findings of fact, conclusions of law,
and order at issue and that a petition concerning a debarment decision
state the disregard of obligations to workers and subcontractors, or
lack thereof, as appropriate. It additionally required a party to serve
the petition for review, and all briefs, on all parties and on the
Chief ALJ. It also stated a party must timely serve copies of the
petition and all briefs on the Administrator and the Associate
Solicitor, Division of Fair Labor Standards, Office of the Solicitor,
U.S. Department of Labor.
Proposed Sec. 23.560(b) provided that if a party files a timely
petition for review, the ALJ's decision would be inoperative unless and
until the ARB issues an order affirming the letter or decision, or the
letter or decision otherwise becomes a final order of the Secretary. It
further provided that if a petition for review concerns only the
imposition of debarment, the remainder of the decision would be
effective immediately. Proposed Sec. 23.560(b) additionally stated
that judicial review would not be available unless a timely petition
for review to the ARB was first filed. Failure of the aggrieved party
to file a petition for review with the ARB within 30 calendar days of
the ALJ decision would render the decision final, without further
opportunity for appeal. As the Department received no comments related
to proposed Sec. 23.560, the final rule adopts the provision as
proposed.
Section 23.570 Administrative Review Board Proceedings
Proposed Sec. 23.570, which the Department derived primarily from
29 CFR 10.57, outlined the ARB proceedings under the Executive order.
Proposed Sec. 23.570(a)(1) stated the ARB has jurisdiction to hear and
decide in its discretion appeals from the Administrator's investigative
findings letters issued under Sec. 23.510(c)(1) or (2),
Administrator's rulings issued under Sec. 23.580, and from ALJ
decisions issued under Sec. 23.550. Proposed Sec. 23.570(a)(2)
identified the limitations on the ARB's scope of review, including a
restriction on passing on the validity of any provision of part 23, a
general prohibition on receiving new evidence in the record (because
the ARB is an appellate body and must decide cases before it based on
substantial evidence in the existing record), and a bar on granting
attorney's fees or other litigation expenses under the EAJA.
Proposed Sec. 23.570(b) required the ARB to issue a final decision
within a reasonable period of time following receipt of the petition
for review and to serve the decision by mail on all parties at their
last known address, and on the Chief ALJ, if the case involved an
appeal from an ALJ's decision. Proposed Sec. 23.570(c) required the
ARB's order to mandate action to remedy the violation, including, but
not limited to, providing monetary relief for unpaid wages, if the ARB
concluded a violation occurred. If the Administrator had sought
debarment, the ARB would determine whether a debarment remedy was
appropriate. Proposed Sec. 23.570(c) also provided that the ARB's
order is subject to discretionary review by the Secretary as provided
in Secretary's Order 01-2020 or any successor to that order. See
Secretary of Labor's Order, 01-2020 (Feb. 21, 2020), 85 FR 13186 (Mar.
6, 2020).
Finally, proposed Sec. 23.570(d) provided that the ARB's decision
would become the Secretary's final order in the matter in accordance
with Secretary's Order 01-2020 (or any successor to that order), which
provides for discretionary review of such orders by the Secretary. See
id.
The Department received no comments related to proposed Sec.
23.570. The final rule adopts the provision as proposed.
Section 23.580 Administrator Ruling
Proposed Sec. 23.580 set forth a procedure for addressing
questions regarding the application and interpretation of the rules
contained in part 23. Proposed Sec. 23.580(a), which the Department
derived primarily from 29 CFR 5.13, provided that such questions could
be referred to the Administrator. It further provided that the
Administrator would issue an appropriate ruling or interpretation
related to the question. Requests for rulings under this section should
be addressed to the Administrator, Wage and Hour Division, U.S.
Department of Labor, Washington, DC 20210. Any interested party could,
pursuant to Sec. 23.580(b), appeal a final ruling of the Administrator
issued pursuant to Sec. 23.580(a) to the ARB.
Maximus commented that only a current or former employee, or their
legally recognized representative, should be able to appeal a final
ruling of the Administrator issued under Sec. 23.580(a). After careful
consideration, the Department declines to adopt this limitation. The
provision, as proposed, is identical to the corresponding provision in
the regulations implementing Executive Order 13658. Thus, the
Department believes that this provision, as proposed, is consistent
with the Executive order's instruction to incorporate to the extent
practicable existing procedures and enforcement remedies under the
regulations issued to implement Executive Order 13658. In addition, if
Maximus' proposed limitation were adopted and only an employee or their
legally recognized representative could seek ARB review of a final
ruling of the Administrator, a contractor, for example, would not be
permitted to file an appeal. The Department believes that appellate
review should be more expansive, and that any interested party should
be afforded the opportunity to appeal a final ruling letter of the
Administrator to the ARB. Therefore, while the Department appreciates
the commenter's recommendation, it declines to adopt Maximus'
suggestion and adopts the provision as proposed.
Appendix A to Part 23 (Contract Clause)
Section 2 of Executive Order 14026 provides that executive
departments and agencies, including independent establishments subject
to the Federal Property and Administrative Services Act, must, to the
extent permitted by law, ensure that new contracts, contract-like
instruments, and solicitations include a clause, which the contractor
and any covered subcontractors must incorporate into lower-tier
subcontracts, specifying, as a condition of payment, the minimum wage
to be paid to workers under the order. 86 FR 22835. Section 4 of the
Executive order provides that the Secretary shall issue regulations by
November 24, 2021, consistent with applicable law, to implement the
requirements of the order. 86 FR 22836. Section 4 of the order also
requires that, to the extent permitted by law, within 60 days of the
Secretary issuing such regulations, the FARC shall amend regulations in
the FAR to provide for inclusion of the contract clause in Federal
procurement solicitations and contracts subject to the Executive order.
Id. The order further specifies that any regulations issued pursuant to
section 4 of the order should, to the extent practicable, incorporate
existing definitions, principles, procedures, remedies, and enforcement
processes under the FLSA, SCA, and DBA, Executive Order 13658, and
regulations issued to implement Executive Order 13658. Id. Section 5 of
the order grants authority to the Secretary to investigate potential
violations of and obtain compliance with the order. Id. Because a
contract clause is a requirement of the order, the Department set forth
the text of a
[[Page 67188]]
proposed contract clause as Appendix A. As required by the order, the
proposed contract clause specified the minimum wage to be paid to
workers under the order. The Secretary possesses the authority to
obtain compliance with the order, as well as the responsibility to
issue regulations implementing the requirements of the order that
incorporate, to the extent practicable, existing definitions,
principles, procedures, remedies, and enforcement processes under the
FLSA, SCA, DBA, Executive Order 13658, and the regulations issued to
implement Executive Order 13658. Consistent with that authority and
responsibility, the provisions of the proposed contract clause were
based on the contract clause included in the Executive Order 13658
rulemaking, which was in turn based on the statutory text or
implementing regulations of the DBA, FLSA, and SCA. See 79 FR 60685.
For the reasons explained below, the Department is adopting the
proposed contract clause with one modification in the final rule.
A few commenters, including AFL-CIO, SEIU, and the Teamsters,
requested that the Department issue an All Agency Memorandum with an
interim contract clause that instructs contracting agencies to
immediately incorporate the Executive Order 14026 minimum wage into
pending solicitations, awards, extensions, renewals, and options
exercised before January 30, 2022. NELP similarly requested that the
Department provide concrete guidance and instructions to agencies in
order to ensure that existing contracts incorporate the Executive Order
14026 minimum wage. The Department appreciates commenters'
recommendations for interim guidance encouraging agencies to take steps
to incorporate the requirements of Executive Order 14026 into contract
actions taken before January 30, 2022. As the Department has emphasized
elsewhere in this rule, consistent with section 9(c) of Executive Order
14026, the Department strongly encourages agencies to bilaterally
modify existing contracts, as appropriate, to include the minimum wage
requirements of this rule even when such contracts are not otherwise
considered to be a ``new contract'' under the terms of this rule. See
86 FR 22838. For example, pursuant to the order, contracting officers
are encouraged to modify existing IDIQ contracts in accordance with FAR
section 1.108(d)(3) to include the Executive Order 14026 minimum wage
requirements. As noted earlier, when the FARC issued its interim rule
amending the FAR to implement Executive Order 13658 in December 2014,
the FARC expressly stated that ``In accordance with FAR 1.108(d)(3),
contracting officers are strongly encouraged to include the clause in
existing indefinite-delivery indefinite-quantity contracts, if the
remaining ordering period extends at least six months and the amount of
remaining work or number of orders expected is substantial.'' 79 FR
74545. The Department expects, and strongly encourages, the FARC to
include this provision, or a substantially similar one, in its rule
implementing Executive Order 14026. More generally, the Department
encourages contracting agencies, to the extent permitted by law, to
ensure that with respect to all existing contracts, solicitations
issued between the date of Executive Order 14026 and the effective
dates set forth in section 9 of the order, and contracts entered into
between the date of Executive Order 14026 and the effective dates set
forth in section 9 of the order, the hourly wages paid under such
contracts are consistent with the minimum wages specified in sections 2
and 3 of the order. The Department will work with the FARC and
contracting agencies to ensure compliance with and awareness of the
provisions of Executive Order 14026 to the greatest extent possible.
The first sentence of proposed Sec. 23.110 required that the
contracting agency include the Executive order minimum wage contract
clause set forth in Appendix A in all covered contracts and
solicitations for such contracts, as described in Sec. 23.30, except
for procurement contracts subject to the FAR. It further stated that
the required contract clause directs, as a condition of payment, that
all workers performing on or in connection with covered contracts must
be paid the applicable, currently effective minimum wage under
Executive Order 14026 and Sec. 23.50. It additionally provided that
for procurement contracts subject to the FAR, contracting agencies
shall use the clause set forth in the FAR developed to implement this
rule and that such clause must both accomplish the same purposes as the
clause set forth in Appendix A and be consistent with the requirements
set forth in this rule.
Paragraph (a) of the proposed contract clause set forth in Appendix
A provided that the contract in which the clause is included is subject
to Executive Order 14026, the regulations issued by the Secretary of
Labor at 29 CFR part 23 to implement the order's requirements, and all
the provisions of the contract clause. The Department did not receive
any comments on proposed paragraph (a) of the contract clause and thus
implements the paragraph as proposed.
Paragraph (b) specified the contractor's minimum wage obligations
to workers pursuant to the Executive order. Paragraph (b)(1) stipulated
that each worker, as defined in 29 CFR 23.20, employed in the
performance of the contract by the prime contractor or any
subcontractor, regardless of any contractual relationship that may be
alleged to exist between the contractor and the worker, shall be paid
not less than the Executive order's applicable minimum wage. The term
worker includes any person engaged in performing work on or in
connection with a contract covered by the Executive order whose wages
under such contract are governed by the FLSA, the SCA, or the DBA,
regardless of the contractual relationship alleged to exist between the
individual and the contractor.
Paragraph (b)(2) provided that the minimum wage required to be paid
to each worker performing work on or in connection with the contract
between January 30, 2022, and December 31, 2022, is $15.00 per hour. It
specified that the applicable minimum wage required to be paid to each
worker performing work on or in connection with the contract should
thereafter be adjusted each time the Secretary's annual determination
of the applicable minimum wage under section 2(a)(ii) of the Executive
order results in a higher minimum wage. Section (b)(2) further provided
that adjustments to the Executive order minimum wage will be effective
January 1st of the following year, and will be published in the Federal
Register no later than 90 days before such wage is to take effect. It
also provided that the applicable minimum wage would be published on
https://alpha.sam.gov/content/wage-determinations (or any successor
website) and the applicable published minimum wage is incorporated by
reference into the contract.
As explained in the NPRM, the effect of paragraphs (b)(1) and (2)
will be to require the contractor to adjust the minimum wage of workers
performing work on or in connection with a contract subject to the
Executive order each time the Secretary's annual determination of the
minimum wage results in a higher minimum wage than the previous year.
For example, paragraph (b)(1) will require a contractor on a contract
subject to the Executive order in 2022 (beginning on January 30, 2022)
to pay covered workers at least $15.00 per hour for work performed on
or in connection with the contract. If workers continue to perform work
on or in connection with
[[Page 67189]]
the covered contract in 2023 and the Secretary determines the
applicable minimum wage to be effective January 1, 2023, was $15.10 per
hour for example, paragraphs (b)(1) and (2) will require the contractor
to pay covered workers $15.10 for work performed on or in connection
with the contract beginning January 1, 2023, thereby raising the wages
of any workers paid $15.00 per hour prior to January 1, 2023.
ABC requested that the Department allow a ``multi-year grace
period'' prior to implementation of this final rule, claiming that the
rule will require considerable time for absorption and implementation
by government contractors. However, the Executive order expressly
requires that, as of January 30, 2022, workers performing on or in
connection with covered contracts must be paid $15 per hour unless
exempt. See 86 FR 22835-38. There is no indication in the Executive
order that the Department has authority to modify the timing of the
minimum wage requirement, much less to adopt a multiple year ``grace
period'' before implementing this rule. Moreover, most contractors
should already be familiar with Executive Order 13658 and its
implementing regulations, see 29 CFR part 10, and thus will only need
to familiarize themselves with the limited number of provisions in this
final rule that differ from those under Executive Order 13658. For
these reasons, the Department declines the request to allow a multi-
year grace period before implementing this rule.
Section (b)(2) of the proposed contract clause also included a
provision that would require contracting agencies to ensure that
contractors are compensated for any increase in labor costs resulting
from the annual inflation increases in the Executive Order 14026
minimum wage beginning on January 1, 2023. The Department noted,
however, that such compensation is only warranted ``if appropriate.''
For example, if the contracting agency and contractor have already
anticipated an increase in labor costs in pricing the applicable
contract, it would not be appropriate for a contractor to receive
compensation in addition to whatever consideration it has already
received for any increase in labor costs in the applicable contract.
The Department further noted that contractors shall be compensated
``only for'' increases in labor costs resulting from operation of the
annual inflation increases. Thus, contractors are entitled to be
compensated under the provision only for any increases in labor costs
directly resulting from the annual inflation increase. For example,
contractors are not entitled to be compensated for labor costs they
allege they incurred related to raising wages for non-covered workers
due to operation of the annual inflation increase for covered workers.
Compensation adjustments would necessarily be made on a contract-by-
contract basis, and where any annual inflation increase does not
increase labor costs because, for example, of the efficiency and other
benefits resulting from the increase, the contractor will not
ultimately receive additional compensation as a result of the annual
inflation increase.
The Department recognized in the NPRM that the mechanics of
providing an adjustment to the economic terms of a covered contract
likely differ between covered procurement and non-procurement
contracts. With respect to covered non-procurement contracts subject to
the Department's proposed contract clause, the Department stated its
belief that the authority conferred on agencies that enter into such
contracts under section 4(b) of the Executive order includes the
authority to provide the type of adjustment contained in the
Department's contract clause.
As noted in the discussion of Sec. 23.110, AGC requested that the
Department delete or clarify the phrase ``if appropriate'' in the
sentence of section b(2) of the proposed contract clause providing that
``[i]f appropriate, the contracting [agency] shall ensure the
contractor is compensated only for the increase in labor costs
resulting from the annual inflation increases in the Executive Order
14026 minimum wage beginning on January 1, 2023.'' The Department
declines to adopt the requested change, which would operate to entitle
contractors to mandatory price adjustments for the increase in labor
costs resulting from the annual inflation increases in the Executive
Order 14026 minimum wage. The rules govering price adjustments for
procurement contracts are governed by the FAR and are thus outside the
scope of this rulemaking. If necessary, the FARC can address price
adjustments in their rulemaking to implement Executive Order 14026,
which will follow this rule. See 86 FR 22836. With respect to
nonprocurement contracts, and as explained in more detail in the
discussion of Sec. 23.110, the Department believes that price
adjustments are a discretionary tool that contracting agencies may
provide to contractors if appropriate, based on the specific nature of
the contract. As a result, the Department has retained the phrase ``if
appropriate'' in paragraph (b)(2) of the required contract clause.
The Department intended paragraph (b)(3), which it derived from the
contract clauses applicable to contracts subject to the SCA and the
DBA, see 29 CFR 4.6(h) (SCA), 29 CFR 5.5(a)(1) (DBA), to ensure full
payment of the applicable Executive order minimum wage to covered
workers. Specifically, proposed paragraph (b)(3) required the
contractor to pay unconditionally to each covered worker all wages due
free and clear and without deduction (except as otherwise provided by
Sec. 23.230), rebate or kickback on any account. Paragraph (b)(3)
further required that wages shall be paid no later than one pay period
following the end of the regular pay period in which such wages were
earned or accrued. Paragraph (b)(3) also required that a pay period
under the Executive order may not be of any duration longer than semi-
monthly (a duration permitted under the SCA, see 29 CFR 4.165(b)). The
Department did not receive any comments seeking to alter the language
of proposed paragraph (b)(3) of the proposed contract clause, and
therefore adopts the language as proposed.
Paragraph (b)(4) of the proposed contract clause provided that the
prime contractor and any upper-tier subcontractor(s) will be
responsible for the compliance by any subcontractor or lower-tier
covered subcontractor with the Executive order minimum wage
requirements. Proposed paragraph (b)(4) also stated that the contractor
and any subcontractor(s) responsible therefore will be liable for
unpaid wages in the event of any violation of the minimum wage
obligation of these clauses. As discussed earlier, the Department has
found this flow-down model of responsibility to be an effective method
to obtain compliance with the DBA, SCA, and Executive Order 13658, and
to ensure that covered workers receive the wages to which they are
statutorily entitled even if, for example, the subcontractor that
employed them is insolvent. The Department opined that the flow-down
model of responsibility will likewise prove an effective model to
enforce the Executive order's obligations and ensure payment of wages
to covered workers. The Department did not receive any comments seeking
to alter the language of paragraph (b)(4) of the proposed contract
clause, and therefore adopts the language as proposed.
Proposed paragraph (b)(5) of the contract clause in Appendix A
stated that workers with disabilities whose wages are calculated
pursuant to special certificates issued under section 14(c) of the FLSA
must be paid at least the Executive order minimum wage (or the
[[Page 67190]]
applicable commensurate wage rate under the certificate, if such rate
is higher than the Executive order minimum wage) for time spent
performing work on or in connection with covered contracts. The
Department did not receive comments specifically addressing paragraph
(b)(5) of the proposed contract clause and therefore adopts the
paragraph as proposed.
The Department derived proposed paragraphs (c) and (d) of the
contract clause, which specified remedies in the event of a
determination of a violation of Executive Order 14026 or part 23,
primarily from the contract clauses applicable to contracts subject to
the SCA and the DBA, see 29 CFR 4.6(i) (SCA); 29 CFR 5.5(a)(2), (7)
(DBA). Paragraph (c) provided that the agency head shall, upon its own
action or upon written request of an authorized representative of the
Department, withhold or cause to be withheld from the prime contractor
under the contract or any other Federal contract with the same prime
contractor, so much of the accrued payments or advances as may be
considered necessary to pay workers the full amount of wages required
by the Executive order. Consistent with withholding procedures under
the SCA and the DBA, paragraph (c) would allow the contracting agency
and the Department to effect withholding of funds from the prime
contractor on not only the contract covered by the Executive order but
also on any other contract that the prime contractor has entered into
with the Federal Government.
Proposed paragraph (d) stated the circumstances under which the
contracting agency and/or the Department could suspend, terminate, or
debar a contractor for violations of the Executive order. It provided
that in the event of a failure to comply with any term or condition of
the Executive order or 29 CFR part 23, including failure to pay any
worker all or part of the wages due under the Executive order, the
contracting agency could on its own action, or after authorization or
by direction of the Department and written notification to the
contractor, take action to cause suspension of any further payment,
advance, or guarantee of funds until such violations have ceased.
Paragraph (d) additionally provided that any failure to comply with the
contract clause may constitute grounds for termination of the right to
proceed with the contract work and, in such event, for the Federal
Government to enter into other contracts or arrangements for completion
of the work, charging the contractor in default with any additional
cost. Paragraph (d) also provided that a breach of the contract clause
may be grounds to debar the contractor as provided in 29 CFR part 23.
Several commenters, including AFL-CIO, NELA, SEIU, Strategic
Organizing Center, and the Teamsters, requested that the Department
amend the contract clause to include language expressly stating that
compliance with the minimum wage requirements of Executive Order 14026
and 29 CFR part 23 is a material condition of payment under the
contract. These commenters suggested that such a statement could aid in
False Claims Act (FCA) litigation based on violations of Executive
Order 14026 and 29 CFR part 23 because ``materiality'' is an essential
element of FCA claims. While the Department appreciates the commenters'
suggestion, the Department believes that the contract clause as
proposed is sufficient to put a contractor on notice that a violation
of the minimum wage requirements of Executive Order 14026 is material
within the meaning of the FCA. For this reason, and because the
relevant language of the contract clause as proposed is identical to
the contract clause issued by the Department to implement Executive
Order 13658, the Department declines to adopt the commenters'
suggestion.
Executive Order 14026, the implementing regulations, and the
proposed contract clause itself all make clear that compliance with the
applicable minimum wage requirements is a condition of payment. Section
2 of the Executive Order expressly states that its requirements are a
condition of payment, 86 FR 22835, and Sec. 23.210(a) of this final
rule similarly states that the contractor must abide by the contract
clause ``as a condition of payment.'' In addition, the contract
clause's withholding provision makes compliance with the Executive
order minimum wage a condition of payment. See United States ex rel.
Int'l Bhd. of Elec. Workers Loc. Union No. 98 v. Farfield Co., 5 F.4th
315, 344-45 (3d Cir. 2021) (explaining that the government's right
under the DBA to unilaterally withhold payment from a contractor
supported the conclusion that compliance with the DBA was a material
condition of payment under the contract).
As the withholding provision of the contract clause already makes
clear, see paragraph (c), to ensure the availability of funds for the
payment of back wages to workers when a contractor has failed to pay
the full amount of wages required by Executive Order 14026, the
contracting agency shall withhold from the contractor the funds
necessary to pay workers the full amount of required wages. In other
words, if the condition of payment is not satisfied, the contractor
will not be paid in full unless and until the violation is remedied.
Thus, the contract clause, as proposed, provides the contractor with
notice that compliance with the minimum wage requirements of Executive
Order 14026 is a condition of payment under the contract.
The Department believes that the these provisions suffice to place
a contractor on notice that a violation of the minimum wage
requirements of Executive Order 14026 is material to the government's
decision to pay in full under the contract. As noted, this conclusion
is consistent with the contract clause issued by the Department to
implement Executive Order 13658, which does not contain ``condition of
payment'' language or expressly refer to materiality, as well as with
the Supreme Court's most recent FCA decision, in which the Court stated
that ``[w]hat matters is not the label the Government attaches to a
requirement, but whether the defendant knowingly violated a requirement
that the defendant knows is material to the Government's payment
decision.'' Universal Health Servs., Inc. v. United States ex rel.
Escobar, 136 S. Ct. 1989, 1995 (2016). For these reasons, the
Department declines the commenters' suggestion and adopts paragraph (d)
of the contract clause as proposed.
Proposed paragraph (e) provided that contractors may not discharge
any portion of their minimum wage obligation under the Executive order
by furnishing fringe benefits, or with respect to workers whose wages
are governed by the SCA, the cash equivalent thereof. As noted earlier,
Executive Order 14026 increases ``the hourly minimum wage'' paid by
contractors with the Federal Government. 86 FR 22835. By repeatedly
stating that it is increasing the hourly minimum wage, without any
reference to fringe benefits, the text of the Executive order makes
clear that a contractor cannot discharge its minimum wage obligation by
furnishing fringe benefits. This is consistent with the Department's
interpretation in the regulations issued to implement Executive Order
13658, see 79 FR 60688, and the SCA, which does not permit a contractor
to meet its minimum wage obligation through the furnishing of fringe
benefits, but rather imposes distinct ``minimum wage'' and ``fringe
benefit'' obligations on contractors. 41 U.S.C. 6703(1)-(2). Similarly,
the FLSA does not allow a contractor to meet its minimum wage
obligation through the
[[Page 67191]]
furnishing of fringe benefits. Although the DBA specifically includes
fringe benefits within its definition of minimum wage, thereby allowing
a contractor to meet its minimum wage obligation, in part, through the
furnishing of fringe benefits, 40 U.S.C. 3141(2), Executive Order 14026
contains no similar provision expressly authorizing a contractor to
discharge its Executive order minimum wage obligation through the
furnishing of fringe benefits. Consistent with the Executive order,
paragraph (e) would accordingly preclude a contractor from discharging
its minimum wage obligation by furnishing fringe benefits.
Paragraph (e), as proposed, also prohibited a contractor from
discharging its minimum wage obligation to workers whose wages are
governed by the SCA by providing the cash equivalent of fringe
benefits, including vacation and holidays. As discussed above, the SCA
imposes distinct ``minimum wage'' and ``fringe benefit'' obligations on
contractors. 41 U.S.C. 6703(1)-(2). A contractor cannot satisfy any
portion of its SCA minimum wage obligation through the provision of
fringe benefit payments or cash equivalents furnished or paid pursuant
to 41 U.S.C. 6703(2). 29 CFR 4.177(a). Consistent with the treatment of
fringe benefit payments or their cash equivalents under the SCA,
proposed paragraph (e) would not allow contractors to discharge any
portion of their minimum wage obligation under the Executive order to
workers whose wages are governed by the SCA through the provision of
either fringe benefits or their cash equivalent. The Department did not
receive any comments specifically concerning paragraph (e) and the
Department thus adopts the paragraph as proposed.
Proposed paragraph (f) provided that nothing in the contract clause
would relieve the contractor from compliance with a higher wage
obligation to workers under any other Federal, State, or local law, or
under contract, nor shall a lower prevailing wage under any such
Federal, State, or local law, or under contract, entitle a contractor
to pay less than the Executive order minimum wage. This provision would
implement section 2(c) of the Executive order, which provides that
nothing in the order excuses noncompliance with any applicable Federal
or state prevailing wage law, or any applicable law or municipal
ordinance establishing a minimum wage higher than the minimum wage
established under the order. 86 FR 22836. For example, if a municipal
law required a contractor to pay a worker $15.75 per hour on January
30, 2022, a contractor could not rely on the $15.00 Executive order
minimum wage to pay the worker less than $15.75 per hour. The
Department did not receive any comments specifically addressing
paragraph (f) and thus adopts the paragraph as proposed.
Proposed paragraph (g) set forth recordkeeping and related
obligations that were consistent with the Secretary's authority under
section 5 of the order to obtain compliance with the order, and that
the Department viewed as essential to determining whether the
contractor has paid the Executive order minimum wage to covered
workers. The obligations in proposed paragraph (g) were identical to
the obligations that the Department derived in the Executive Order
13658 rulemaking. See 79 FR 60689. The Department originally derived
these obligations from the DBA, FLSA, and SCA. Proposed paragraph
(g)(1) listed specific payroll records obligations of contractors
performing work subject to the Executive order, providing in particular
that such contractors shall make and maintain for three years, work
records containing the following information for each covered worker:
Name, address, and social security number; the worker's occupation(s)
or classification(s); the rate or rates paid to the worker; the number
of daily and weekly hours worked by each worker; any deductions made;
and total wages paid. The records required to be kept by contractors
pursuant to proposed paragraph (g)(1) are coextensive with
recordkeeping requirements that already exist under, and are consistent
across, the FLSA, DBA, and SCA; as a result, compliance by a covered
contractor with the proposed payroll records obligations would not
impose any obligations to which the contractor is not already subject
under the FLSA, DBA, and SCA.
Proposed paragraph (g)(1) further provided that the contractor
performing work subject to the Executive order shall make such records
available for inspection and transcription by authorized
representatives of the WHD.
Proposed paragraph (g)(2) required the contractor to make available
a copy of the contract for inspection or transcription by authorized
representatives of the WHD. Proposed paragraph (g)(3) provided that
failure to make and maintain, or to make available to the WHD for
transcription and inspection, the records identified in paragraph
(g)(1) would be a violation of the regulations implementing Executive
Order 14026 and the contract. Paragraph (g)(3) additionally provided
that in the case of a failure to produce such records, the contracting
officer, upon direction of the Department, or under their own action,
would take action to cause suspension of any further payment or advance
of funds until such violations have ceased. Proposed paragraph (g)(4)
required the contractor to permit authorized representatives of the WHD
to conduct the investigation, including interviewing workers at the
worksite during normal working hours. Proposed paragraph (g)(5)
provided that nothing in the contract clause would limit or otherwise
modify a contractor's recordkeeping obligations, if any, under the
FLSA, DBA, and SCA, and their implementing regulations, respectively.
Thus, for example, a contractor subject to both Executive Order 14026
and the DBA with respect to a particular project would be required to
comply with all recordkeeping requirements under the DBA and its
implementing regulations. The Department received no comments on
paragraph (g) and adopts the paragraph as proposed.
Proposed paragraph (h) required the contractor to both insert the
contract clause in all its covered subcontracts and to require its
subcontractors to include the clause in any lower-tiered subcontracts.
Paragraph (h) further made the prime contractor and any upper-tier
contractor responsible for the compliance by any subcontractor or lower
tier subcontractor with the contract clause.
As explained in the discussion of coverage of subcontracts in
Subpart A of this part, the Department received several comments
expressing confusion regarding the coverage of subcontracts,
particularly with respect to vendor and supplier agreements. As
discussed above, the Department has therefore decided to amend
paragraph (h) of the contract clause to explicitly add the following
sentence: ``Executive Order 14026 does not apply to subcontracts for
the manufacturing or furnishing of materials, supplies, articles, or
equipment, and this clause is not required to be inserted in such
subcontracts.'' The Department believes that this clarification will
help minimize any confusion regarding subcontract coverage. Except for
this modification, the Department adopts paragraph (h) of the contract
clause as proposed.
Proposed paragraph (i), which the Department derived from the SCA
contract clause, 29 CFR 4.6(n), set forth the certifications of
eligibility the contractor makes by entering into the contract.
Paragraph (i)(1) stipulated that by entering into the contract, the
contractor and its officials will be certifying that neither the
contractor, the certifying officials, nor any person or firm with an
interest in the contractor's
[[Page 67192]]
firm is a person or firm ineligible to be awarded Federal contracts
pursuant to section 5 of the SCA, section 3(a) of the DBA, or 29 CFR
5.12(a)(1). Paragraph (i)(2) constituted a certification that no part
of the contract will be subcontracted to any person or firm ineligible
to receive Federal contracts. Paragraph (i)(3) contained an
acknowledgement by the contractor that the penalty for making false
statements is prescribed in the U.S. Criminal Code at 18 U.S.C. 1001.
The Department received no comments related to paragraph (i) and adopts
the provision's language as proposed.
The Department based proposed paragraph (j) on section 3 of the
Executive order. It addressed the employer's ability to use a partial
wage credit based on tips received by a tipped employee (tip credit) to
satisfy the wage payment obligation under the Executive order. The
provision set the requirements an employer must meet in order to claim
a tip credit. The Department received no comments on paragraph (j) of
the contract clause and adopts it as proposed.
Proposed paragraph (k) established a prohibition on retaliation
that the Department derived from the FLSA's antiretaliation provision
that is consistent with the Secretary's authority under section 5 of
the order to obtain compliance with the order. It prohibited any person
from discharging or discriminating against a worker because such worker
has filed any complaint or instituted or caused to be instituted any
proceeding under or related to Executive Order 14026 or part 23, or has
testified or is about to testify in any such proceeding. The Department
proposed to interpret the prohibition on retaliation in paragraph (k)
in accordance with its interpretation of the analogous FLSA provision.
The Department received no comments on paragraph (k) and adopts the
paragraph as proposed.
Proposed paragraph (l) is based on section 5(b) of the Executive
order. It accordingly provided that disputes related to the application
of the Executive order to the contract will not be subject to the
contract's general disputes clause. Instead, such disputes will be
resolved in accordance with the dispute resolution process set forth in
29 CFR part 23. Paragraph (l) also provided that disputes within the
meaning of the clause includes disputes between the contractor (or any
of its subcontractors) and the contracting agency, the U.S. Department
of Labor, or the workers or their representatives.
Several commenters, including AFL-CIO, Center for American
Progress, NELA, SEIU, and the Teamsters requested that the Department
add language to the contract clause stating that workers covered by
Executive Order 14026 are intended third party beneficiaries of the
contract's minimum wage provisions required by Executive Order 14026.
Commenters explained that this would allow workers to enforce the
Executive order's minimum wage requirements through private litigation.
After careful consideration, the Department declines to add such
language to the contract clause. Section 10(c) of the Executive order
states that the order ``is not intended to, and does not, create any
right or benefit, substantive or procedural, enforceable at law or in
equity by any party against the United States, its departments,
agencies, or entities, its officers, employees, or agents, or any other
person.'' 86 FR 22838. Given this language, the Department does not
have the discretion to create or authorize a private right of action
under Executive Order 14026 and thus declines to amend the contract
clause to expressly designate workers as third party beneficiaries of
the contract's minimum wage requirements. The Department notes,
however, that whether or not a worker could make a third party
beneficiary claim under relevant state law would be determined by such
state law. As explained earlier, neither the Executive order nor this
part are intended to modify any existing private rights of action that
workers may possess under other applicable laws. The Department did not
receive additional comments related to paragraph (l) of the contract
clause and thus adopts the paragraph as proposed.
Proposed paragraph (m) related to the contractor's responsibility
in providing notice to workers of the applicable Executive order
minimum wage. The methods of notice contained in proposed paragraph (m)
reflected those contained in proposed Sec. 23.290. A full discussion
of the methods of notice contained in proposed paragraph (m), including
the Department's responses to comments submitted in relation to Sec.
23.290, can accordingly be found in the preamble describing the
operation of Sec. 23.290. For the reasons discussed in the preamble to
Sec. 23.290, the Department adopts paragraph (m) of the contract
clause as proposed.
III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
and its attendant regulations, 5 CFR part 1320, requires that the
Department consider the impact of paperwork and other information
collection burdens imposed on the public. Under the PRA, an agency may
not collect or sponsor an information collection requirement unless it
displays a currently valid Office of Management and Budget (OMB)
control number. See 5 CFR 1320.8(b)(3)(vi). The OMB has assigned
control number 1235-0018 to the general recordkeeping provisions of
various labor standards that the WHD administers and enforces and
control number 1235-0021 to the information collection which gathers
information from complainants alleging violations of such labor
standards. In accordance with the PRA, the Department solicited public
comments on the proposed changes to those information collections in
the NPRM, as discussed below. See 86 FR 38816 (July 22, 2021). The
Department also submitted a contemporaneous request for OMB review of
the proposed revisions to the information collections in accordance
with 44 U.S.C. 3507(d). On September 2, 2021, the OMB issued a notice
that continued the previous approval of the information collections
under the existing terms of clearance and ask the Department to
resubmit the requests upon promulgation of the final rule and after
consideration of the public comments received.
Circumstances Necessitating Collection
Executive Order 14026 establishes a higher minimum wage requirement
for certain Federal contracts beginning January 30, 2022 than would
otherwise be required by Executive Order 13658. See 86 FR 22835.
Specifically, Executive Order 14026 establishes an initial minimum wage
requirement of $15.00 per hour and an initial minimum cash wage for
tipped employees of $10.50 per hour, both of which will be higher than
the corresponding rates that will be in effect on January 30, 2022
under Executive Order 13658. See 86 FR 22835-36. Like Executive Order
13658, Executive Order 14026 requires the Department to update the
order's minimum wage requirement each subsequent year to account for
inflation. Id. However, Executive Order 14026 gradually phases out a
contractor's ability to pay a subminimum cash wage for tipped employees
under Executive Order 14026, raising the minimum cash wage for tipped
employees to 85 percent of the order's applicable minimum wage on
January 1, 2023, and to 100 percent of the order's applicable minimum
wage on January 1, 2024. See 86 FR 22836.
Finally, effective January 30, 2022, section 6 of Executive Order
14026 revokes Executive Order 13838. See 86 FR 22836. Executive Order
13838 presently exempts contracts in connection with seasonal
recreational
[[Page 67193]]
services or seasonal recreational equipment rental offered for public
use on Federal lands from the minimum wage requirements established
under Executive Order 13658. Consequently, as of January 30, 2022,
these contracts will no longer be exempt from the minimum wage
requirement of Executive Order 13658 and/or will become subject to
Executive Order 14026, to the extent that they qualify as ``new
contracts.''
This final rule, which implements Executive Order 14026, contains
several provisions that could be considered to entail collections of
information: (1) The requirement in Sec. 23.210 for a contractor and
its subcontractors to include the Executive Order 14026 minimum wage
contract clause in any covered subcontract; (2) recordkeeping
requirements for covered contractors described in Sec. 23.260(a); (3)
the complaint process described in Sec. 23.410; and (4) the
administrative proceedings described in subpart E.
Subpart C states compliance requirements for contractors covered by
Executive Order 14026. As discussed above, Sec. 23.210 states that the
contractor and any subcontractor, as a condition of payment, must abide
by the Executive order minimum wage contract clause and must include in
any covered lower-tier subcontracts the minimum wage contract clause.
This final rule at Sec. 23.260 describes recordkeeping requirements
for contractors subject to Executive Order 14026. Finally, Sec. 23.290
includes a notice requirement, requiring contractors to notify all
workers performing work on or in connection with a covered contract of
the applicable minimum wage rate under Executive Order 14026.
The disclosure of information originally supplied by the Federal
Government for the purpose of disclosure is not included within the
definition of a collection of information subject to the PRA. See 5 CFR
1320.3(c)(2). The Department has thus determined that Sec. Sec. 23.210
and 23.290 do not include an information collection subject to the PRA.
The Department also notes that the recordkeeping requirements in Sec.
23.260 are requirements that contractors must already comply with under
the FLSA, SCA, DBA, and/or Executive Order 13658 under an OMB-approved
collection of information (OMB control number 1235-0018). The
Department believes that the final rule does not impose any additional
notice or recordkeeping requirements on contractors for PRA purposes.
Therefore, the burden for complying with the recordkeeping requirements
in this final rule is subsumed under the current approval.
WHD obtains PRA clearance under control number 1235-0021 for an
information collection covering complaints alleging violations of
various labor standards that the agency administers and enforces. An
ICR has been submitted to revise the approval to incorporate the
regulatory citations in this final rule applicable to complaints and
adjust burden estimates to reflect any increase in the number of
complaints filed against contractors who fail to comply with Executive
Order 14026's higher minimum wage requirement. Note that the Department
has increased the estimate slightly from the proposed rule due to a
slight increase in the number of affected workers shown in the
regulatory impact analysis. Subpart E establishes administrative
proceedings to resolve investigation findings. Particularly with
respect to hearings, the rule imposes information collection
requirements. The Department notes that information exchanged between
the target of a civil or an administrative action and the agency in
order to resolve the action would be exempt from PRA requirements. See
44 U.S.C. 3518(c)(1)(B); 5 CFR 1320.4(a)(2). This exemption applies
throughout the civil or administrative action (such as an investigation
and any related administrative hearings). Therefore, the Department has
determined the administrative requirements contained in subpart E of
this final rule are exempt from needing OMB approval under the PRA.
Information and technology: There is no particular order or form of
records prescribed by the regulations. A contractor may meet the
requirements of this final rule using paper or electronic means. WHD,
in order to reduce burden caused by the filing of complaints that are
not actionable by the agency, uses a complaint filing process in which
complainants discuss their concerns with WHD professional staff. This
process allows agency staff to refer complainants raising concerns that
are not actionable under wage and hour laws and regulations to an
agency that may be able to offer assistance.
Public comments: The Department sought comments on its analysis
that the proposed rule created a slight increase in paperwork burden
associated with ICR 1235-0021 but did not create a paperwork burden on
the regulated community of the information collection provisions
contained in ICR 1235-0018. The Department received a few comments
expressing concern about additional recordkeeping requirements under
the proposed rule. For example, the Chamber argued that there will be a
``tremendous administrative burden'' resulting from this rule because
contractors will need to segregate time that workers spend performing
on or in connection with covered contracts from hours worked on other
non-covered matters. The AOA similarly expressed that, even if it were
``practically feasible'' for a contractor to engage in such
segregation, the recordkeeping would be ``cost-prohibitive,''
especially for ``small businesses that may be more likely to have
employees splitting time between federal and non-federal work.''
As explained in the preamble discussion above regarding worker
coverage and recordkeeping requirements, for those contractors
currently subject to Executive Order 13658, Executive Order 14026
imposes no new recordkeeping requirements beyond what the contractor is
already required to comply with under Executive Order 13658, including
with respect to the identification of workers performing ``in
connection with'' covered contracts and the segregation of hours worked
on covered and non-covered contracts. For contractors not currently
subject to Executive Order 13658, Executive Order 14026 imposes minimal
burden because its recordkeeping requirements mirror those that already
exist under the DBA, FLSA, and SCA. For example, with respect to the
comments noted above expressing concern about administrative burdens
resulting from the segregation of time spent performing under federal
contracts and time spent performing on non-covered matters, the
Department notes that tracking the rate of pay for a worker is not a
new information collection requirement. A worker's rate of pay is
already a required record under the DBA, FLSA, SCA, and Executive Order
13658. Moreover, in the Department's experience, employers already
routinely track different rates of pay for different workers and for
different job classifications or projects. The Department thus did not
propose any additional recordkeeping requirements beyond what is
already approved by OMB under this information collection.
An agency may not conduct an information collection unless it has a
currently valid OMB approval, and the Department submitted the
identified information collection contained in the proposed rule to OMB
for review in accordance with the PRA under Control numbers 1235-0021
and 1235-0018. See 44 U.S.C. 3507(d); 5 CFR 1320.11. The Department has
resubmitted the revised information collections to OMB
[[Page 67194]]
for approval, and the Department intends to publish a notice announcing
OMB's decision regarding this information collection request. A copy of
the information collection request can be obtained by contacting the
Wage and Hour Division as shown in the FOR FURTHER INFORMATION CONTACT
section of this preamble.
Total burden for the recordkeeping and complaint process
information collections, including the burdens that will be unaffected
by this final rule and any changes are summarized as follows:
Type of review: Revisions to currently approved information
collections.
Agency: Wage and Hour Division, Department of Labor.
Title: Employment Information Form.
OMB Control Number: 1235-0021.
Affected public: Private sector, businesses or other for-profits
and Individuals or Households.
Estimated number of respondents: 38,244 (169 from this rulemaking).
Estimated number of responses: 38,244 (169 from this rulemaking).
Frequency of response: On occasion.
Estimated annual burden hours: 12,748 (56 burden hours due to this
final rule).
Estimated annual burden costs: $0 ($0 from this rulemaking).
Title: Records to be kept by Employers.
OMB Control Number: 1235-0018.
Affected public: Private sector, businesses or other for-profits
and Individuals or Households.
Estimated number of respondents: 5,621,961 (0 from this
rulemaking).
Estimated number of responses: 47,118,160 (0 from this rulemaking).
Frequency of response: Various.
Estimated annual burden hours: 3,626,426 (0 from this rulemaking).
Estimated annual burden costs: $0 from this rulemaking.
IV. Executive Order 12866, Regulatory Planning and Review; and
Executive Order 13563, Improved Regulation and Regulatory Review
Under Executive Order 12866, OMB's Office of Information and
Regulatory Affairs (OIRA) determines whether a regulatory action is
significant and, therefore, subject to the requirements of the
Executive order and OMB review.\27\ Section 3(f) of Executive Order
12866 defines a ``significant regulatory action'' as a regulatory
action that is likely to result in a rule that may: (1) Have an annual
effect on the economy of $100 million or more, or adversely affect in a
material way a sector of the economy, productivity, competition, jobs,
the environment, public health or safety, or state, local, or tribal
governments or communities (also referred to as economically
significant); (2) create serious inconsistency or otherwise interfere
with an action taken or planned by another agency; (3) materially alter
the budgetary impact of entitlements, grants, user fees or loan
programs or the rights and obligations of recipients thereof; or (4)
raise novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in the Executive
order. OIRA has determined that this final rule is economically
significant under section 3(f) of Executive Order 12866.
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\27\ See 58 FR 51735, 51741 (Oct. 4, 1993).
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Executive Order 13563 directs agencies to, among other things,
propose or adopt a regulation only upon a reasoned determination that
its benefits justify its costs; that it is tailored to impose the least
burden on society, consistent with obtaining the regulatory objectives;
and that, in choosing among alternative regulatory approaches, the
agency has selected those approaches that maximize net benefits.
Executive Order 13563 recognizes that some costs and benefits are
difficult to quantify and provides that, when appropriate and permitted
by law, agencies may consider and discuss qualitatively values that are
difficult or impossible to quantify, including equity, human dignity,
fairness, and distributive impacts. The analysis below outlines the
impacts that the Department anticipates may result from this final rule
and was prepared pursuant to the above-mentioned Executive orders.
The Department received a number of comments on the NPRM's
regulatory analysis. Other substantive comments are addressed thoughout
this analysis in the specific section relevant to the comment.
A. Introduction
1. Background
This final rulemaking implements Executive Order 14026,
``Increasing the Minimum Wage for Federal Contractors.'' This Executive
order seeks to promote ``economy and efficiency'' in Federal
procurement by increasing the hourly minimum wage paid by the parties
that contract with the Federal Government to $15.00 for those workers
working on or in connection with a covered Federal contract beginning
January 30, 2022. For covered tipped workers, the minimum required cash
wage will be $10.50 per hour beginning January 30, 2022, gradually
rising to the full Executive Order 14026 minimum wage on January 1,
2024. The Executive order states that 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. Executive Order 14026
supersedes Executive Order 13658, which established a lower minimum
wage for contractors, to the extent that the orders are inconsistent.
Finally, effective January 30, 2022, Executive Order 14026 will revoke
Executive Order 13838, which presently exempts contracts entered into
with the Federal Government in connection with seasonal recreational
services or seasonal recreational equipment rental for the general
public on Federal lands from coverage of Executive Order 13658.
2. Summary of Affected Employees, Costs, Transfers, and Benefits
The Department estimated the number of employees who would, as a
result of the Executive order and this final rule, see an increase in
their hourly wage, i.e., ``affected employees.'' The Department
estimates there will be 327,300 affected employees in the first year of
implementation (Table 1).\28\ During the first 10 years the rule is in
effect, average annualized direct employer costs are estimated to be
$2.4 million assuming a 7 percent real discount rate (hereafter, unless
otherwise specified, average annualized values will be presented using
a 7 percent real discount rate). This estimated annualized cost
includes $1.9 million for regulatory familiarization and $538,500 for
implementation costs. Other potential costs are discussed
qualitatively.
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\28\ The estimate of affected employees represents the number of
full-year employees working exclusively on covered contracts.
---------------------------------------------------------------------------
The direct transfer payments associated with this rule are
transfers of income from employers to employees in the form of higher
wage rates.\29\ Estimated average annualized transfer payments are $1.7
billion per year over 10 years. This transfer estimate may be an
underestimate because it does not capture workers already earning above
$15.00 that may have their wages increased as well (i.e., spillover
costs). Additionally, employers with Federal contracts may increase
wages for their workers who are not working on the contract. Transfer
payment estimates are somewhat larger here than in the NPRM due to the
inclusion of overtime pay.
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\29\ These transfers may ultimately be passed on to the Federal
Government and other entities, as discussed in section IV.C.2.c.ii.
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The Department expects that increasing the minimum wage of
[[Page 67195]]
Federal contract workers will generate several important benefits.
However, due to data limitations, these benefits are not monetized. As
noted in the Executive order, this rule will ``promote economy and
efficiency.'' Specifically, this final rule discusses benefits from
improved government services, increased morale and productivity,
reduced turnover, reduced absenteeism, and reduced poverty and income
inequality for Federal contract workers.
Executive Order 14026 directs the Department to issue regulations
to implement the order and also grants the Department exclusive
enforcement authority over the order; the Department's regulations will
therefore govern covered contracts. Because Executive Order 14026 also
directs the FARC to amend the FAR to provide for inclusion of an
implementing contract clause in covered procurement contracts and other
agencies to take necessary steps to implement the order, the Department
acknowledges that some impacts could be attributed to future rulemaking
or other action by other agencies, such as the FARC. However, because
such subsequent steps are dependent on the Department's rule and the
Department's regulations will govern enforcement of this Executive
order, the Department believes it is appropriate to attribute (on a
shared basis, for effects associated with procurement contracts) the
impacts discussed in this analysis to this final rule.
Table 1--Summary of Affected Employees, Regulatory Costs, and Transfers
----------------------------------------------------------------------------------------------------------------
Future Years Average annualized value
---------------------------------------------------
Year 1 3% Real 7% Real
Year 2 Year 10 rate rate
----------------------------------------------------------------------------------------------------------------
Affected employees (1,000s).................... 327.3 329.3 345.6 ........... ...........
Direct employer costs (million)................ $17.1 $0 $0 $2.0 $2.4
Regulatory familiarization................. $13.4 $0 $0 $1.6 $1.9
Implementation............................. $3.8 $0 $0 $0.4 $0.5
Transfers (millions)........................... $1,711 $1,721 $1,806 $1,755 $1,752
----------------------------------------------------------------------------------------------------------------
B. Number of Affected Firms and Employees
1. Overview and Data
This section explains the Department's methodology to estimate the
number of affected firms and employees. The Department estimates there
are 507,200 potentially affected firms. The Department estimates that
of the 1.8 million potentially affected workers, 327,300 will be
affected and see an increase in wages. No substantive comments were
received countering the estimated number of covered firms and
employees. Some commenters asserted that transfer payments would apply
to a broader population, such as workers earning above $15 per hour or
workers employed by a covered contractor who do not perform work on or
in connection with covered contracts. These comments are addressed in
section IV.B.3. Therefore, this methodology is the same as the NPRM.
The Economic Policy Institute (EPI) submitted a comment citing their
research which found similar results (1.9 million contract workers in
2022 and 390,000 affected workers). The Department appreciates such
information and notes that EPI's findings are consistent with the
Department's analysis and conclusions.
The number of firms is estimated primarily from the General
Services Administration's (GSA) System for Award Management (SAM). This
is supplemented with a variety of other data sources. There are no
government data on the number of employees working on Federal
contracts; therefore, to estimate the number of Federal contract
employees, the Department employed the approach used in two previous
Executive order rulemakings, the 2016 rule implementing Executive Order
13706, ``Establishing Paid Sick Leave for Federal Contractors,'' which
was an updated version of the methodology used in the 2014 rulemaking
implementing Executive Order 13658.\30\ This approach uses data from
USASpending.gov, a database of Government contracts from the Federal
Procurement Data System-Next Generation (FPDS-NG).
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\30\ See 81 FR 9591, 9636-40 (analysis of workers affected by
Executive Order 13706) and 79 FR 60634, 60693-95 (analysis of
workers affected by Executive Order 13658).
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Although more recent data is available, the Department generally
used data from 2019 to avoid any shifts in the data associated with the
COVID-19 pandemic in 2020. Any long-run impacts of COVID-19 are
speculative because this is an unprecedented situation, so using data
from 2019 is the best approximation the Department has for future
impacts. The pandemic could cause structural changes to the economy,
resulting in shifts in industry employment and wages. The transfers to
employees associated with this rule could be an underestimate or an
overestimate, depending on how employment and wages change in the
industries affected by this rule.
After approximating the total number of Federal contract employees,
the Department estimated the share who would receive an increase in
earnings (i.e., affected employees). Specifically, the Department used
2019 data from the Current Population Survey (CPS) to identify the
share of workers, by industry, who earned between the 2019 minimum wage
for Federal contract employees, $7.40 per hour for tipped employees and
$10.60 per hour for non-tipped employees, and $15 per hour.
31 32 This ratio was then applied to the population of
Federal contract employees.
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\31\ Before doing this calculation, the Department first dropped
those earning less than $10.60 (and tipped workers earning less than
$7.40), so this estimate is the share of workers who are already
earning at least $10.60 for non-tipped workers and $7.40 for tipped
workers.
\32\ As discussed in Section IV.B.4.b, the Department used a
separate methodology to estimate the number of affected workers in
the U.S. territories because the CPS data did not include the
territories.
---------------------------------------------------------------------------
2. Number of Affected Firms
The main data source used to estimate the number of affected firms
is SAM. All entities bidding on Federal procurement contracts or grants
must register in SAM. Using May 2021 SAM data, the Department estimated
there are 428,300 registered firms.\33\ The Department excluded firms
with expired registrations, firms only applying for grants,\34\
government entities (such as
[[Page 67196]]
city or county governments), foreign organizations, and companies that
only sell products and do not provide services. SAM provides the
primary North American Industry Classification System (NAICS) for all
companies.35 36
---------------------------------------------------------------------------
\33\ Data released in monthly files. Available at: https://sam.gov/data-services/Entity%20Registration?privacy=Public.
\34\ Entities registering in SAM are asked if they wish to bid
on contracts. If the firm answers ``yes,'' then they are included as
``All Awards'' in the ``Purpose of Registration'' column. The
Department included only firms with a value of ``Z2,'' which denotes
``All Awards.''
\35\ The North American Industry Classification System is a
method by which Federal statistical agencies classify business
establishments in order to collect, analyze, and publish data about
certain industries. Each industry is categorized by a sequence of
codes ranging from 2 digits (most aggregated level) to 6 digits
(most granular level). https://www.census.gov/naics/.
\36\ In some instances the primary NAICS was listed as Public
Administration, which is excluded from the analysis because it is
not available for other data sources required (see section B.3.).
Therefore, these companies are redistributed to other NAICS based on
the current distribution.
---------------------------------------------------------------------------
SAM includes all prime contractors and some subcontractors (those
who are also prime contractors or who have otherwise registered in
SAM). However, the Department is unable to determine the number of
subcontractors who are not in the SAM database. Therefore, the
Department examined five years of USASpending data (2015 through 2019)
\37\ and found 33,500 unique subcontractors who did not hold contracts
as primes in 2019 (and thus may not be included in SAM), and added
these firms to the total from SAM (Table 2). This results in 461,800
potentially affected firms that may hold Federal contracts.
---------------------------------------------------------------------------
\37\ The Department included subcontractors from five years of
data to compensate for lower-tier subcontractors that may not be
included in USASpending.gov. The Department believes this is a
reasonable approximation of the number of subcontractors.
---------------------------------------------------------------------------
In addition, some entities operating on nonprocurement contracts
are covered by Executive Order 14026. Estimating the number of covered
firms involves many data sources and assumptions.\38\ There are seven
types of contracts included in this analysis of nonprocurement
contracts (Table 3):
---------------------------------------------------------------------------
\38\ Those estimates primarily capture those covered contracts
for concessions and contracts in connection with Federal property or
lands and relating to services for Federal employees, their
dependents, or the general public that are nonprocurement in nature,
such that the contracting entities are not necessarily listed in
SAM. However, the estimates will additionally capture some SCA-
covered contracts because SCA-covered contracts, contracts for
concessions and contracts in connection with Federal property or
lands are to some degree overlapping categories of contracts (e.g.,
at least some concessions contracts and contracts in connection with
Federal property or lands are covered by the SCA, see, e.g., Cradle
of Forestry in America Interpretive Ass'n, ARB Case No. 99-035, 2001
WL 328132 (ARB March 30, 2001)).
---------------------------------------------------------------------------
1. National Park Service (NPS) concessions contracts.
2. NPS Commercial Use Authorizations (CUAs).
3. U.S. Forest Service (FS) Special Use Authorizations (SUAs).
4. NPS special use permits.
5. Bureau of Land Management (BLM) special recreation permits.
6. Retail and concession leases in federally owned buildings.
7. Operations and concessions on military bases.
First, the Department estimated the number of contractors with NPS
concessions contracts. The NPS website contains a list of entities
operating under concessions contracts on NPS lands.\39\ The Department
downloaded all 441 records contained on the website, identified unique
firms by name, and assigned them to industries based on the first type
of ``service'' listed. This resulted in 401 unique entities operating
under concessions contracts on NPS lands.
---------------------------------------------------------------------------
\39\ Available at: https://www.nps.gov/subjects/concessions/concessioners-search.htm. The Department has assumed all NPS
concessions contracts are covered by the E.O., solely for purposes
of this economic analysis, primarily because the E.O. itself
specifically covers concessions contracts.
---------------------------------------------------------------------------
Second, the Department estimated the number of NPS CUAs. The
Department informally consulted with the NPS and learned that the NPS
had approximately 5,900 CUAs in FY 2015. An NPS CUA is a written
authorization to provide services to park area visitors. See 36 CFR
18.2(c). The Department has assumed, solely for purposes of the
economic analysis, that all NPS CUAs are contracts covered by the
Executive order. Because the number of CUAs does not take into account
that one firm may hold multiple authorizations, the Department
multiplied the total number of CUAs by the ratio of unique firms
holding NPS concessions contracts to total NPS concessions contracts
(401 divided by 441 = 91 percent) for an estimated 5,340 unique firms
with CUAs. The Department used the industry distribution from NPS
concessions contracts to assign CUA permit holders to industries
because industry information was not available.
Third, the Department estimated the number of FS SUAs. The
Department informally consulted the FS, which informed the Department
that 77,353 SUAs were in effect in FY 2015. FY 2015 data were the
latest year of data available to DOL. Based on further informal
consultations with the FS, the Department estimated that approximately
36 percent of these SUAs may be covered contracts.\40\ No data are
available to determine whether a contractor holds more than one permit;
therefore, the Department used the NPS ratio of unique concessions
contract holders to total concessions contract holders (91 percent) to
estimate 25,076 unique contractors with FS permits. The Department used
its best professional judgement to determine the relevant industry for
each type of permit because data were not available.
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\40\ For each Forest Service ``use code'' (e.g., ``111 boat dock
and wharf''), the Department determined whether the authorizations
are for commercial companies.
---------------------------------------------------------------------------
Fourth, the Department estimated the number of affected NPS special
use permits. During informal discussions, NPS officials estimated that
it issued 33,735 special use permits in FY 2015.\41\ FY 2015 data were
the latest year of data available to DOL. It is likely that many of
these permits will not be covered by the rulemaking, but the Department
has no method for directly determining the number of such permits that
might be covered. Therefore, the Department assumed, solely for
purposes of the economic analysis, that the E.O. would cover 36 percent
of NPS special use permits (the ratio of FS SUAs that are covered) and
that 91 percent of the permits are held by unique contract holders
(based on NPS data for CUAs). This resulted in an estimated 10,936
entities holding special use permits and covered by the rule. These
permit holders were assigned to the ``arts, entertainment, and
recreation'' industry.
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\41\ According to NPS, activities that may require a special use
permit include (but are not limited to) weddings, memorial services,
special assemblies, and First Amendment activities. See https://www.nps.gov/ever/learn/management/specialuse.htm.
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Fifth, BLM reports 4,737 special recreation permits in FY 2019.\42\
The Department again relied on the FS data to assume that 36 percent of
these permits will be covered, and the NPS data to assume that 91
percent will be held by unique contractors.\43\ This results in 1,536
entities holding BLM special recreation permits. The Department assumed
that these are in the ``arts, entertainment, and recreation'' industry.
These estimates for the NPS, FS, and BLM do not account for the
possibility that the same firms may hold concessions contracts with
more than one agency.
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\42\ U.S. Department of the Interior, Bureau of Land Management.
(2020). Public Land Statistics 2019. https://www.blm.gov/sites/blm.gov/files/PublicLandStatistics2019.pdf.
\43\ The Department believes it is reasonable to apply the 36
percent coverage estimates to NPS special use permits and BLM
special recreation permits because it understands that these permits
are likely for sufficiently similar purposes and entered into with
sufficiently similar individuals and entities as the FS SUAs.
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[[Page 67197]]
Sixth, the Department estimated the number of retail and concession
leases in federally owned buildings. Data are not available on the
prevalence of these contracts, but during the 2016 rulemaking
implementing Executive Order 13706's paid sick leave requirements that
covered a similar population, the Department estimated there were a
total of 1,120 unique entities (1,232 entities times 91 percent assumed
to be held by unique contractors). To account for blind vendors who
enter into operating agreements with states who obtain contracts or
permits from Federal agencies to operate vending facilities on Federal
property under the Randolph-Sheppard Act, the Department has added 767
contractors to its estimate.\44\ However, the Department notes that
some of these vendors may already be counted in the 1,120 estimate. The
Department assumed these entities are in the ``retail trade'' and
``accommodation and food services'' industries.
---------------------------------------------------------------------------
\44\ DOL communications with the Department of Education.
---------------------------------------------------------------------------
Seventh, to account for operations and concessions on military
bases, the Department identified that the Army and Air Force, the Navy,
the Marine Corps, and the Coast Guard have bases with retail and
concessions contracts. These include both the military Exchanges and
private companies with concessions contracts to operate on base. The
Department counted each of the branch's Exchange organizations as one
firm. Based on general information about services on bases, the
Department assumed these entities are in the ``retail trade'' and
``accommodation and food services'' industries. According to Exchange
and Commissary News (a business magazine), the Army & Air Force
Exchange Service (AAFES) has 586 concessions contracts.\45\ The
Department assumed each is with a unique firm and that these entities
are not listed in SAM. The Department also assumed that 68 percent of
these concessions contracts are domestic, resulting in an estimated 401
concessions contracts.\46\
---------------------------------------------------------------------------
\45\ Exchange and Commissary News. (2017). Exchange QSR Clicks
with Customers. http://www.ebmpubs.com/ECN_pdfs/ecn0517_AAFESQSRNBFF.pdf.
\46\ This is the share of AAFES net sales that occur
domestically. AAFES Annual Report 2019. https://publicaffairs-sme.com/Community/wp-content/uploads/2020/06/2019AnnualReportDigi.pdf.
---------------------------------------------------------------------------
Data are not available on the number of concessions contracts for
other branches of the military. However, data are available on the
number of name-brand fast-food establishments at AAFES, Navy Exchange
Service Command (NEXCOM), and the Marine Corps Exchange (MCX). The
Department assumed the distribution of fast-food establishments across
branches is similar to the distribution of total concessions contracts.
The Department calculated the ratio of the number at NEXCOM or MCX
fast-food establishments relative to AAFES and then multiplied that
ratio by the 401 AAFES concessions contracts.\47\ In total, the
Department estimates 553 concessions contracts (401 for AAFES, 119 for
NEXCOM, and 33 for MCX).
---------------------------------------------------------------------------
\47\ Exchange and Commissary News. (2014). Military Exchange
Name-Brand Fast Food Portfolios. http://www.ebmpubs.com/ECN_pdfs/ecn0714_NBFF.pdf.
_____________________________________-
In total, this final rule estimates 507,200 potentially affected
firms. Table 2 summarizes the estimated number of affected contractors
by contract nexus and industry. The Department believes this is likely
an upper bound on the number of affected firms because some of these
firms may not have Federal contracts and even some of those with
contracts may not have workers earning below $15 per hour. To
demonstrate, the Department also used USASpending.gov data as an
alternative way to estimate the number of contractors with SCA and DBA
contracts. In 2019, there were 88,800 prime contractors with
potentially affected employees from USASpending. This is significantly
lower than the 428,300 firms registered in SAM and used in this
analysis. The Department chose to use the data from SAM to ensure the
entire population of potentially affected firms is captured.
Additionally, firms without active contracts may incur some regulatory
familiarization costs if they plan to bid on future Federal contracting
work.
Table 2--Number of Potentially Affected Contractors
----------------------------------------------------------------------------------------------------------------
Total
Industry NAICS potentially Firms from SAM Subcontractors Federal prop.
affected firms and lands
----------------------------------------------------------------------------------------------------------------
Agriculture, forestry, fishing & 11 5,895 5,808 1 86
hunting........................
Mining.......................... 21 1,209 1,100 44 65
Utilities....................... 22 5,144 2,613 52 2,479
Construction.................... 23 60,316 52,149 7,941 226
Manufacturing................... 31-33 55,731 47,283 8,417 31
Wholesale trade................. 42 20,335 19,686 649 0
Retail trade.................... 44-45 10,683 8,292 31 1,833
Transportation and warehousing.. 48-49 22,194 15,897 401 5,896
Information..................... 51 19,601 13,400 329 5,872
Finance and insurance........... 52 3,713 3,665 48 0
Real estate and rental and 53 20,318 20,317 1 0
leasing........................
Professional, scientific, and 54 119,543 107,411 11,622 510
technical......................
Management of companies & 55 551 551 0 0
enterprises....................
Administrative and waste 56 39,433 35,203 3,581 649
services.......................
Educational services............ 61 17,210 16,889 250 71
Health care and social 62 36,676 36,629 17 30
assistance.....................
Arts, entertainment, and 71 29,209 4,911 0 24,298
recreation.....................
Accommodation and food services. 72 15,622 12,474 7 3,141
Other services.................. 81 24,366 24,005 94 267
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Total private............... .............. 507,222 428,283 33,485 45,454
----------------------------------------------------------------------------------------------------------------
[[Page 67198]]
Table 3--Number of Potentially Affected Firms on Federal Properties and Lands
--------------------------------------------------------------------------------------------------------------------------------------------------------
Forest BLM special
NAICS NPS NPS CUAs NPS special Service recreation Public Federal
concessions use permits SUAs permits buildings bases
--------------------------------------------------------------------------------------------------------------------------------------------------------
11..................................................... 0 0 0 86 0 0 0
21..................................................... 0 0 0 65 0 0 0
22..................................................... 0 0 0 2,479 0 0 0
23..................................................... 0 0 0 226 0 0 0
31-33.................................................. 0 0 0 31 0 0 0
42..................................................... 0 0 0 0 0 0 0
44-45.................................................. 50 666 0 35 0 944 139
48-49.................................................. 142 1,891 0 3,863 0 0 0
51..................................................... 1 13 0 5,858 0 0 0
52..................................................... 0 0 0 0 0 0 0
53..................................................... 0 0 0 0 0 0 0
54..................................................... 0 0 0 510 0 0 0
55..................................................... 0 0 0 0 0 0 0
56..................................................... 28 373 0 248 0 0 0
61..................................................... 0 0 0 71 0 0 0
62..................................................... 2 27 0 2 0 0 0
71..................................................... 113 1,505 10,936 10,209 1,536 0 0
72..................................................... 63 839 0 1,157 0 944 139
81..................................................... 2 27 0 238 0 0 0
------------------------------------------------------------------------------------------------
401 5,340 10,936 25,076 1,536 1,887 278
--------------------------------------------------------------------------------------------------------------------------------------------------------
3. Number of Potentially Affected Employees
There are no Government data on the number of employees working on
Federal contracts; therefore, to estimate the number of Federal
contract employees, the Department employed the approach used in the
2016 rulemaking implementing Executive Order 13706's paid sick leave
requirements, which was an updated version of the methodology used in
the 2014 rulemaking for Executive Order 13658.\48\ The Department
estimated the number of employees who work on Federal contracts that
will be covered by Executive Order 14026, representing the number of
``potentially affected employees'' (1.8 million). Additionally, the
Department estimated the share of potentially affected employees who
will receive wage increases as a result of the Executive order. These
employees are referred to as ``affected'' (327,300).
---------------------------------------------------------------------------
\48\ See 81 FR 9591, 9591-9671 and 79 FR 60634-60733.
---------------------------------------------------------------------------
The Department estimated the number of potentially affected
employees in three parts. First, the Department estimated employees and
self-employed workers working on SCA and DBA procurement contracts in
the fifty states and Washington, DC Second, the Department estimated
the number of employees and self-employed workers working on SCA and
DBA procurement contracts in the U.S. territories. Third, the
Department estimated the number of potentially affected employees on
nonprocurement concessions contracts and contracts on Federal property
or lands (some of which would also be SCA-covered).
a. SCA and DBA Procurement Contracts in the Fifty States and
Washington, DC
SCA and DBA contract employees on covered procurement contracts
were estimated by taking the ratio of Federal contracting expenditures
(``Exp'') to total output (Y), by industry. Total output is the market
value of the goods and services produced by an industry. This ratio is
then applied to total private employment in that industry (``Emp'')
(Table 4). This analysis was conducted at the 2-digit NAICS level.
[GRAPHIC] [TIFF OMITTED] TR24NO21.000
Where i = 2-digit NAICS
The Department used Federal contracting expenditures from
USASpending.gov data, which tabulates data on Federal contracting
through the FPDS-NG. According to 2019 data (used to avoid any
potential impacts of COVID-19), the government spent $312 billion on
service contracts in 2019 with a place of performance in the fifty
states or Washington, DC. This excludes (1) financial assistance such
as direct payments, loans, and insurance; (2) contracts performed
outside the fifty states or Washington, DC (because contracts performed
in the U.S. territories are addressed later); and (3) expenditures on
goods purchased by the Federal government because the final rule does
not apply to contracts for the manufacturing and furnishing of
materials and supplies.\49\
---------------------------------------------------------------------------
\49\ For example, the government purchases pencils; however, a
contract solely to purchase pencils would not be covered by the
Executive order. Contracts for goods were identified in the
USASpending.gov data if the product or service code begins with a
number (services begin with a letter).
---------------------------------------------------------------------------
To determine the share of all output associated with Government
contracts, the Department divided industry-level contracting
expenditures by that industry's gross output.\50\ For example, in the
information industry, $10.1 billion in contracting expenditures was
divided by $1.9 trillion in total output, resulting in an estimate that
covered Government contracts comprise 0.52 percent of every dollar of
output in the information industry.
---------------------------------------------------------------------------
\50\ ``Gross output (GO) is the value of the goods and services
produced by the nation's economy. It is principally measured using
industry sales or receipts, including sales to final users (GDP) and
sales to other industries (intermediate inputs).'' Bureau of
Economic Analysis. (2020). Table 8. Gross Output by Industry Group.
https://www.bea.gov/news/2020/gross-domestic-product-industry-fourth-quarter-and-year-2019.
---------------------------------------------------------------------------
The Department then multiplied the ratio of covered-to-gross output
by private sector employment to estimate the share of employees working
on
[[Page 67199]]
covered contracts for each 2-digit NAICS industry. Private sector
employment is from the May 2019 Occupational Employment and Wage
Statistics (OEWS), formerly the Occupational Employment
Statistics.51 52 All workers performing services on or in
connection with a covered contract are covered by the Executive order
and this final rule, however, unincorporated self-employed workers are
excluded from the OEWS. Thus, the OEWS data are supplemented with data
from the 2019 Current Population Survey Merged Outgoing Rotation Group
(CPS MORG) to include unincorporated self-employed in the estimate of
covered workers. To demonstrate, in the information industry, there
were approximately 3.0 million private sector employees in 2019 and
covered Government contracts comprise 0.52 percent of every dollar of
gross output. The Department multiplied 3.0 million by 0.52 percent to
estimate that the Executive order will potentially affect 15,400
workers on covered procurement contracts in the information
industry.\53\
---------------------------------------------------------------------------
\51\ Bureau of Labor Statistics. Occupational Employment and
Wage Statistics. May 2019. Available at: http://www.bls.gov/oes/.
\52\ Some adjustments were made to the OEWS employment estimates
to make the population more consistent with BEA's gross output and
better reflect private employment. The Department excluded Federal
U.S. Postal service employees, employees of government hospitals,
and employees of government educational institutions.
\53\ Note that the number of employees aggregated across
industries does not match the total number of employees derived
using totals due to the order of operations of multiplying and
summing (i.e., the sum of the products is not equal to the product
of the sums).
---------------------------------------------------------------------------
This methodology represents the number of year-round equivalent
potentially affected employees who work exclusively on covered Federal
contracts. Thus, when the Department refers to potentially affected
employees in this analysis, the Department is referring to this
illustrative number of employees who work exclusively on covered
Federal Government contracts. The number of employees who will
experience wage increases will likely exceed this number since all
affected workers may not work exclusively on Federal contracts.
Implications of this for costs and transfers are discussed in the
relevant sections.
Table 4--Number of Potentially Affected Employees in the Fifty States and DC
--------------------------------------------------------------------------------------------------------------------------------------------------------
Employees on
Private Total private Covered Share output Employees on federal lands Total contract
NAICS employees output contracting from covered SCA and DBA and employees
(1,000s) \a\ (billions) \b\ output contracting contracts concessions (1,000s)
(millions) \c\ (%) (1,000s) \d\ (1,000s) \e\
--------------------------------------------------------------------------------------------------------------------------------------------------------
11...................................... 1,168 $450 $408 0.09 1 0 1.1
21...................................... 699 577 103 0.02 0 0 0.2
22...................................... 547 498 2,399 0.48 3 4 6.7
23...................................... 9,100 1,662 35,692 2.15 195 3 197.9
31-33................................... 12,958 6,266 28,603 0.46 59 0 59.3
42...................................... 5,955 2,098 161 0.01 0 0 0.5
44-45................................... 16,488 1,929 327 0.02 3 37 39.4
48-49................................... 6,215 1,289 14,217 1.10 69 119 187.2
51...................................... 2,971 1,942 10,076 0.52 15 23 38.2
52...................................... 6,180 3,161 12,482 0.39 24 0 24.4
53...................................... 2,699 4,143 931 0.02 1 0 0.6
54...................................... 10,581 2,487 150,888 6.07 642 9 650.6
55...................................... 2,470 675 0 0.00 0 0 0.0
56...................................... 10,158 1,141 36,313 3.18 323 14 337.3
61...................................... 3,271 381 4,250 1.11 36 1 37.2
62...................................... 20,791 2,648 11,099 0.42 87 0 87.5
71...................................... 2,949 382 81 0.02 1 17 17.4
72...................................... 14,303 1,192 1,018 0.09 12 33 45.6
81...................................... 5,260 772 2,686 0.35 18 1 18.9
---------------------------------------------------------------------------------------------------------------
Total............................... 134,761 33,691 311,733 0.93 1,491 259 1,750
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ OEWS May 2019. Excludes Federal U.S. Postal service employees, employees of government hospitals, and employees of government educational
institutions. Added to the OEWS employee estimates were unincorporated self-employed workers from the 2019 CPS MORG data.
\b\ Bureau of Economic Analysis, national income and product account (NIPA) Tables, Gross output. 2019.
\c\ USASpending.gov. Contracting expenditures for covered contracts in 2019.
\d\ Assumes share of expenditures on contracting is same as share of employment. Assumes employees work exclusively, year-round on Federal contracts.
Thus, this may be an underestimate if some employees are not working entirely on Federal contracts.
\e\ Calculated by multiplying the number of firms by the average employees per firm.
b. SCA and DBA Procurement Contracts in the U.S. Territories
The methodology to estimate potentially affected workers in the
U.S. territories is similar to the methodology above. The primary
difference is that data on gross output in the territories are not
available, and so the Department had to make some assumptions. Federal
contracting expenditures from USASpending.gov data show that the
Government spent $1.8 billion on service contracts in 2019 in Puerto
Rico, Guam, and the U.S. Virgin Islands. Other territories were
excluded from this analysis because necessary data are not available
(i.e., OEWS employment data which are used to estimate number of
potentially affected workers, and OEWS wage data which are used to
estimate affected workers).\54\ The Department approximated gross
output in these three territories by calculating the ratio of the Gross
Domestic Product (GDP) to total gross output for the U.S., then
applying that ratio to GDP in each territory. For example, the
Department estimated that Puerto Rico's gross output totaled $140.5
billion.\55\
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\54\ The other territories comprise a very small share of
Federal contracting expenditure and thus the impact of their
exclusion from this analysis is expected to be very small (0.1
percent of all Federal contracting expenditures in 2019). This
includes American Samoa and the Commonwealth of the Northern Mariana
Islands.
\55\ In the U.S. the sum of personal consumption expenditures
and gross private domestic investment (the relevant components of
GDP) was $17.6 trillion in 2018, while gross output totaled $33.7
trillion. In Puerto Rico, personal consumption expenditures plus
gross private domestic investment in 2018 (most recent data
available) equaled $73.4 billion. Therefore, Puerto Rico gross
output was calculated as $73.4 billion x ($33.7 trillion/$17.6
trillion).
---------------------------------------------------------------------------
The rest of the methodology follows the methodology for the fifty
states and Washington, DC. To determine the share of all output
associated with
[[Page 67200]]
Government contracts, the Department divided contracting expenditures
by gross output. The Department then multiplied the ratio of covered
contract spending to gross output by private sector employment to
estimate the share of employees working on covered contracts.\56\ This
analysis was not conducted at the industry level because GDP data for
the territories is not available by NAICS. Additionally, the number of
USASpending observations in some industries is very small, making
estimates imprecise. The Department estimated 11,800 employees will be
potentially affected in Puerto Rico, Guam, and the U.S. Virgin Islands.
---------------------------------------------------------------------------
\56\ For the U.S. territories, the unincorporated self-employed
are excluded because CPS data are not available on the number of
unincorporated self-employed workers in U.S. territories.
---------------------------------------------------------------------------
c. Nonprocurement Concessions Contracts and Contracts on Federal
Properties or Lands
The above analysis found 1.5 million potentially affected employees
on SCA and DBA contracts. However, the employees of entities operating
under covered nonprocurement contracts on Federal property or lands may
not be included in that total. To account for these employees, the
Department used a variety of sources. First, the Department estimated
the number of entities operating under covered nonprocurement contracts
on Federal property or lands (section IV.B.2.). Then the Department
multiplied the number of contracting firms by the number of potentially
affected employees per contracting firm, by industry. This ratio was
calculated by dividing the potentially affected employees on direct
contracts by the number of contractors (prime and subcontractors) with
potentially affected employees from USASpending. For example, in the
information industry, there are 15,400 potentially affected workers in
4,000 entities, for an average of 3.9 potentially affected workers per
firm. This estimate of potentially affected workers per firm is
multiplied by the estimated 5,872 entities in the information industry
operating under covered nonprocurement contracts on Federal property or
lands, resulting in 22,800 potentially affected employees in these
firms.
The exception to the above methodology is for employees of military
Exchanges. These 41,500 employees are directly included because
Exchanges are very large employers and using the ratio method above
would underestimate employment.\57\ The AAFES employs 35,000
employees,\58\ NEXCOM employs 13,000 associates,\59\ and MSX employs
12,000 workers.\60\ Data on employment for the Coast Guard Exchange
(CGX) was not available and so the Department estimated there are 613
employees.\61\ These numbers were then reduced by 32 percent to remove
employees stationed overseas, based on the share of AAFES net sales
that occur outside the continental U.S.\62\ Summing these calculations
over all industries results in an additional 259,300 covered employees
for a total of 1.8 million potentially affected employees.
---------------------------------------------------------------------------
\57\ Many of these employees are Federal employees, but because
it may include some contractors, the Department has chosen to
include these workers in the analysis.
\58\ AAFES. (2019). Exchange Fact Sheet 2019. https://www.aafes.com/Images/AboutExchange/factsheet2017b.pdf.
\59\ Navy Supply Systems Command. (2020). 2019 Navy Exchange
Service Command Annual Report. https://www.mynavyexchange.com/assets/Static/NEXCOMEnterpriseInfo/AR19.pdf.
\60\ Marine Corps Community Services. (n.d.). About Us. https://usmc-mccs.org/about/.
\61\ Calculated by taking the ratio of CGX facilities to MSX
facilities (5 percent) and multiplying by the number of Marine Corps
employees (12,000).
\62\ AAFES. (2020). 2019 Mission Report. https://publicaffairs-sme.com/Community/wp-content/uploads/2020/06/2019AnnualReportDigi.pdf.
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d. Additional Considerations
Because the Executive order's requirements only apply to certain
contracts entered into, renewed, or extended after January 30, 2022,
some of these potentially affected workers may not be impacted in the
first year after implementation. However, the Department believes the
majority will be impacted in Year 1. For example, section 9(c) of the
Executive order ``strongly encourage[s]'' agencies administering
existing contracts ``to ensure that the hourly wages paid under such
contracts or contract-like instruments are consistent with the minimum
wages specified [under the order].'' Additionally, if workers are
staffed on more than one contract, contractors may increase the
workers' hourly wage rates on all contracts as soon as any one of the
contracts is impacted. Lastly, rather than increasing pay for only a
subset of their workers, some employers may increase wages for all
potentially affected workers earning less than $15 per hour at the time
their first contract is affected (rather than paying different wage
rates to employees working on new contracts and employees working on
existing contracts). For these reasons, the Department included all
workers in the analysis of Year 1 impacts. This assumption may result
in an overestimate of Year 1 impacts, but the Department believes it is
preferable to overestimate transfers in Year 1 than to underestimate
transfers because of uncertainty when contractors will be affected.
While some SCA contracts are for terms of more than a year (and
hence may not be covered by Executive Order 14026 for several years if
the contract was entered into in the last year or two), many consist of
a base term of one year followed by a series of 1-year option periods.
Executing a new option year under such a contract will trigger the
Executive order's provisions. It is reasonable to assume that many such
contracts (whether base or option period) will be entered into during
the first effective year.
The Department notes that at first glance the estimated number of
potentially affected firms (507,200) and potentially affected employees
(1.8 million) may seem inconsistent because this is an average of only
3.5 potentially affected employees per contracting firm. This perceived
inconsistency is partially due to the two separate data sources used
(SAM and USAspending) and the fact that the number of affected firms is
likely overestimated to ensure costs are not underestimated. For
example, the number of potentially affected firms includes firms
without active contracts and potentially some firms that only supply
products. If the number of firms in USASpending is used instead of SAM,
the Department estimates that there are 167,800 firms (88,800 prime
contractors in USASpending, 33,500 subcontractors from USASpending, and
45,500 entities with contracts on Federal property or lands) with 10.5
potentially affected employees per firm. Additionally, it is helpful to
recall that the estimate of potentially affected employees represents
employees working exclusively and year-round on covered contracts. This
may only be a segment of a contracting firm's workforce.
4. Number of Affected Employees
The Department estimates that of the 1.8 million potentially
affected employees identified above, 327,300 will be affected and see
an increase in wages. The Department performed calculations for workers
in the fifty states and Washington, DC, then seperately for the
territories due to data limitations for the territories. This section
concludes by projecting affected workers in future years.
a. Affected Workers in the Fifty States and Washington, DC
The Department used the 2019 Current Population Survey Merged
Outgoing Rotation Groups (CPS MORG)
[[Page 67201]]
to estimate the percentage of workers in the fifty states and
Washington, DC earning between the applicable 2019 minimum wage for
federal contractors and $15.63 64 65 In 2019, the applicable
minimum wage rates under Executive Order 13658 were $10.60 for non-
tipped workers and $7.40 for tipped workers. The Department used 2019
data due to concerns that because of effects attributable to the COVID-
19 pandemic, 2020 data may not accurately reflect the affected
workforce.
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\63\ The Department used the CPS file compiled by the National
Bureau of Economic Research, available at https://data.nber.org/morg/annual/.
\64\ Although a rate of $15 per hour will not be required for
new contracts until January 30, 2022, the Department chose to use
$15 in the 2019 CPS MORG data because of the uncertainty of the
appropriate deflator to apply to identify workers in the affected
range of wage rates. This likely contributes to an overestimate of
the number of affected workers.
\65\ The Department has not used state-specific wage
distributions here, because there are very few instances in which
the place of performace for a contract is definitively known.
Additionally, the CPS sample sizes are too low to get reliable state
level estimates that are also broken down by industry. If the
distribution of contract spending across states is different from
the geographic distribution of total employment, then there could be
a difference in estimates based on national and state wage
distributions.
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The Department limited its analysis to employed individuals in the
private sector (with a class of worker of ``private, for profit'' or
``private, nonprofit''). Earnings for self-employed workers are not
included in the CPS MORG; therefore, the Department assumed the wage
distribution for self-employed workers was similar to that for
employees. The Department used the hourly rate of pay variable for
hourly workers \66\ and calculated an hourly rate based on usual weekly
earnings and usual hours worked per week for non-hourly
workers.67 68 The Department excluded workers with unlikely
wages or earnings--i.e., those who reported usually earning less than
$50 per week (including overtime, tips, and commissions) and workers
with an hourly rate of pay less than $1 or more than $1,000.
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\66\ This variable excludes overtime pay, tips, and commissions.
Commissions can count towards the $15 per hour minimum wage and
therefore, excluding these will result in an overestimate of
affected workers and consequently transfer payments. The impact of
excluding tips is discussed below.
\67\ For non-hourly workers who usually work more than 40 hours
per week, the Department calculated an hourly rate based on these
workers being paid the overtime premium for hours worked per week
above 40. For example, the Department calculated an hourly rate of
$20 for a non-hourly worker who reported usually earning $950 per
week and usually working 45 hours per week (($20 x 40 hours) + ($20
x 1.5 x 5 hours) = $950). This assumes that none of these non-hourly
workers are exempt from the overtime provision of FLSA.
\68\ As explained earlier, Sec. Sec. 23.20 and 23.40 exclude
workers employed in a bona fide executive, administrative, or
professional (EAP) capacity, as those terms are defined in 29 CFR
part 541, from the requirements of Executive Order 14026. Among
other requirements, these workers generally must be paid, on a
salary or fee basis, a certain minimum amount, which increased from
$455 per week to $684 per week on January 1, 2020. See 29 CFR
541.600 through 541.606; 84 FR 51230 (increasing the standard salary
level generally required to exempt a worker as an EAP from $455 per
week to $684 per week). However, due to uncertainties regarding
whether and to what extent non-hourly workers earning at or below
the equivalent of $15 per hour perform the requisite job duties to
qualify as bona fide EAPs, the Department has not accounted for EAPs
in its estimate of affected workers. The Department estimated that
by assuming all non-hourly workers who earned at least $455 per week
in 2019 are exempt, the number of affected workers would decrease by
18 percent. Using the current salary level of $684 per week as the
threshold for the EAP exemption would reduce the number of affected
workers by 7 percent. These are overestimates, because there are
millions of workers who meet the part 541 salary criteria who do not
qualify for the EAP exemption due to their job duties. See, e.g., 84
FR 51257 (Figure 1).
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Some non-hourly workers had missing hourly wage rates, primarily
because they respond that usual hours per week vary.\69\ The Department
distributed the weights of the non-hourly workers with missing hourly
rates to non-hourly workers with valid hourly wage rates, then dropped
the workers with missing hourly rates.
---------------------------------------------------------------------------
\69\ The other reason the imputed hourly wage rate may be
missing is if usual hours worked per week is zero, but this accounts
for less than one percent of workers with missing hourly rates.
---------------------------------------------------------------------------
To ensure the appropriate denominator for the percentage of workers
earning an hourly rate in the affected range, the Department dropped
workers earning less than the 2019 rate required by Executive Order
13658. First, the Department defined tipped workers as those in
occupations of ``Waiters and waitresses'' or ``Bartenders'' and in the
``Restaurants and other food services'' or ``Drinking places, alcoholic
beverages'' industries.\70\ The Department dropped tipped workers
earning less than $7.40 per hour and non-tipped workers earning less
than $10.60 per hour.\71\ Lastly, the Department calculated the share
of workers earning less than $15 per hour by 2-digit NAICS code
industry (Table 5).
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\70\ To the extent that there are tipped workers in other
industries, the Department may have excluded some tipped workers
earning between $7.40 and $10.60 per hour. However, the Department
believes that there are few tipped employees working on Federal
contracts who would be covered by this final rule.
\71\ About 10 percent of tipped workers report being paid
nonhourly. These workers may have tips included in the hourly rate
calculated here because there is no way to determine how much of
usual weekly pay is tips. To the extent that any of these nonhourly
tipped workers have tips included in their calculated hourly rate,
this would result in a slight overestimation of the average hourly
rate for all tipped workers.
---------------------------------------------------------------------------
This method assumes that the distribution of wages is similar
between Federal Government contract employees and the broader
workforce, as there is not a reputable source for data on wages paid to
Federal contract employees. If covered workers' wages are higher, then
this will result in an overestimate of transfers. The Department
requested comments and data on the earnings of Federal Government
contract employees but did not receive any applicable responses.
The methodology to estimate potentially affected workers captures
tipped workers earning less than $15 per hour. However, the rule only
requires tipped workers to be paid a minimum cash wage of $10.50 in
2022, with incremental increases until parity with non-tipped workers
is reached on January 1, 2024. Therefore, the Department may
overestimate transfers for tipped workers in the first two years after
this rulemaking taking effect. The Department believes this potential
bias is small because contractors on the most commonly occurring DBA-
and SCA-covered contracts rarely engage tipped employees on or in
connection with such contracts. Additionally, as was the case with the
2014 rulemaking implementing Executive Order 13658,\72\ the Department
received no data from interested commenters indicating that a
significant number of tipped employees would be covered by that
Executive order.
---------------------------------------------------------------------------
\72\ See 79 FR 60696.
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Multiplying these shares of workers earning below $15 per hour by
the estimated number of employees covered by this rule yields an
estimated 320,100 affected employees in Year 1 (Table 5). Although
employees on some covered contracts may not be affected in Year 1, the
Department assumes all are affected to ensure impacts are not
underestimated (see section IV.B.3. for a discussion on this
assumption).
[[Page 67202]]
Table 5--Employees With Hourly Wages in the Affected Range, by Industry
----------------------------------------------------------------------------------------------------------------
Total Affected
NAICS employees Share below employees
(1,000s) $15 (%) (1,000s)
----------------------------------------------------------------------------------------------------------------
11.............................................................. 1.10 48 0.5
21.............................................................. 0.18 9 0.0
22.............................................................. 6.67 7 0.4
23.............................................................. 197.94 15 30.0
31-33........................................................... 59.29 17 10.3
42.............................................................. 0.46 17 0.1
44-45........................................................... 39.38 39 15.2
48-49........................................................... 187.20 23 42.3
51.............................................................. 38.18 13 4.9
52.............................................................. 24.41 10 2.4
53.............................................................. 0.61 18 0.1
54.............................................................. 650.64 7 48.1
55.............................................................. 0.00 19 0.0
56.............................................................. 337.31 31 104.5
61.............................................................. 37.18 16 6.1
62.............................................................. 87.52 21 18.8
71.............................................................. 17.38 33 5.6
72.............................................................. 45.57 55 25.1
81.............................................................. 18.91 29 5.5
-----------------------------------------------
Sum across NAICS............................................ 1,749.91 N/A 320.1
Territories............................................. 11.80 61 7.2
Total............................................... 1,761.7 N/A 327.3
----------------------------------------------------------------------------------------------------------------
Executive Order 13838 presently exempts contracts entered into with
the Federal Government in connection with seasonal recreational
services and also seasonal recreational equipment rental for the
general public on Federal lands from coverage of Executive Order
13658.\73\ Executive Order 14026 revokes Executive Order 13838 as of
January 30, 2022. The Department believes these currently exempt
workers are already captured in the number of ``potentially affected''
workers--i.e., all workers on federal contracts of the kind covered by
Executive Order 14026. However, the methodology to estimate
``affected'' workers may not adequately capture all of these seasonal
workers because their wages may not be between $10.60 and $15 per hour
(i.e., they may earn as low as $7.25 per hour). The Department believes
that the number of workers potentially missing is very small. In the
final rule implementing Executive Order 13838, the Department estimated
there were 1,191 affected employees (i.e., exempt seasonal workers
earning between $7.25 and $10.30 per hour).\74\ A similar number is
likely missing from the current analysis because they earn less than
$10.60 per hour. Affiliated Outfitter Associations (AOA) asserted that
the Department has grossly underestimated the number of seasonal
recreation workers. They point to the fact that the ``Grand Canyon
National Park alone has over 1,000 seasonal recreational workers.''
However, these numbers are not comparable. The Department's estimate of
1,191 is the number of workers potentially underestimated, not the
total number of workers currently exempt under Executive Order 13838.
Also, with respect to the specific example given, the Department
further notes that the state of Arizona's minimum wage in 2019 was $11
per hour, which was above the Executive Order 13658 minimum wage rate
of $10.60 per hour. The Department's methodology should not result in
any underestimate for seasonal recreation workers in any state where
such workers were paid a minimum wage above $10.60 per hour in 2019.
---------------------------------------------------------------------------
\73\ Establishing a Minimum Wage for Contractors, Notice of Rate
Change in Effect as of January 1, 2019. 83 FR 44906.
\74\ Executive Order 13838 generally exempted from the
requirements of Executive Order 13658 contracts with the Federal
Government in connection with seasonal recreational services or
seasonal recreational equipment rental on Federal lands.
---------------------------------------------------------------------------
b. Affected Workers in U.S. Territories
Because the CPS MORG does not include the U.S. territories, the
Department used the May 2019 OEWS data to estimate the percentage of
workers in Puerto Rico, Guam, and the U.S. Virgin Islands who earn less
than $15 per hour.
The OEWS reports wage percentiles for Puerto Rico, Guam, and the
U.S. Virgin Islands. The Department used these percentiles and a
uniform distribution to infer the percentile associated with $15 per
hour. The Department then applied this percentile to the population of
potentially affected workers. For example, in Puerto Rico, the
Department estimated that 71 percent of the 4,500 potentially affected
employees (3,200 workers) earn less than $15 per hour. In total, the
Department estimated 7,200 workers will be affected in these three U.S.
territories.
c. Affected Worker Projections
To estimate the number of affected workers in later years, the
Department first considered whether workers affected in Year 1 will
continue to experience wage increases as a result of this final rule in
Years 2 through 10. The Department assumes they will because the
Executive Order 14026 minimum wage will continue to increase on an
annual basis according to inflation, as measured by the CPI-U. In the
absence of this final rule, the Department assumes that affected
workers' wages would increase at the rate required under Executive
Order 13658, which also increases on an annual basis according to the
CPI-U. Therefore, workers affected by this rule in Year 1 will continue
to experience a comparably higher wage rate than they otherwise would
in Years 2 through 10, but would still have experienced wage rate
increases under the baseline situation.
The Department accounted for employment growth by using the
compounded annual growth rate based on the ten-year employment
projection
[[Page 67203]]
for 2019 to 2029 from the Bureau of Labor Statistics' (BLS') Employment
Projections program.\75\ In Year 10, there will be 345,600 affected
workers.
---------------------------------------------------------------------------
\75\ BLS, Employment Projections. (2021). Table 2.1 Employment
by Major Industry Sector. https://www.bls.gov/emp/tables.htm.
---------------------------------------------------------------------------
The number of affected workers in Year 1 implicitly takes into
account current state minimum wages by looking at the distribution of
wage rates paid. If states increase their minimum wages in the future,
and the current method is applied to those future years, then affected
workers or transfers associated with increased wages could be somewhat
lower than estimated.
5. Demographics of Employees in the Affected Wage Rate Ranges
This section presents demographic and employment characteristics of
the general population of workers in the affected wage rate ranges. The
Department notes that the demographic characteristics of Federal
contractors may differ from the general population in the affected
hourly wage rate ranges; however, data on the demographics of only
affected workers are not available.
These tables include the distribution of workers who earn in the
affected wage rate range. The tables also show the distribution of the
general workforce. This could be used to identify whether a certain
group is more or less likely to be impacted by this rule. For example,
if the percentage reported in column 3 is higher than the percentage
reported in column 2, then workers in that group are overrepresented.
Table 6 presents the occupation and geographic location of workers
currently earning in the affected wage rate range. The Department found
that workers in management, business, and financial occupations are
less likely to earn in the wage range potentially impacted by this
Executive order (5.1 percent of workers in the affected range are in
this occupation compared to 16.1 percent of the general population),
while workers in service occupations are significantly more likely to
earn in the affected wage range. Workers in the Northeast and Midwest
are somewhat less likely to earn in the affected wage range, and
workers in the West and South are somewhat more likely to earn in the
affected range, but the variation is small. Workers in non-metropolitan
areas are more likely to earn in the affected range.
Table 6--Occupation and Geographic Location of Workers Who Earn in the
Affected Wage Rate Range
------------------------------------------------------------------------
Distribution
Distribution of workers
of all workers with wages in
(%) the affected
range (%)
------------------------------------------------------------------------
By Occupation
------------------------------------------------------------------------
Management, business, & financial....... 16.1 5.1
Professional & related.................. 13.9 5.7
Services................................ 23.7 33.9
Sales and related....................... 10.9 14.3
Office & administrative support......... 12.1 15.4
Farming, fishing, & forestry............ 0.8 1.9
Construction & extraction............... 5.3 4.1
Installation, maintenance, & repair..... 3.4 2.2
Production.............................. 6.7 8.4
Transportation & material moving........ 7.0 9.0
------------------------------------------------------------------------
By Region/Division
------------------------------------------------------------------------
Northeast: 18.1 16.6
New England......................... 5.1 4.7
Middle Atlantic..................... 12.9 11.9
Midwest: 21.8 21.2
East North Central.................. 15.0 14.3
West North Central.................. 6.9 7.0
South: 36.8 37.2
South Atlantic...................... 19.3 19.5
East South Central.................. 5.5 5.6
West South Central.................. 12.0 12.0
West: 23.3 25.0
Mountain............................ 7.4 8.1
Pacific............................. 15.8 16.9
------------------------------------------------------------------------
By Metropolitan Status
------------------------------------------------------------------------
Metropolitan............................ 88.7 86.5
Non-metropolitan........................ 10.7 12.6
Not identified.......................... 0.6 0.9
------------------------------------------------------------------------
Note: CPS data for 2019.
Table 7 displays the demographics of workers who currently earn in
the affected wage rate range. The Department found that women, Black
workers, and Hispanic workers are more likely to earn in the wage range
[[Page 67204]]
impacted by this final rule. Additionally, workers 16 to 25 and workers
without any college education are more likely to earn in that range.
Table 7--Demographics of Workers Who Earn in the Affected Wage Rate
Range
------------------------------------------------------------------------
Distribution
Distribution of workers
of all workers with wages in
(%) the affected
range (%)
------------------------------------------------------------------------
By Sex
------------------------------------------------------------------------
Male.................................... 53.3 45.6
Female.................................. 46.7 54.4
------------------------------------------------------------------------
By Race
------------------------------------------------------------------------
White only.............................. 77.1 74.5
Black only.............................. 12.4 15.7
All others.............................. 10.5 9.8
------------------------------------------------------------------------
By Ethnicity
------------------------------------------------------------------------
Hispanic................................ 18.1 25.7
Not Hispanic............................ 81.9 74.3
------------------------------------------------------------------------
By Age
------------------------------------------------------------------------
16-25................................... 16.7 29.5
26-35................................... 24.5 23.7
36-45................................... 20.7 15.8
46-55................................... 19.2 14.6
56+..................................... 19.0 16.4
------------------------------------------------------------------------
By Education
------------------------------------------------------------------------
No degree............................... 8.9 14.7
High school diploma..................... 45.2 60.8
Associate's degree...................... 10.7 10.4
Bachelor's degree....................... 23.7 11.1
Master's degree......................... 8.5 2.2
Professional degree..................... 1.3 0.4
PhD..................................... 1.8 0.4
------------------------------------------------------------------------
Note: CPS data for 2019.
C. Impacts of the Final Rule
1. Overview
This section quantifies direct employer costs and transfer payments
(i.e., wage increases) associated with the final rule. These impacts
were projected for 10 years. The Department estimated average
annualized direct employer costs of $2.4 million and transfer payments
of $1.8 billion. As these numbers demonstrate, the largest quantified
impact of the final rule will be the transfer of income from employers
to employees. The Department also discusses the many benefits of this
rule qualitatively and asserts that they will offset any direct
employer costs.
2. Costs
The Department quantified two direct employer costs: (1) Regulatory
familiarization costs and (2) implementation costs. Other employer
costs are considered qualitatively.
a. Regulatory Familiarization Costs
The final rule will impose direct costs on covered contractors by
requiring them to review the regulations. The Department believes that
all Federal contracting firms that have or expect to have covered
contracts will incur some regulatory familiarization costs because all
firms will need to determine whether they are in compliance. The
Department assumed that on average, one half-hour of a human resources
manager's time will be spent reviewing the rulemaking. During the 2014
rulemaking implementing Executive Order 13658's minimum wage
requirements, the Department used one hour of time. The Department has
used a smaller time estimate here because most of the affected firms
will already be familiar with the previous requirements and will only
have to familiarize themselves with the parts that have changed
(predominantly the level of the minimum wage). Additionally, this is
the average amount of time spent. The Department believes that many of
the potentially affected firms will have little to no regulatory
familiarization costs because they are not practically affected (e.g.,
they do not hold active government contracts or all their workers
already earn at least $15 per hour.) However, if review of regulations
occurs at the establishment level, the Department's regulatory
familiarization costs may be underestimated.
The Department requested comments on the estimated time spent on
regulatory familiarization. A few commenters asserted that the time
estimates were low. The AOA, for example, asserted that the half-hour
time estimate is vastly underestimated. In particular, they note that a
half-hour is not enough time to review an 82 page proposed rulemaking.
As discussed above, the Department has used a small time estimate here
because most of the affected firms will already be familiar with the
previous requirements and will
[[Page 67205]]
only have to familiarize themselves with the parts that have changed
(predominantly the level of the minimum wage). This estimate represents
an assumption about the average time spent across all firms; many will
have negligible or no familiarization costs. If some firms take longer
than a half-hour to review the rule, it is not inconsistent with the
Department's average estimate. Additionally, the Department notes that
many firms may not need to review the entire proposed or final
rulemaking to determine if and how it applies to them because they will
likely review summary materials provided by the Department.
The cost of this time is the median loaded wage for a Compensation,
Benefits, and Job Analysis Specialist of $52.65 per hour.\76\
Therefore, the Department has estimated regulatory familiarization
costs to be $13.4 million ($52.65 per hour x 0.5 hours x 507,200
contractors) (Table 8). The Department has included all regulatory
familiarization costs in Year 1. The Department believes firms will
need to familiarize themselves with the rule in Year 1 in order to
identify whether any contracts will be covered in Year 1. It is
possible a contractor will postpone the familiarization effort until it
is poised to have a covered contract; however, since many contractors
will have at least one new contract in Year 1, and the Department has
no data on when contractors will first be affected, the Department has
included all regulatory familiarization costs in Year 1. Average
annualized regulatory familiarization costs over ten years, using a 7
percent discount rate, is $1.9 million.
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\76\ This includes the median base wage of $32.30 from the May
2020 Occupational Employment and Wage Statistics (OEWS) plus
benefits paid at a rate of 46 percent of the base wage, as estimated
from the BLS's Employer Costs for Employee Compensation (ECEC) data,
and overhead costs of 17 percent. OEWS data available at: http://www.bls.gov/oes/current/oes131141.htm.
Table 8--Year 1 Costs
----------------------------------------------------------------------------------------------------------------
Implementation costs
Regulatory ------------------------------------------------
Variable familiarization Human resources Management
costs time time Total
----------------------------------------------------------------------------------------------------------------
Hours per potentially affected contractor.. 0.5 N/A N/A ...........
Potentially affected contractors........... 507,222 N/A N/A ...........
Hours per employee......................... N/A 0.08 0.08 ...........
Affected employees......................... N/A 327,310 327,310 ...........
Loaded wage rate: $52.65 $52.65 $86.02 ...........
Base wage.............................. $32.30 $32.30 $52.77 ...........
Benefits and overhead adj. factor \a\.. 1.63 1.63 1.63 ...........
Cost ($1,000s)............................. $13,352 $1,436 $2,346 $3,782
Average annualized cost ($1,000s):
3% discount rate....................... $1,565 $168 $275 $443
7% discount rate....................... $1,901 $204 $334 $538
----------------------------------------------------------------------------------------------------------------
\a\ Ratio of loaded wage to unloaded wage from the 2020 ECEC (46 percent) plus 17 percent for overhead.
b. Implementation Costs
The Department believes firms will incur costs associated with
implementing this rule. There will be costs to adjust the pay rate in
the records and tell the affected employees, among other minimal
staffing changes and considerations made by managers. The Department
assumed that firms would spend ten minutes on implementation costs per
newly affected employee. This estimate was chosen because for most
affected workers management decisions will be negligible and the time
to adjust the systems is very small. However, costs for some firms may
be larger, as discussed below.
Implementation time will be spread across both human resource
workers who will implement the changes and managers who may need to
assess whether to adjust their schedule. The Department splits the time
between a Compensation, Benefits, and Job Analysis Specialist and a
Manager. Compensation, Benefits, and Job Analysis Specialists earn a
loaded hourly wage of $52.65 per hour.\77\ Workers in Management
Occupations earn a loaded hourly wage of $86.02 per hour.\78\ The
estimated number of newly affected employees in Year 1 is 327,300
(Table 8). Therefore, total Year 1 implementation costs were estimated
to equal $3.8 million ([$52.65 x 5 minutes x 327,300 employees] +
[$86.02 x 5 minutes x 327,300 employees]).
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\77\ OEWS May 2020 reports a median base wage of $32.30 for
Compensation, Benefits, and Job Analysis Specialists. The Department
supplemented this base wage with benefits paid at a rate of 46
percent of the base wage, as estimated from the BLS's ECEC data, and
overhead costs of 17 percent. OEWS data available at: http://www.bls.gov/oes/current/oes131141.htm.
\78\ OEWS May 2020 reports a median base wage of $52.77 for
Management Occupations. The Department supplemented this base wage
with benefits paid at a rate of 46 percent of the base wage, as
estimated from the BLS's ECEC data, and overhead costs of 17
percent. OEWS data available at: https://www.bls.gov/oes/current/oes110000.htm.
---------------------------------------------------------------------------
The Department believes implementation costs will generally be a
function of the number of affected employees in Year 1. The Department
believes there will be no implementation costs for new hires in later
years because the cost to set wages would be similar for new hires
under the baseline scenario and this final rule. Under Executive Order
13658, contractors were required to increase wages according to the new
inflation-adjusted rates published by the Department each year.
Assuming all costs are in Year 1, the average annualized implementation
costs over ten years, using a 7 percent discount rate, is $538,500.
Some commenters noted that costs will be larger for firms whose
workers work on both covered and non-covered work. These firms may
track hours separately for covered and non-covered work and calculate
weekly pay as a function of multiple wage rates. A few commenters
assert that the Department's implementation cost time estimate is too
low due to these time tracking requirements. The AOA asserts that the
cost to track workers' time across covered and non-covered work both
exceeds 10 minutes and is an ongoing cost (opposed to a one-time cost
as the Department calculated). They state that it is ``absurdly
unrealistic to believe that a company could pay an employee'' different
rates for different work but that even if it were feasible that ``the
recordkeeping alone associated with doing so would be cost-
prohibitive.''
[[Page 67206]]
The Department agrees that some of the few firms that were previously
exempt from Executive Order 13658 but will be covered by Executive
Order 14026 may have to newly track employees' time across covered and
non-covered work, and this extra time may exceed 10 minutes.\79\
However, as noted above, the estimated implementation time of 10
minutes per newly-affected employee is the average across all affected
employees, and many firms were already tracking employees' time across
covered and non-covered work under Executive Order 13658 and other
applicable laws, so they will not see any additional ongoing costs. The
slightly higher cost is limited to a small subset of firms. Many firms'
employees only work on covered tasks, and many firms already track
workers' time as required by law and by contract. Therefore, the
Department believes 10 minutes is still appropriate for the average
firm.
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\79\ As discussed earlier in Section II(B), Executive Order
14026 does not require employers to pay workers a different wage
rate for work that is not covered by the order. Employers who
respond to the Executive order by paying affected employees at least
the Executive order wage rate for all work the employee performs
will not have to distinguish between work that is or is not covered
by the order.
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Additionally, it is fairly routine for contractors subject to the
SCA's and DBA's prevailing wage requirements to segregate and document
employee work that is and is not covered by those laws. Workers on SCA-
and DBA-covered contracts may also perform work in multiple
classifications with different prevailing wage rates.\80\ Therefore,
the Department believes that additional recordkeeping costs for firms
will be limited.
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\80\ See, e.g., 29 CFR 5.5(a)(1) (``Laborers or mechanics
performing work in more than one classification may be compensated
at the rate specified for each classification for the time actually
worked therein; Provided, That the employer's payroll records
accurately set forth the time spent in each classification in which
work is performed'').
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c. Other Potential Costs and Eventual Bearers of Transfers
In addition to the costs discussed above, there may be additional
costs that have not been quantified. These include compliance costs,
increased consumer costs, and reduced profits. The latter two hinge on
the belief that employers' costs will increase by more than the
associated productivity gains and cost-savings. As discussed in further
detail in Section IV.C.4, employers could experience multiple benefits
associated with this rule that could offset adverse impacts to prices
or profits. One commenter asserted that the Department should quantify
these additional costs and provide a more thorough analysis. The
Department has not quantified these costs because it would require
making many assumptions for which adequate data are not available.
However, the Department has expanded the analysis provided earlier in
the NPRM in response to comments.
i. Contract Clause Compliance Costs
This final rule requires Federal executive departments and agencies
to include a contract clause in any contract covered by the Executive
order. The clause describes the requirement to pay all workers
performing work on or in connection with covered contracts at least the
Executive order minimum wage. Contractors and their subcontractors will
need to incorporate the contract clause into covered lower-tier
subcontracts. The Department believes that the compliance cost of
incorporating the contract clause will be negligible for contractors
and subcontractors. Contractors subject to the SCA and/or DBA have long
had a comparable flow-down obligation for the compliance of
subcontractors by operation of the SCA and DBA. Thus, upper-tier
contractors' flow-down responsibility, and lower-tier subcontractors'
need to comply with prevailing wage-related legal requirements when
they are incorporated into their subcontracts, are well understood
concepts to SCA and DBA contractors. See 29 CFR 5.5(a)(6) and 4.114(b).
Moreover, the flow-down provisions of Executive Order 14026 are
identical to the flow-down obligations that currently exist under
Executive Order 13658. The Department therefore expects that there will
be very few contractors covered by Executive Order 14026 who do not
have familiarity with the flow-down liability principles in this final
rule.
ii. Procurement Contracts--Consumer Costs, Prices, and Profits
In general, the relevant consumer for procurement contracts is the
Federal Government. If the rulemaking increases employers' costs
(beyond offsetting productivity gains and cost-savings), and
contractors pass along part or all of the increased cost to the
government in the form of higher contract prices, then Government
expenditures may rise. Alternatively, profits may shrink. However, as
discussed later, benefits attributable to the Executive order are
expected to accompany any such increase in expenditures, resulting in
greater value to the Government. Even without accounting for increased
productivity and cost-savings, direct costs to employers and transfers
are relatively small compared to Federal covered contract expenditures
(about 0.4 percent of contracting revenue, see section IV.C.5.), and
thus the Department believes that any potential increase in contract
prices or decrease in profits will be negligible. Impacts to profits
may be larger for firms that pay lower wages, for firms with more
affected workers, and for firms that cannot as readily pass increased
costs onto the government or the consumer. Commenters generally did not
present concerns with the Department's synopsis of consumer costs for
procurement contracts.
iii. Non-Procurement Contracts--Consumer Costs, Prices, Profits,
Business Closures, and Competitiveness
Non-procurement contracts on Federal lands, such as concessions
contracts and permittee contracts, may experience different impacts
than procurement contracts. This is predominantly because these
contractors cannot as directly pass costs along to the Federal
Government in the form of an increased bid amount or similar charge for
the next contract. One commenter who owns Subway restaurants noted that
they may have to close an establishment as a consequence of the
Executive order. As discussed elsewhere in this final rule, the
Department notes that there may be actions employers can take to
mitigate costs, in addition to the various benefits they will observe,
such as increased productivity and reduced turnover. In some instances,
increased contractor costs may be passed along to the public in the
form of higher prices. In limited cases, where price pass-through is
limited either by government oversight of prices or by competition,
this may result in reduced profits in certain instances, assuming that
none of the beneficial effects or mitigating employer responses
discussed in this analysis apply. Multiple commenters expressed concern
about the impact of the Executive order on their prices,
competitiveness, and ultimately their viability.
On average, direct costs and payroll costs (i.e., transfers) are a
relatively small share of total payroll (less than 0.7 percent, see
section IV.C.5.). Even in the accommodation and food services industry,
where wages tend to be lower, costs and transfers are estimated to be
less than 5 percent of payroll on average. However, as discussed in
response to comments below, this will vary across firms.
The literature tends to find that minimum wages result in increased
prices, but that the size of that increase can vary substantially.
Ashenfelter and
[[Page 67207]]
Jurajda (2021) \81\ found that wage increases resulted in ``full or
near-full price pass-through'' to the cost of a Big Mac, estimated to
be about 70 percent, meaning that 70 percent of the increase in labor
costs gets passed through to increased prices. Basker and Khan (2016)
note that, ``[e]ven with full price pass-through, the income effect of
[a] price increase is likely to be very small. The average price of a
burger in 2014, according to the C2ER data used in this paper, was
approximately $3.77. [Thus, for example, a] 3 [percent] increase in
this price amounts to only about 10 cents.'' \82\ Echoing the minimal
anticipated price increase, Lemos (2008) found that an increase in the
minimum wage of 10 percent raises food prices by no more than 4
percent, and overall prices by no more than 0.4 percent.\83\
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\81\ Ashenfelter, O., & Jurajda, S. (2021). Wages, Minimum
Wages, and Price Pass-Through: The Case of McDonald's Restaurants.
IRS Working Papers, Report No. 646. https://dataspace.princeton.edu/bitstream/88435/dsp01sb397c318/4/646.pdf.
\82\ Basker, E., & Khan, M.T. (2016). Does the Minimum Wage Bite
into Fast-Food Prices? Industrial Organization: Empirical Studies of
Firms & Markets eJournal. https://dx.doi.org/10.2139/ssrn.2326659.
\83\ Lemos, S. (2008). A Survey of the Effects of the Minimum
Wage on Prices. Journal of Economic Surveys, 22(1), 187-212. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-6419.2007.00532.x.
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Several commenters expressed concern that the proposed rule would
have large impacts on their prices, much larger than the average impact
presented here by the Department. The Department agrees that the size
of price increases will vary based on the company and industry.
Companies with larger payroll costs, or more low-wage workers, would
have larger impacts. However, the Department believes the size of the
increase has been overstated by commenters, because increasing the
minimum wage of their workers is expected to help reduce absenteeism
and turnover in the workplace and improve employee morale and
productivity. Additionally, increased efficiency and quality of
services could attract more customers and result in increased sales.
Contractors may also be able to offset wage increases by negotiating a
lower percentage of sales paid as rent or royalty to the Federal
government in new contracts.\84\
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\84\ This ability to negotiate is not universal. For example,
permits for ski areas, marinas, and organizational camps are subject
to land use fees that are determined by federal statute or agency
regulations or directives.
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Price increases and impacts may be more pronounced among affected
firms which are not currently covered by Executive Order 13658,
including seasonal recreational businesses exempt under Executive Order
13838. Whereas most affected contractors are already required to pay
$10.95 per hour (as of January 1, 2021), some firms not presently
subject to Executive Order 13658 may pay lower wages, e.g., the FLSA
minimum wage of $7.25 per hour. However, with respect to seasonal
recreational businesses presently exempt under Executive Order 13838,
the Department notes that many of these entities were subject to
Executive Order 13658 from 2015 through most of 2018, which required
them to pay workers a minimum wage of $10.10 to $10.35 per hour before
Executive Order 13838 exempted them. It is unlikely these
establishments would have lowered their employees' pay substantially
from these rates. This appears consistent with comments submitted by
some outfitter and guide establishments that indicate they currently
pay more than $7.25 per hour. Additionally, the Department believes the
efficiency gains noted above are also applicable here.
In non-procurement contracts, commenters asserted these price
increases could impact their customers (those individuals who purchase
goods and services from private companies on Federal property),
especially low-wage customers. Many also claimed this regulation
undermines recent government and non-profit efforts to expand access to
Federal parks and lands. For example, the AOA wrote that ``increasing
costs to the public is contrary to current policy efforts to expand
access to outdoor recreation opportunities, particularly among
traditionally underrepresented or underserved populations.'' The
National Park Hospitality Association wrote, ``NPS has recently
increased its efforts to promote more diversity and inclusion in our
national parks through its Office of Relevancy, Diversity and Inclusion
[. . .] [This rule] will directly contradict and frustrate efforts to
increase diversity and inclusion in our national parks.'' The
Department believes in general that any price increase needed to cover
increased payroll costs will not be large enough to deter access. As
noted above, the payroll increases are generally small, and likely only
a subset of those increases are passed along to consumers in the form
of higher prices. For example, one commenter indicated that increasing
entry level wages to $15 per hour, as well as increasing the wages of
more experienced workers would increase their wage bill by $2.1 million
per year. However, the commenter also stated they average 500,000
customers per year, so the Department calculated that if the commenter
was to increase their price by $4.20 per customer, it would cover the
increased wage costs. Additionally, the Department believes that the
increased productivity and reduced turnover benefits, as well as the
alternatives available through renegotiation, as discussed above, would
help offset the costs.
Commenters also noted that these price increases would impact their
profits, competitiveness, and viability. Although some commenters
mentioned that increasing the minimum wage reduces profits, no
commenters provided data or substantive information on the extent to
which profits would be impacted. Additionally, the Department found
little literature showing a link between minimum wages and profits. One
paper by Draca et al. (2011) did find a statistically significant, but
not necessarily large, negative link between minimum wages and profits
in the United Kingdom.\85\
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\85\ Draca, M., Machin, S., & Van Reenen, J. (2011). Minimum
Wages and Firm Profitability. American Economic Journal: Applied
3(1), 129-151. doi: 10.1257/app.3.1.129.
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Several commenters discussed the impacts of the Executive order on
competitiveness, and how this limits the potential price increases they
can make. SBA Office of Advocacy wrote, ``[s]mall businesses in
recreation industries on federal lands may not be able to pass on these
extra wage costs to their customers because of competition from nearby
recreation businesses that do not have ties to Federal land. One
outfitter providing river tours noted that they had multiple
competitors nearby that are not on federal land and only pay a minimum
wage of $7.25 an hour.'' MAD Adventures/Grand Adventures wrote, ``[w]e
have to choose to either eat the additional cost [or] pass it along to
our customers. In highly competitive [industries] such as mine, it is
difficult to pass along the additional cost to customers when some of
competitors never operate on federal land.'' A Subway franchise
operator located on military bases noted that competitors are not
subject to the same wage increases. The Department believes that
establishments operating on Federal property compete on characteristics
other than price. Specifically, recreating on Federal lands has many
advantages to non-Federal lands (such as aesthetics and remoteness).
This is evidenced by the willingness of contractors, including
permittees, to pay greater costs to operate on Federal lands.
Therefore, these operators may be able to remain competitive even after
moderate price increases. Similarly, fast-food operators
[[Page 67208]]
on military bases have a distinct advantage to off-base competitors due
to location convenience.
Several commenters noted that their prices are either regulated by
the government or must be approved by the government, making it harder
to pass costs along to consumers in the form of higher prices.
Consequently, the impact on profits and business closures may be more
pronounced for these firms. The Department notes that in many cases,
these firms may be able negotiate a lower percentage of sales paid as
rent or royalty to the Federal government in new contracts.\86\
Additionally, although requiring approval to increase prices may be an
additional hurdle for some, it does not prevent price increases.
Prospective increases in contract amounts due to higher labor costs for
companies with procurement contracts also need to be tacitly
``approved'' by the government agency awarding the new contract. While
the Department does acknowledge that price restrictions will be
detrimental to some firms' ability to adapt, as noted earlier, the
increase in cost is expected to generally be small. The increased
productivity associated with increased wages may also lead to increased
sales and business, potentially offsetting any costs.
---------------------------------------------------------------------------
\86\ If a reduction in profits results in fewer vendors
competing to lease a property, the agency owning the property may
have to lower its rent or risk no one wanting to lease their
property.
---------------------------------------------------------------------------
iv. Other Costs Noted by Commenters
A variety of other costs were noted by commenters. Rocky Mountain
Adventures and the National Ski Area Association argued that this rule
will generate wage compression by raising the wages of the lowest paid
workers and potentially restricting firms' ability to give raises to
more experienced workers, or by restricting hiring. Additionally, as
other commenters pointed out, raising the minimum wage for lower-paid
workers could also lead to spillover effects in the form of wage
increases for higher-paid workers. See Section IV.C.3.c for a
discussion of these effects. Additionally, higher entry-level wages
will attract more workers to the field, and may with time result in
more experienced personnel.
An anonymous commenter noted specific concerns for the private
construction industry in U.S. territories. They assert that by paying
more on Federal contracts, it will increase prices for private
construction, make it harder to find labor, and drive out private
construction. The Department disagrees with the magnitude of these
assertions. This rule may result in the most-skilled workers favoring
Federal construction jobs, but the total supply of labor in the
territories will not decrease. In fact, with an upward sloping labor
supply curve, higher wages should entice additional workers into the
labor market. Workers who cannot obtain work on the higher-paying
Federal contracts would continue to work at the current market wage
rates.
One commenter, the Colorado River Outfitters Association, noted
that permittees pay the Federal government fees based on prices.
Therefore, price increases will result in higher fees. The Department
notes that the size of this increase is likely to be small because
price increases are likely to be small and fees are a small percentage
of the price increase.
3. Transfer Payments
The Department estimated transfer payments to workers in the form
of higher wages. Directly, these are transfers from employers to the
employees; however, ultimately these transfer costs to firms may be
offset by higher productivity, cost-savings, or cost pass-throughs to
the government and consumers. The Department believes negative impacts
on employment or fringe benefits will be small to negligible (sections
IV.C.3.d. and IV.C.3.e.). Additionally, some workers currently earning
at least $15 per hour, or working on non-covered contracts, may also
receive pay raises due to spill-over effects (this is also discussed
qualitatively in section IV.C.3.c.).
Many papers have found increased earnings for low-wage workers
associated with a minimum wage increase. The Congressional Budget
Office's (CBO's) 2019 paper provides an overview of this
literature.\87\ Based on this research, economists have continually
found that increasing the minimum wage can, under certain conditions,
increase earnings and alleviate poverty. The CBO (2019) estimates a
national $15 per hour minimum wage, implemented by 2025, could raise
earnings for 27 million workers, 17 million of whom would have their
rate increased to the new minimum wage and ten million of whom may
receive spillover effects.
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\87\ CBO. (2019, July). The Effects on Employment and Family
Income of Increasing the Federal Minimum Wage (Publication No.
55410). https://www.cbo.gov/publication/55410.
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a. Calculating Transfer Payments, Year 1
To estimate transfers, the Department used the population of
affected workers estimated in section IV.B.4 and the 2019 CPS data.
Hourly transfers (excluding overtime pay) are estimated on an industry
basis as the difference between $15 per hour and the average current
hourly wage of workers with wages in the affected wage rate
range.88 89 See Table 9 for the average hourly wage used for
each industry. Hourly transfers are then multiplied by average weekly
hours in the industry and 52 weeks. Using wage data by industry results
in Year 1 base pay transfer payments of $1.5 billion in 2020 dollars
(Table 9). 2019 transfers were inflated to 2020 dollars using the GDP
deflator.\90\
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\88\ The Department notes that the minimum wage will be $15 in
2022, and thus could be deflated to be the comparable amount in
2019. However, because the appropriate measure to use to deflate
this wage is ambiguous; the Department used $15, which may
overestimate the number of affected workers.
\89\ For covered tipped workers, the $15 minimum wage will be
phased-in through 2024. However, the Department uses the full $15 in
Year 1. Calculating transfers based on a rate of $15 in 2022 will
overestimate the transfers for tipped workers in Year 1. However,
the Department believes there are few tipped workers covered by
Federal contracts, so the overestimate is likely small relative to
total transfers.
\90\ Bureau of Economic Analysis. (2021). Table 1.1.9. Implicit
Price Deflators for Gross Domestic Product. https://www.bea.gov/data/prices-inflation/gdp-price-deflator.
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In the NPRM, the Department did not estimate transfers associated
with overtime pay. However, in response to commenter feedback from
entities such as the AOA and SBA's Office of Advocacy, the Department
has incorporated estimates of increased overtime payments into the
final rule's transfer estimate. To calculate increased overtime
payments, the Department used hours and wages for the subset of
affected workers who work overtime. Annual overtime transfers are then
calculated, by industry, as the product of the number of affected
overtime workers, the average wage rate, the average number of weekly
overtime hours, the overtime premium of 0.5 times the hourly rate, and
52 weeks. After inflating to 2020 dollars, this results in annual
overtime pay transfers of $244.9 million and annual total transfers of
$1.7 billion.
There are several reasons Year 1 transfers may be over- or
underestimated, but the Department believes the net effect is an
overestimate. First, as noted in section IV.B.3., the Department
assumed all workers would be affected in Year 1, whereas in reality
some will not receive transfers until later years. Second, some workers
will not be impacted until partway through 2022. For example, many
contracts may not be impacted until the beginning of the fiscal year on
October 1, 2022. Therefore, annualizing
[[Page 67209]]
Year 1 transfers for a full 52 weeks should result in an overestimate.
Third, the Department assumed the number of overtime hours worked would
remain the same, whereas increased overtime payments could result in
some employers attempting to offset or minimize overtime costs by
reducing employees' overtime hours. Conversely, transfers may be
underestimated because the Department did not account for higher wages
paid on non-Federal work or to workers already earning at least $15
(section IV.C.3.c.).
Some commenters believe the transfer payments are underestimated.
For example, SBA Office of Advocacy noted an apparent disconnect
between the size of the per-firm transfer estimate and the
approximately 37 percent increase in the minimum wage. However, as
shown in Table 5, only a minority of employees will receive wage
increases and of those, some employees are earning above the Executive
Order 13658 minimum wage, thus the average increase in pay is much less
than 37 percent (Table 9). Other commenters noted that the Department
excluded spillover costs to workers already earning $15 per hour or
working on non-covered contracts. These comments are addressed in
section IV.C.3.c. Associated Builders and Contractors believe the
transfer payment is underestimated due to data limitations for U.S.
territories. The Department used the best available data on wage
distributions for the territories which only existed for Puerto Rico,
Guam, and the U.S. Virgin Islands. The remaining territories are such a
small share of Federal government contracting that any bias introduced
due to data limitations is likely to be small.
Table 9--Base Pay Transfer Payment Calculation, Year 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Affected Transfers in
NAICS employees Mean base wage Hourly wage Average weekly Transfers 2020$ (millions)
(1,000s) \a\ increase hours (millions) \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
11.................................... 0.5 $12.53 $2.47 42 $2.8 $2.9
21.................................... 0.0 13.16 1.84 47 0.1 0.1
22.................................... 0.4 12.98 2.02 44 2.0 2.0
23.................................... 30.0 12.85 2.15 39 131.0 132.6
31-33................................. 10.3 12.88 2.12 40 45.0 45.5
42.................................... 0.1 12.72 2.28 40 0.4 0.4
44-45................................. 15.2 12.49 2.51 34 66.7 67.5
48-49................................. 42.3 12.84 2.16 39 187.1 189.3
51.................................... 4.9 12.74 2.26 37 21.0 21.3
52.................................... 2.4 12.90 2.10 39 10.2 10.4
53.................................... 0.1 12.87 2.13 37 0.5 0.5
54.................................... 48.1 12.94 2.06 38 193.6 196.0
55.................................... 0.0 12.35 2.65 37 0.0 0.0
56.................................... 104.5 12.67 2.33 37 473.9 479.7
61.................................... 6.1 12.69 2.31 33 23.9 24.2
62.................................... 18.8 12.74 2.26 36 79.6 80.6
71.................................... 5.6 12.49 2.51 31 23.1 23.3
72.................................... 25.1 11.88 3.12 32 131.1 132.7
81.................................... 5.5 12.59 2.41 34 23.6 23.9
Territories \c\....................... 7.2 12.57 2.43 36 32.5 32.9
-----------------------------------------------------------------------------------------------------------------
Total............................. 327.3 N/A N/A N/A 1,448.1 1,465.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ CPS MORG 2019. Mean wage for workers earning between $10.60 ($7.40 for tipped workers) and $15 per hour.
\b\ Inflated to 2020$ using GDP Deflator.
\c\ Mean wage and hours among workers earning at least between $10.60 ($7.40 for tipped workers) and $15 per hour is unavailable for territories;
therefore, the Department used 2019 CPS MORG data from the fifty states and Washington, DC.
Table 10--Overtime Pay Transfer Payment Calculation and Total Transfers, Year 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Affected employees working overtime Annual overtime transfers Total transfers
----------------------------------------------------------------------------------------------- (base and
NAICS Average overtime In 2019 In 2020$ overtime) in
Number (1,000s) hours Average wage \a\ (millions) (millions) \b\ 2020$ (millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
11.................................... 0.2 14.0 $12.46 $0.8 $0.8 $3.7
21.................................... 0.0 20.0 13.28 0.0 0.1 0.1
22.................................... 0.1 18.8 12.81 0.7 0.7 2.8
23.................................... 5.6 11.3 13.08 21.7 21.9 154.5
31-33................................. 2.2 10.2 13.04 7.5 7.6 53.1
42.................................... 0.0 11.6 13.01 0.1 0.1 0.5
44-45................................. 1.8 11.1 12.79 6.6 6.7 74.2
48-49................................. 9.9 15.4 13.03 51.4 52.0 241.4
51.................................... 0.9 11.7 12.79 3.5 3.6 24.9
52.................................... 0.4 10.4 13.05 1.3 1.3 11.7
53.................................... 0.0 14.5 13.03 0.1 0.1 0.6
54.................................... 10.0 13.5 13.12 46.3 46.9 242.9
55.................................... 0.0 12.6 12.33 0.0 0.0 0.0
56.................................... 16.5 11.4 12.84 62.9 63.7 543.4
61.................................... 0.8 14.2 12.94 4.0 4.0 28.2
62.................................... 2.7 14.9 12.88 13.5 13.7 94.3
71.................................... 0.6 11.2 12.71 2.3 2.3 25.7
72.................................... 2.9 11.7 12.30 11.0 11.2 143.9
81.................................... 0.8 12.3 12.80 3.3 3.4 27.2
[[Page 67210]]
Territories \c\....................... 1.1 12.4 12.84 4.7 4.8 37.7
-----------------------------------------------------------------------------------------------------------------
Total............................. 56.7 N/A N/A 242.0 244.9 1,710.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ CPS MORG 2019. Mean wage for workers earning between $10.60 ($7.40 for tipped workers) and $15 per hour.
\b\ Inflated to 2020$ using GDP Deflator.
\c\ Mean wage and hours among workers earning at least $10.60 unavailable for territories; therefore, used the 2019 CPS MORG data from the fifty states
and Washington, DC.
As discussed in section IV.B.4., the number of affected workers may
exclude some seasonal recreation workers currently exempt under
Executive Order 13838 (approximately 1,200 employees, consistent with
the Department's estimate when it initially implemented Executive Order
13838). Excluding these workers may result in a slight underestimate of
transfers. However, some of these currently exempt workers, those
earning between $10.60 and $15 per hour, are captured in the analysis.
And for these workers, transfers may be somewhat overestimated because
we have applied weekly transfers to all 52 weeks. As seasonal
employees, the applicable number of work weeks may be lower.
Commenters asserted that the transfer estimates are not appropriate
for outfitters and guides on Federal lands, particularly due to the
long hours that some workers of such entities may work on overnight or
multi-day trips. For example, SBA Office of Advocacy, wrote, ``[w]hile
some employers can manage costs by limiting employees to 40 hours per
week, it would not be feasible to switch out these recreational workers
after 40 hours as they would be in the middle of remote trips in these
parks.'' The Department has partially addressed these concerns by
incorporating overtime pay into the transfer calculation. This reflects
the impact of overtime for the arts, entertainment, and recreation
industry as a whole. However, the Department does acknowledge that
those working on multi-day trips in remote areas do pose a unique
situation, and hence the Department discusses commenters' concerns
specific to this industry in more detail here.
First, the Department notes that some of these employers may be
able to use a partial overtime pay exemption under FLSA section
13(b)(29).\91\ This exemption provides, under specific circumstances
involving employees of a private ``amusement or recreational
establishment located in a national park or national forest or on land
in the National Wildlife Refuge System'' operating under a contract
with the Secretary of the Interior or the Secretary of Agriculture to
provide services or facilities on such land, that overtime pay only
needs to be paid for time worked in excess of 56 hours in a week.
Employers that meet the criteria for this exemption would see a
reduction in the amount of overtime pay required. Second, employers may
be able to exclude from compensable hours worked bona fide sleep time
and other periods when the employee is free from duty where they meet
the requirements for doing so under the FLSA. See 29 CFR part 785
(providing guidance for determining compensable hours worked). Third,
overtime is calculated based on a workweek basis and so for short
trips, employers may be able to generally avoid or minimize overtime
costs by reducing employee worktime elsewhere in the workweek.
Similarly, employers may schedule longer trips to spread across two
separate workweeks. See 29 CFR 778.105 (providing guidance for
determining the workweek).
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\91\ Section 13(b)(29) exempts ``any employee of an amusement or
recreational establishment located in a national park or national
forest or on land in the National Wildlife Refuge System if such
employee (A) is an employee of a private entity engaged in providing
services or facilities in a national park or national forest, or on
land in the National Wildlife Refuge System, under a contract with
the Secretary of the Interior or the Secretary of Agriculture, and
(B) receives compensation for employment in excess of fifty-six
hours in any workweek at a rate not less than one and one-half times
the regular rate at which he is employed.''
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b. Transfer Payment Projections
For longer-run projected transfers, the Department employed the
same method used for Year 1 but used the projected number of employees.
The Department applied an employment growth rate that is the compounded
annual growth rate based on the ten-year projected growth. The
Department assumed that wage growth will be similar to growth in the
Federal contractor minimum wage (which is indexed annually based on the
CPI-W).\92\ Therefore, the number of affected workers in Year 1 would
also apply in future years. Due to employment growth, transfers
increase slightly each year, reaching $1.81 billion in Year 10 (up from
$1.71 billion in Year 1). Average annualized transfers over these ten
years, using both the 3 percent and 7 percent discount rates, are $1.8
billion. Year 1 transfers implicitly account for current state minimum
wages through the distribution of wage rates paid.\93\ If states
increase their minimum wages in the future, and the current method is
applied to those future years, then estimated transfers might be
somewhat lower.
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\92\ Wage growth tends to outpace the CPI-W. However, the
Department assumes current wages (in the absence of this minimum
wage regulation) and the Federal contractor minimum wage in this
regulation will grow at roughly the same rate. If workers' wages
grow faster than the CPI-W, then transfers could be slightly
overestimated.
\93\ In using the CPS MORG data to estimate the percentage of
workers earning a wage rate in the affected range, the Department
did not drop workers reporting wages that were less than the state
minimum wage. However, state minimum wages are reflected in the
Department's estimate of workers earning wage rates in the affected
range because workers in those states generally report earning at
least the state minimum wage.
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This rule would also increase payroll taxes and workers'
compensation insurance premiums in addition to the increase in wage
payments because these are calculated as a percentage of the wage
payment. The Department recognizes that it will be incumbent upon
contractors to pay the applicable percentage increase in payroll and
unemployment taxes.
c. Spillover Effects
Employees earning above $15 per hour, at affected firms, may also
see wage increases. Employers often increase earnings of workers
earning above the minimum wage to prevent wage compression. Consider a
scenario where a supervisor makes $15 per hour and now the workers that
the supervisor supervises receive pay increases to $15 per hour. The
supervisor will likely receive a pay increase to maintain a
[[Page 67211]]
premium over the workers reporting to them. Ashenfelter and Juraida
(2012) find evidence of this spillover effect as a method to retain
workers in limited-function restaurants.\94\ Cengiz et al. (2019) also
found modest spillover effects up to $3 over the new minimum wage, even
at higher levels of minimum wages.\95\ Nguyen (2018) estimates that by
increasing the Federal minimum wage from $7.25 to $10.10 ``up to a
third of the work force other than minimum wage earners would also see
their earnings increase, such as supervisors who had earned $10.10 and
now would see an increase in salary.'' \96\ Dube and Lindner (2021)
find spillover effects up to about the 30th percentile of the wage
distributions.\97\
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\94\ Ashenfelter, O., & Jurajda, S. (2021). Wages, Minimum
Wages, and Price Pass-Through: The Case of McDonald's Restaurants.
IRS Working Papers, Report No. 646. https://dataspace.princeton.edu/bitstream/88435/dsp01sb397c318/4/646.pdf.
\95\ Cengiz, D., Dube, A., Lindner, A., & Zipperer, B. (2019).
The Effect of Minimum Wages on Low-Wage Jobs. The Quarterly Journal
of Economics, 134(3), 1405-1454. doi:10.1093/qje/qjz014.
\96\ Nguyen, LC. (2018). The Minimum Wage Increase: Will This
Social Innovation Backfire? Social Work, 63(4), 367-369. doi:
10.1093/sw/swy040.
\97\ Dube, A., & Lindner, A. (2021). City Limits: What Do Local-
Area Minimum Wage Do? Journal of Economic Perspectives, 35(1), 27-
50. doi:10.1257/jep.35.1.27.
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A similar type of spillover effect may also occur for workers on
non-covered contracts. For example, if two employees perform similar
work, but one is on a Federal contract and the other is not, the
employer may raise both workers' wages for fairness. Similarly, if an
employee works on both covered and non-covered contracts, the employer
may increase the employee's wage for all hours, rather than bifurcating
by contract.
Several commenters discussed potential spillover effects and some
requested the Department quantify these transfer payments. The
Department agrees that there will likely be wage increases for some
workers earning above $15 per hour or working on non-covered contracts.
However, the Department has not quantified this change for several
reasons. First, there is uncertainty as to how many workers would
receive wage increases and by how much. Second, although contractors
may voluntarily raise the wages of such workers to avoid wage
compression or maintain fairness, doing so is not a requirement of
compliance with Executive Order 14026 or the rule. Additionally,
inclusion of potential spillover effects is unlikely to drastically
change the Department's findings. EPI conducted an analysis similar to
the Department's analysis but with the inclusion of spillover costs for
workers earning up to $17.25 per hour. They estimated 390,000 workers
would receive pay raises, compared with the Department's estimate of
327,000. EPI also estimated annual transfers of $1.2 billion per year,
which is actually lower than the Department's estimate of $1.7 billion
(likely due to other methodological differences).
d. Disemployment
The Department reviewed evidence relevant to this final rule's
potential to have disemployment effects. Disemployment of low-wage
workers occurs when employers substitute capital or fewer more
productive higher-wage workers to perform work previously performed by
larger numbers of low-wage workers. Economists have studied the size of
this potential disemployment effect of increased minimum wages for
decades. The consensus among a substantial body of research is that
disemployment effects can be small or non-existent.\98\ Therefore, the
Department believes this final rule would result in negligible or no
disemployment effects.
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\98\ Dube, A. (2019). Impacts of Minimum Wages: Review of the
International Evidence. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/844350/impacts_of_minimum_wages_review_of_the_international_evidence_Arindrajit_Dube_web.pdf.
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Manning (2020) found no significant impact of increased minimum
wages on employment through comprehensive literature reviews.\99\
Wolfson and Belman's (2019) conclusion as a result of a meta-analysis
of 37 studies found a small disemployment effect, but the effect has
decreased over time.\100\ Some authors even found positive effects on
employment as a result of minimum wage increases (Ahn, Arcidiacono and
Wessels, 2011).\101\
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\99\ Manning, A. (2020). The Elusive Employment Effect of the
Minimum Wage. Journal of Economic Perspectives, 35(1), 1-26.
doi:10.1257/jep.35.1.3.
\100\ Wolfson, P., & Belman, D. (2019). 15 Years of Research on
U.S. Employment and the Minimum Wage. Labour Review of Labour
Economics and Industrial Relations 33(4), 488-506. https://doi.org/10.1111/labr.12162.
\101\ Ahn, T., Arcidiacono, P., & Wessels, W. (2011). The
Distributional Impacts of Minimum Wage Increases When Both Labor
Supply and Labor Demand Are Endogenous. Journal of Business &
Economic Statistics 29(1), 12-23. https://econpapers.repec.org/article/besjnlbes/v_3a29_3ai_3a1_3ay_3a2011_3ap_3a12-23.htm.
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Ashenfelter and Jurajda (2021) found that increased minimum wages
does not inherently facilitate automation in low-wage, low skill jobs,
though this research only studied limited-service restaurants.\102\
Lordan and Neumark (2018) \103\ found that low-skilled workers were
more likely to lose their jobs to automation because of minimum wage
increases, and workers are able and likely to shift sectors to retail
or service as a result. Meanwhile, higher-skilled workers saw increased
job opportunities with minimum wage increases. Two studies by Jardim et
al. (2018) find mixed employment effects from Seattle's Minimum Wage
Ordinance that increased the minimum wage from $9.47 to $11 in 2015 and
to $13 in 2016.\104\
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\102\ Ashenfelter, O., & Jurajda, S. (2021). Wages, Minimum
Wages, and Price Pass-Through: The Case of McDonald's Restaurants.
IRS Working Papers, Report No. 646. https://dataspace.princeton.edu/bitstream/88435/dsp01sb397c318/4/646.pdf.
\103\ Lordan, G., & Neumark, D. (2018). People Versus Machine:
The Impact of Minimum Wages on Automatable Jobs. Labour Economics
52(3), 40-53. https://doi.org/10.1016/j.labeco.2018.03.006.
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The employment effects of a $15 minimum wage can be quite different
depending on whether current wages are already close to $15 or
substantially lower. A CBO study estimates a disemployment effect of
0.9 percent, but the elasticity underlying that result is quite high (-
0.25).\105\ Allegretto, Godoey, Nadler, & Reich (2018), for example,
estimate elasticities of between -0.03 and -0.11 (not statistically
significant), based on minimum wages of $10 to $13 in six large cities
between 2014 and 2016.\106\
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\105\ Congressional Budget Office (CBO), The Budgetary Effects
of the Raise the Wage Act of 2021, (Feb. 2021), https://www.cbo.gov/system/files/2021-02/56975-Minimum-Wage.pdf.
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EPI agreed with the Department's conclusion that this rule would
result in negligible or no disemployment. They also cited Dube (2019)
as evidence that minimum wage increases generally do not result in
disemployment. Additionally, they note that ``a federal contracting
wage standard is unlike the minimum wage increases studied in that
literature: Most of the resulting labor cost increases due to a federal
contracting standard are funded by government transfers. Therefore
there is little incentive for employers to substitute away from low-
wage workers in response to the proposed rule.''
Conversely, several commenters disagreed with the Department's
conclusion that disemployment will be negligible. Representatives
Virginia Foxx and Fred Keller cite four sources to demonstrate the
potential for negative employment effects. Two of these are surveys
asking speculatively about the impacts of a $15 national minimum wage.
A 2021 survey conducted by the National Federation of Independent
Business found that 74 percent of small businesses said a phased-in $15
minimum wage would negatively impact their business and 58 percent
[[Page 67212]]
responded that they would reduce the number of employees working for
them. A 2019 survey conducted by the Employment Policies Institute of
197 U.S. economists found 84 percent believe a $15 Federal minimum wage
would have negative effects on youth employment and that 77 percent
believe it would have a negative impact on jobs available. The
Department places greater weight on literature evaluating impacts of
past minimum wage increases, or literature modeling impacts of future
increases, than survey responses that are not necessarily
representative or substantiated.
Representatives Foxx and Keller also cite a 2021 working paper by
David Neumark and Peter Shirley that reviewed 30 years of literature on
the impacts of a minimum wage increase. The commenters note that 79
percent of the studies showed that an increase in the minimum wage
leads to a decrease in the level of employment. However, only 54
percent of the cited studies found a statistically significant negative
impact at a 10 percent significance threshold; not statistically
significant impacts cannot be distinguished from zero impact.
Additionally, the median elasticity from the literature is -0.112. This
implies that for a 1 percentage point increase in wages, employment
would fall by 0.112 percent. An elasticity of this magnitude is
generally considered small. Finally, many of the studies in this review
are not applicable to this specific rule.
Lastly, Representatives Foxx and Keller cite the Congressional
Budget Office's (CBO's) 2021 report studying the impacts of a $15
Federal minimum wage. CBO estimates that a Federal minimum wage
increase to $15 would result in 1.4 million job losses. Representatives
Foxx and Keller assert that ``[s]imilar results would be expected among
federal contractors if this $15 minimum wage is enacted.'' The
Department disagrees that similar results are applicable for Federal
contractors. Because many federal contractors can pass most of the cost
increase on to the Federal Government, the disemployment effects are
likely to be much smaller. Additionally, workers on federal contract
are already often paid at a rate higher than the Federal minimum wage
of $7.25; in fact, many workers are currently subject to a $10.95 per
hour minimum wage, so the increase in wages will be much smaller. The
Department does note that employment effects among companies operating
on Federal lands under nonprocurement contracts, who might be more
limited in their ability to pass costs along to the Federal government,
may have impacts more in line with the CBO's analysis. However, CBO's
primary estimate is fairly small, a reduction of 0.9 percent employment
from increasing the minimum wage from $7.25 per hour to $15 per hour (a
107 percent increase). Additionally, CBO uses a larger elasticity than
the Department believes is appropriate based on a review of the
literature discussed earlier.
Based on the summary above, even after evaluating this additional
literature highlighted by some commenters, the Department continues to
believe disemployment effects will be small.
e. Reduction in Benefits or Bonuses
Increased wage rates could potentially be offset by reductions in
fringe benefits, bonuses, or training. The Department believes these
impacts will be small. First, service employees on SCA-covered
contracts generally are entitled to be paid pre-determined fringe
benefit amounts. Second, the increased costs to employers are very
small as a share of contracting revenues (about 0.4 percent, see
section IV.C.5.).
The National Park Hospitality Association noted that many
concessionaires on Federal lands provide additional benefits, such as
room and board. They assert that this rule may result in employees
being charged for those benefits. The Department recognizes and
understands that some concessionaire contractors on federal lands
provide benefits, such as room and board, to their employees. FLSA
section 3(m) permits an employer, under conditions specified in 29 CFR
part 531, to count toward its minimum wage obligation the reasonable
cost of furnishing board, lodging, or other facilities that are
customarily furnished to employees. Therefore, an employer/contractor
who meets the specified conditions may take a credit against the
minimum wage for the provision of board, lodging, and other
facilities.\107\
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\107\ When the criteria are met, the reasonable cost or fair
market value of board, lodging, or other facilities may be
considered compensation to the employee, regardless of whether the
employer calculates charges for such facilities as additions to or
deductions from wages. 29 CFR 531.29.
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4. Benefits
The Department did not quantify benefits of this rulemaking due to
uncertainty and data limitations. However, the Department discusses
many benefits qualitatively as indicators of the efficiency and economy
gained in government procurement. These include improved government
services, increased morale and productivity, reduced turnover, reduced
absenteeism, increased equity, and reduced poverty and income
inequality for Federal contract workers. The Department notes that the
literature cited in this section does not directly consider a change in
the minimum wage equivalent to this final rulemaking (e.g., for non-
tipped workers from $10.60 to $15). Additionally, much of the
literature is based on voluntary changes made by firms. However, the
Department believes the general findings are still applicable although
the impacts are likely smaller than those measured in these studies.
Several commenters supported the Department's analysis of potential
benefits. Conversely, the AOA expressed concern that the Department did
not quantify these benefits but yet asserts that they will offset
employer costs. The Department agrees that ideally these would be
quantified, but lacks the data to do so. Therefore, the Department has
continued to rely on general findings from the literature to draw its
conclusions. The AOA also noted that the findings presented here may
not apply to the outfitters and guides industry. The Department
believes that benefits such as increased morale and productivity and
decreased turnover findings tend to be general rather than industry-
specific, and there is no evidence to suggest that these benefits would
not apply to the outfitters and guide industry as well.
a. Improved Government Services
The Department expects the quality of government services to
improve when the minimum wage of Federal contract workers is raised. In
some cases, higher-paying contractors may be able to attract higher
quality workers who are able to provide higher quality services,
thereby improving the experience of citizens who engage with these
government contractors. For example, a study by Reich, Hall, and Jacobs
(2003) found that increased wages paid to workers at the San Francisco
airport increased productivity and shortened airport lines.\108\ In
addition, higher wages can be associated with a higher number of
bidders for Government contracts, which can be expected to generate
greater competition and an improved pool of contractors. Multiple
studies have shown that the bidding for municipal contracts remained
competitive or even improved when living wage ordinances were
[[Page 67213]]
implemented (Thompson and Chapman, 2006).\109\
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\108\ Reich, M., P. Hall, and K. Jacobs. (2003). ``Living Wages
and Economic Performance: The San Francisco Airport Model,''
Institute of Industrial Relations, University of California,
Berkeley.
\109\ Thompson, J. and J. Chapman. (2006). ``The Economic Impact
of Local Living Wages,'' Economic Policy Institute, Briefing Paper
#170, 2006.
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Various commenters agreed that raising the minimum wage for Federal
contract workers would improve government services. EPI agreed ``that
the quality of federal contract work will improve with a higher minimum
wage. Ruffini (2021) provides direct evidence that minimum wage
increases at nursing homes improved worker performance and production
efficiency. In that study, inspection violations, preventable health
conditions, and resident mortality all fell in response to minimum wage
increases.'' NELP said, ``Employment practices that create a high
morale, highly motivated, long-tenured, and productive workforce are
imperative for federal agencies to realize a good return on the public
dollars they allocate to contracts. Decent wages are one of those
practices.'' \110\ NWLC also noted that implementing these wage
standards also helps level the playing field and encourages more
companies to bid for contracts. They cite a study showing that,
``[A]fter Maryland implemented a contractor living wage standard, the
average number of bids for contracts in the state increased by 27
percent.'' \111\
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\110\ Paul Sonn and Tsedeye Gebreselassie, ``The Road to
Responsible Contracting: Lessons from States and Cities for Ensuring
the Federal Contracting Delivers Good Jobs and Quality Services''
(New York, N.Y.: National Employment Law Project, 2009).
\111\ Michael C. Rubenstein, Impact of the Maryland Living Wage,
MARYLAND DEP'T OF LEG. SERVICES 10 (2008), http://dlslibrary.state.md.us/publications/OPA/I/IMLW_2008.pdf.
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b. Increased Morale and Productivity
Increased productivity could occur through numerous channels, such
as employee retention and level of effort. A strand of economic
research, commonly referred to as ``efficiency wage'' theory, considers
how an increase in compensation may be met with greater
productivity.\112\ Efficiency wages may elicit greater effort on the
part of workers, making them more effective on the job.\113\ Increases
in the minimum wage have also been shown to increase worker morale and
consequently productivity. Kim and Jang (2019) showed that wage raises
increase productivity for up to two years after the wage increase.\114\
They found that in both full and limited-service restaurants
productivity increased due to improved worker morale after a wage
increase. Potentially, higher morale leading to increased productivity
can also lead to additional productivity gains. Mas and Moretti (2009)
found that the presence of high-productivity grocery store cashiers was
an implicit social pressure that encouraged low-productivity grocery
store cashiers to perform better, especially those nearest and within
line of sight of the high productivity employee.\115\ Taken together,
these publications provide evidence that increasing the minimum wage
increases morale and productivity directly. Furthermore, as morale
directly increases productivity for some workers, this may lead to
increased productivity in others. The Department believes that this
final rule could increase productivity for the Federal contracting
community as well.
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\112\ Akerlof, G.A. (1982). Labor Contracts as Partial Gift
Exchange. The Quarterly Journal of Economics, 97(4), 543-569.
\113\ Another model of efficiency wages, which is less
applicable here, is the adverse selection model in which higher
wages raise the quality of the pool of applicants.
\114\ Kim, H.S., & Jang, S. (2019). Minimum Wage Increase and
Firm Productivity: Evidence from the Restaurant Industry. Tourism
Management 71, 378-388. https://doi.org/10.1016/j.tourman.2018.10.029.
\115\ Mas, A., & Moretti, E. (2009). Peers at Work. American
Economic Review 99(1), 112-45. https://www.aeaweb.org/articles?id=10.1257/aer.99.1.112.
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Multiple commenters agreed that increasing the minimum wage for
Federal contract workers would increase productivity. NWLC said that
raising the contractor minimum wage could lead to a more productive
workforce, citing a review of literature showing that higher wages
motivate employees to work harder.\116\ NELP cited multiple studies
finding that as minimum wage increases, employers see a rise in
productivity. For example, they note that, ``A 2020 analysis of the
effects of higher pay at a Fortune 500 company found that a 1 percent
wage increase reduced turnover by 3.0 to 4.5 percent, increased staff
recruitment by 3.2 to 4.2 percent, and increased productivity by
$1.10.'' \117\ The Department has no reason to believe that the trends
found in the literature do not also apply to the Federal contract
worker community, and expects this rule to result in increased
productivity for these workers.\118\
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\116\ Justin Wolfers & Jan Zilinsky, Higher Wages for Low-Income
Workers Lead to Higher Productivity, PETERSON INST. FOR INT'L ECON.
(Jan. 13, 2015), https://piie.com/blogs/realtime-economic-issues-watch/higher-wages-low-income-workers-lead-higher-productivity.
\117\ Natalia Emanuel and Emma Harrington, ``The Payoffs of
Higher Pay: Elasticities of Productivity and Labor Supply with
Respect to Wages,'' Harvard University Publications, 2020.
\118\ The Department acknowledges that the literature discussed
here examines changes to productivity following employers' voluntary
increases to employees' wages. The mandated wage increase in this
rule may not generate as many positive feelings towards the employer
as a voluntary wage increase would, but it still has the potential
to generate productivity benefits related to efficiency wages.
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c. Reduced Turnover
An increase in the minimum wage has been shown to decrease both
turnover rates and the rate of worker separation (Dube, Lester and
Reich, 2011; Liu, Hyclak and Regmi, 2015; Jardim et al., 2018).\119\
This decrease in turnover and worker separation can lead to an increase
in the profits of firms, as the hiring process can be both expensive
and time consuming. A review of 27 case studies found that the median
cost of replacing an employee was 21 percent of the employee's annual
salary.\120\ One manager of a fast-food restaurant (Hirsch, Kaufman and
Zelenska, 2011) \121\ when interviewed, estimated that each turnover
cost $300-$400. Fairris et al. (2005) \122\ found the cost reduction
due to lower turnover rates ranges from $137 to $638 for each worker.
Managers of various traditionally low-wage firms explained that in
nearly all instances, increased wages led to both a decrease in
turnover and an increase in profits. Howes (2005) discovered that as
San Francisco increased the city-wide minimum wage to $10 between 1997
and 2001 ($4.85 above the then Federal minimum of $5.15) the turnover
rate fell 31 percent for all healthcare providers and 57 percent for
new healthcare providers.\123\
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\119\ Dube, A., Lester, T.W., & Reich, M. (2011). Do Frictions
Matter in the Labor Market? Accessions, Separations, and Minimum
Wage Effects. (Discussion Paper No. 5811). IZA. https://www.iza.org/publications/dp/5811/do-frictions-matter-in-the-labor-market-accessions-separations-and-minimum-wage-effects. Liu, S., Hyclak,
T.J., & Regmi, K. (2015). Impact of the Minimum Wage on Youth Labor
Markets. Labour 29(4). doi: 10.1111/labr.12071. Jardim, E., Long,
M.C., Plotnick, R., van Inwegen, E., Vigdor, J., & Wething, H.
(2018, October). Minimum Wage Increases and Individual Employment
Trajectories (Working paper No. 25182). NBER. doi:10.3386/w25182.
\120\ Boushey, H. and Glynn, S. (2012). There are Significant
Business Costs to Replacing Employees. Center for American Progress.
Available at: http://www.americanprogress.org/wp-content/uploads/2012/11/CostofTurnover.pdf.
\121\ Hirsch, B.T., Kaufman, B.E., & Zelenska, T. (2011).
Minimum Wage Channels of Adjustment. (Discussion Paper No. 6132).
IZA. https://www.iza.org/publications/dp/6132/minimum-wage-channels-of-adjustment.
\122\ Fairris, D., Runstein, D., Briones, C., & Goodheart, J.
(2005). Examining the Evidence: The Impact of the Los Angeles Living
Wage Ordinance on Workers and Businesses. LAANE. https://laane.org/downloads/Examinig_the_Evidence.pdf.
\123\ Howes, C. (2005). Living Wages and Retention of Homecare
Workers in San Francisco. Industrial Relations 44(1), 139-163.
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.0019-8676.2004.00376.x.
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Although the impacts cited here are not limited to Federal
contracting,
[[Page 67214]]
because data specific to Federal contracting and turnover are not
available, the Department believes that a reduction in turnover could
be observed among workers on Federal contracts following this final
rule. The potential reduction in turnover is a function of several
variables: The current wage, hours worked, turnover rate, industry, and
occupation. Therefore, the Department has not quantified the impacts of
potential reduction in turnover for Federal contracts.
A handful of commenters discussed impacts to turnover rates, and
some cited the literature discussed above. AFL-CIO, EPI, Maximus, NWLC,
One Fair Wage, Workplace Fairness, and others agreed that minimum wage
increases tend to lead to reductions in turnover, which may result in
sizable cost-savings to firms.
d. Reduced Absenteeism
Studies on absenteeism have demonstrated that there is a negative
effect on firm productivity as absentee rates increase.\124\ Zhang et
al., in their study of linked employer-employee data in Canada, found
that a 1 percent decline in the attendance rate reduces productivity by
0.44 percent.\125\ Allen (1983) similarly noted that a 10-percentage
point increase in the absenteeism corresponds to a decrease of 1.6
percent in productivity.\126\ Increasing wages can result in decreased
absenteeism. Fairris et al. (2005) demonstrated that as a worker's wage
increases there is a reduction in unscheduled absenteeism.\127\ They
attribute this to workers standing to lose more if forced to look for
new employment and an increase in pay paralleling an increase in access
to paid time off. Pfeifer's (2010) study of German companies provides
similar results, indicating a reduction in absenteeism if workers
experience an overall increase in pay.\128\ Although there is a study
that attributes a decrease in absenteeism to mechanisms of the firm
other than an increase in worker pay, the Department believes that the
other evidence is strong enough to suggest a relationship between
increased wages and reduced absenteeism.\129\ The Department believes
both the connection between minimum wages and absenteeism, and the
connection between absenteeism and productivity are well enough
established that this is a feasible benefit of the final rule.
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\124\ Allen, S.G. (1983). How Much Does Absenteeism Cost?
Journal of Human Resources, 18(3), 379-393. https://www.jstor.org/stable/145207?seq=1.
\125\ Zhang, W., Sun, H., Woodcock, S., & Anis, A. (2013).
Valuing Productivity Loss Due to Absenteeism: Firm-level Evidence
from a Canadian Linked Employer-Employee Data. Health Economics
Review, 7(3). https://healtheconomicsreview.biomedcentral.com/articles/10.1186/s13561-016-0138-y.
\126\ Allen, S.G. (1983). How Much Does Absenteeism Cost?
Journal of Human Resources, 18(3), 379-393. https://www.jstor.org/stable/145207?seq=1.
\127\ Fairris, D., Runstein, D., Briones, C., & Goodheart, J.
(2005). Examining the Evidence: The Impact of the Los Angeles Living
Wage Ordinance on Workers and Businesses. LAANE. https://laane.org/downloads/Examinig_the_Evidence.pdf.
\128\ Pfeifer, C. (2010). Impact of Wages and Job Levels on
Worker Absenteeism. International Journal of Manpower 31(1), 59-72.
https://doi.org/10.1108/01437721011031694.
\129\ Dionne, G., & Dostie, B. (2007). New Evidence on the
Determinants of Absenteeism Using Linked Employer-Employee Data.
Industrial and Labor Relations Review 61(1), 108-120. https://journals.sagepub.com/doi/abs/10.1177/001979390706100106.
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Many commenters agreed with the Department's general benefit
discussion, and mentioned reduced absenteeism as a likely benefit of
this rule. For example, AFL-CIO noted that, ``The Unions agree with the
central policy findings in the Order and the Proposed Rule: That
`[r]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.' These findings have a firm empirical basis in the
economic literature as the Proposed Rule's Regulatory Impact Analysis
ably surveys.''
e. Reduced Poverty and Income Inequality
Raises in the minimum wage have been shown to reduce the level of
poverty among the entire population, and specifically among children,
within high impact areas.\130\ Himmelstein and Venkataramani (2019)
estimate that nearly 5 percent of people living in poverty are
healthcare workers, and that a $15 per hour minimum wage increase would
lead to 215,476 workers and 163,472 children lifted above the poverty
line.\131\ Reducing poverty will benefit historically marginalized
communities, as they have the highest poverty rates. The CBO estimates
that a $15 per hour minimum wage would alleviate poverty for 1.3
million Americans.\132\ Although a reduction in poverty would be
smaller for Federal contract workers to the extent that they are
already earning at least $10.95 in 2021, the Department nonetheless
believes that this final rule could alleviate poverty for some Federal
contract workers. As noted in the NPRM and echoed by numerous worker
advocacy organizations (including CLASP, the National Urban League, and
the Shriver Center on Poverty Law), if a Federal contract worker works
full time (40 hours per week for 52 weeks a year) at $10.95, their
annual salary would be $22,776, which is below the 2020 Census Poverty
Threshold for a family of four.\133\ The reduction in poverty could
also be larger for Federal contract workers in the U.S. territories,
because prior to this rule, they could have been earning less than the
minimum wage rate specified by Executive Order 13658. In their comment,
Sindicato Puertorrique[ntilde]o de Trabajadores (Puerto Rican Workers'
Union, local 1996 of the International Union of Service Employees (SPT/
SEIU)) noted that this rule will help reduce income inequality in
Puerto Rico. They stated, ``It should be noted that 50% of the
population lives below the poverty line and, according to a study from
February 2020 by the Institute of Youth Development, 58% of our
children live below the poverty line and 37%, in extreme poverty.''
---------------------------------------------------------------------------
\130\ Godoey, A., & Reich, M. (2021). Are Minimum Wage Effects
Greater in Low-Wage Areas? Industrial Relations A Journal of Economy
and Society, 60(1), 36-83. https://doi.org/10.1111/irel.12267.
\131\ Himmelstein, K.E.W., & Venkataramani, A.S. (2019).
Economic Vulnerability Among U.S. Female Health Care Workers:
Potential Impact of a $15-per-Hour Minimum Wage. American Journal of
Public Health 109(2), 198-205. doi:10.2105/AJPH.2018.304801.
\132\ CBO. (2019, July). The Effects on Employment and Family
Income of Increasing the Federal Minimum Wage (Publication No.
55410). https://www.cbo.gov/publication/55410.
\133\ U.S. Census Bureau. Poverty Thresholds. https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-thresholds.html.
---------------------------------------------------------------------------
Not only does a wage increase elevate earnings for the lowest
earners working for Federal contractors, studies show that minimum wage
increases can also reduce the income differential between the lowest
earners and the highest earners, as well as between the lowest earners
and the middle wage workers (Mishel 2014).\134\ Income inequality is
reduced with respect to all low-wage earners, but reduced income
inequality across gender and race are additionally valuable
considerations. Oka and Yamada (2019) found that increases in the
minimum wage increased real wages for women, less educated, and younger
workers.\135\ Increasing the minimum
[[Page 67215]]
wage has the potential to drastically aid those living in poverty, and
as a disproportionate number of people of color are those currently
impoverished (Creamer 2020),\136\ increasing the minimum wage will aid
in reducing racial income inequality. For example, EPI's analysis found
that ``half of affected workers are Black or Hispanic, even though
these groups comprise a smaller share of the overall workforce. Because
they are otherwise paid disproportionately low wages, Black and
Hispanic workers would also receive the largest pay increases.'' NELP
also noted that many of the contracts that would be covered by this
rule can be found in ``industries characterized by low pay and
workforces largely comprised of BIPOC, women, and LGBTQ+ workers.''
They cite data showing, ``Federal agencies contract billions of dollars
each year to businesses in industries like building services (13%
Black, 41% Latinx, 56% female), administrative services (12% Black, 45%
female), warehousing (22% Black, 20% Latinx), food service (14% Black,
27% Latinx, 52% female), security services (26% Black, 18% Latinx, 23%
female), waste management and remediation (15% Black, 22% Latinx), and
construction (30% Latinx).'' \137\
---------------------------------------------------------------------------
\134\ Mishel, L. (2014). The Tight Link Between the Minimum Wage
and Wage Inequality. Economic Policy Institute. https://www.epi.org/blog/tight-link-minimum-wage-wage-inequality/.
\135\ Oka, T., & Yamada, K. (2019, July). Heterogeneous Impact
of the Minimum Wage: Implications for Changes in Between- and
Within-group Inequality. arXiv. https://arxiv.org/pdf/1903.03925.pdf.
\136\ Creamer, J. (2020). Poverty Rates for Blacks and Hispanics
Reached Historic Lows in 2019. U.S. Census Bureau. https://www.census.gov/library/stories/2020/09/poverty-rates-for-blacks-and-hispanics-reached-historic-lows-in-2019.html.
\137\ George Faraday, ``Promises Broken #1'' (Washington, DC:
Good Jobs Nation, 2018); Demographics by industry from the U.S.
Bureau of Labor Statistics, ``Labor Force Statistics from the
Current Population Survey,'' 2019 data.
---------------------------------------------------------------------------
Reducing poverty for Federal contract workers could lead to
increased productivity and efficiency, because it could increase worker
morale and decrease absenteeism, as discussed above.
5. Impacts by Industry
This section analyzes the costs and transfers by industry relative
to government contracting expenditures, revenues, and payroll. This
analysis excludes territories because revenue and payroll data are not
available for territories. The Department used Year 1 impacts rather
than average annualized impacts to demonstrate the size of the impacts
in the year where costs are largest. The Department considers total
employer costs (direct costs and transfers) here because those are the
relevant costs to businesses. The Department also limited the analysis
to firms actively holding government contracts (e.g., firms in
USASpending in 2019 rather than all firms in SAM) to better approximate
costs for firms with potentially affected employees. Including all
firms would underestimate costs among truly affected firms.
Across all industries, total employer costs are about 0.4 percent
of government contracting revenues (Table 11). Contracting revenue
represents the revenue obtained by these firms specifically for work
performed on Federal contracts. This measure may be most appropriate
when considering cost pass-throughs to the Federal Government in the
form of higher contract prices. Since many covered contractors garner
revenue from non-Federal contracts, the transfer payment estimate is
almost certainly a lower percentage of their total revenues. See
section IV.B.3. for details on how Federal contracting expenditures are
calculated. This analysis only includes employer costs associated with
firms holding active SCA or DBA contracts (121,200). It excludes firms
holding nonprocurement contracts because the Department believes these
firms are not included in the USASpending data on Federal contracting
revenues (i.e., the denominator). Using this methodology, the industry
where costs and transfers are estimated to be the largest share of
contracting revenue is the accommodation and food services industry,
where employer costs are 3.8 percent of Federal contracting revenues.
The Department also compared employer costs to estimated revenues
and payrolls using the 2017 Statistics of U.S. Businesses (SUSB). Total
revenues and payroll from SUSB were adjusted to reflect the share of
businesses impacted by this rulemaking and estimated to have affected
employees (166,700).\138\ Total employer costs were then compared to
these revenues and payrolls. This analysis includes both Federal
contractors and firms holding nonprocurement contracts. Using this
methodology, employer costs are less than 0.2 percent of revenues and
less than 0.7 percent of payroll on average. The industry where costs
and transfers are estimated to be the largest share of revenue is
accommodation and food services (1.3 percent) and of payroll is retail
trade (4.8 percent).
---------------------------------------------------------------------------
\138\ This includes 121,200 contractors from USASpending and
45,500 contractors operating on Federal properties or lands.
---------------------------------------------------------------------------
These findings are averages across 2-digit NAICS codes. When
disaggregated to more detailed industries, the impacts would likely
vary more. However, there is a tradeoff between providing an analysis
at a more detailed level and maintaining adequate sample sizes to
assess impacts with reasonable validity. Some commenters requested the
Department conduct impact analyses specific to sub-industries, such as
the outfitter and guide industry and the convenience services industry.
However, sufficient data are generally not available to adequately
assess impacts at this level of detail.
Table 11--Costs and Transfer Payments in Year 1, Firms With Affected Workers, as Share of Covered Contracting
Revenue
[2020$]
----------------------------------------------------------------------------------------------------------------
Employer costs and
NAICS Employer costs and Covered contracting transfers as share of
transfers ($1,000s) revenue (millions) \a\ contracting revenue (%)
----------------------------------------------------------------------------------------------------------------
11................................... $3,596 $413 0.87
21................................... 88 104 0.08
22................................... 1,134 2,428 0.05
23................................... 153,351 36,124 0.42
31-33................................ 53,478 28,950 0.18
42................................... 485 163 0.30
44-45................................ 5,288 331 1.60
48-49................................ 88,680 14,389 0.62
51................................... 10,163 10,198 0.10
[[Page 67216]]
52................................... 11,742 12,633 0.09
53................................... 657 942 0.07
54................................... 241,156 152,717 0.16
55................................... 1 0 0.45
56................................... 522,303 36,754 1.42
61................................... 27,813 4,301 0.65
62................................... 94,295 11,233 0.84
71................................... 952 82 1.16
72................................... 38,714 1,030 3.76
81................................... 26,656 2,718 0.98
--------------------------------------------------------------------------
1,280,553 315,512 0.41
----------------------------------------------------------------------------------------------------------------
\a\ USASpending.gov 2019. Contracting expenditures for covered procurement contracts. Inflated to 2020$ using
the GDP deflator.
Table 12--Costs and Transfer Payments in Year 1, Firms With Affected Workers, as Share of Firm Revenue and Payroll
[2020$]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Employer costs and Employer costs and
NAICS Employer costs and Revenue (millions) \a\ transfers as share of Payroll (millions) \a\ transfers as share of
transfers ($1,000s) revenue (%) payroll (%)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
11................................................................. $3,726 $4,167 0.089 $809 0.461
21................................................................. 129 4,494 0.003 564 0.023
22................................................................. 2,871 411,211 0.001 48,815 0.006
23................................................................. 155,327 52,328 0.297 10,458 1.485
31-33.............................................................. 53,603 312,190 0.017 38,312 0.140
42................................................................. 485 34,114 0.001 1,741 0.028
44-45.............................................................. 74,430 17,090 0.436 1,556 4.782
48-49.............................................................. 242,098 49,210 0.492 12,921 1.874
51................................................................. 25,165 206,290 0.012 46,393 0.054
52................................................................. 11,742 9,096 0.129 1,359 0.864
53................................................................. 657 6,212 0.011 1,073 0.061
54................................................................. 244,420 92,801 0.263 36,934 0.662
55................................................................. 1 23 0.006 58 0.002
56................................................................. 545,003 47,639 1.144 22,553 2.417
61................................................................. 28,356 17,564 0.161 5,931 0.478
62................................................................. 94,704 28,422 0.333 11,158 0.849
71................................................................. 26,415 54,885 0.048 17,194 0.154
72................................................................. 144,342 11,440 1.262 3,294 4.382
81................................................................. 27,531 9,186 0.300 2,273 1.211
----------------------------------------------------------------------------------------------------------------------------
1,718,696 1,368,361 0.126 263,395 0.653
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ SUSB 2017. Inflated to 2020$ using the GDP deflator.
6. Regulatory Alternatives
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives. Executive
Order 13563 directs agencies to propose or adopt a regulation only upon
a reasoned determination that its benefits justify its costs; tailor
the regulation to impose the least burden on society, consistent with
achieving the regulatory objectives; and in choosing among alternative
regulatory approaches, select those approaches that maximize net
benefits. Executive Order 13563 further recognizes that some benefits
are difficult to quantify and provides that, where appropriate and
permitted by law, agencies may consider and discuss qualitatively
values that are difficult or impossible to quantify.
The Department notes that due to the prescriptive nature of
Executive Order 14026, the Department does not have the discretion to
implement alternatives that would violate the text of the Executive
order, such as the adoption of a higher or lower minimum wage rate, or
continued exemption of recreational businesses. However, the Department
considered several alternatives to discretionary proposals set forth in
this final rule.
First, as explained above, in this final rule, the Department
defines the term United States, when used in a geographic sense, to
mean the fifty states, the District of Columbia, Puerto Rico, the
Virgin Islands, Outer Continental Shelf lands as defined in the Outer
Continental Shelf Lands Act, American Samoa, Guam, the Commonwealth of
the Northern Mariana Islands, Wake Island, and Johnston Island. This
definition confers broader geographic scope of Executive Order 14026
than did the Department's prior
[[Page 67217]]
rulemaking implementing Executive Order 13658, which the Department
interpreted to only apply to contracts performed in the fifty states
and the District of Columbia.
The Department considered defining the term United States to
exclude contracts performed in the territories listed above, consistent
with the discretionary decision made in the Department's prior
rulemaking implementing Executive Order 13658. Such an alternative
would result in fewer contracts covered by Executive Order 14026 and
fewer workers entitled to an initial $15 hourly minimum wage for work
performed on or in connection with such contracts. This would result in
a smaller income transfer to workers. The Department rejected this
alternative because, as discussed more fully above in the preamble and
as reflected in the RIA, the Department has further examined the issue
since its prior rulemaking in 2014 and consequently determined that the
Federal Government's procurement interests in economy and efficiency
would be promoted by extending the Executive Order 14026 minimum wage
to workers performing on or in connection with covered contracts in
Puerto Rico, the Virgin Islands, Outer Continental Shelf lands as
defined in the Outer Continental Shelf Lands Act, American Samoa, Guam,
the Commonwealth of the Northern Mariana Islands, Wake Island, and
Johnston Island.
The Department also rejected this alternative of excluding the
territories from coverage of Executive Order 14026 because each of the
territories listed above is covered by both the SCA, see 29 CFR
4.112(a), and the FLSA, see, e.g., 29 U.S.C. 213(f); 29 CFR 776.7; Fair
Minimum Wage Act of 2007, Public Law 110-28, 121 Stat. 112 (2007).
Because contractors operating in those territories will generally have
familiarity with many of the requirements set forth in part 23 based on
their coverage under the SCA and/or the FLSA, the Department does not
believe that the extension of Executive Order 14026 and part 23 to such
contractors will impose a significant burden. Finally, as noted earlier
in Section II(B)'s discussion of the Executive Order's geographic
coverage, several elected officials and other commenters wrote in
support of applying Executive Order 14026 to contract work performed in
U.S. territories.
Second, pursuant to the Department's authority to adopt, ``as
appropriate, exclusions from the requirements of [the order],'' 86 FR
22836, the Department includes in this final rule, as it did in the
regulations implementing Executive Order 13658, an exclusion from
coverage for FLSA-covered workers who spend less than 20 percent of
their work hours in a workweek performing ``in connection with''
covered contracts. Under the final rule, this exclusion does not apply
to any worker performing ``on'' a covered contract whose wages are
governed by the FLSA, SCA, or DBA. This exclusion, which appears in
Sec. 23.40(f), is explained in greater detail in the discussion of the
Exclusions section of this final rule. The Department considered
alternatives related to this exclusion.
As the first alternative related to this exclusion, the Department
considered eliminating the exclusion for FLSA-covered workers
performing in connection with covered contracts for less than 20
percent of their workhours in a given workweek. The Department
considered the elimination of this exclusion as an alternative, in part
because Executive Order 14026 expressly states that its minimum wage
protections apply to ``workers working on or in connection with''
covered contracts. 86 FR 22835.
As the second alternative pertaining to this exclusion, the
Department considered raising the 20 percent threshold for this
exclusion for FLSA-covered workers performing in connection with
covered contracts. The Department assessed raising the threshold but
does not have the discretion to entirely exclude these workers because
the Executive order itself directs that they be generally covered.
The Department lacks data on how much time FLSA-covered workers
spend in connection with covered contracts and is therefore unable to
identify how many FLSA-covered workers perform services in connection
with covered contracts for less than 20 percent of their work hours in
a workweek. As a result, the Department provides a qualitative
discussion of the alternatives.
If the Department were to omit this exclusion, more workers would
be covered by the rule, and contractors would be required to pay more
workers the applicable minimum wage rate (initially $15 per hour) for
time spent performing in connection with covered contracts. This would
result in greater income transfers to workers. Conversely, if the
Department were to raise the 20 percent threshold, fewer workers would
be covered by the rule, resulting in a smaller income transfer to
workers.
The Department rejected these regulatory alternatives because
having an exclusion for FLSA-covered workers performing in connection
with covered contracts based on a 20 percent of hours worked in a week
standard is a reasonable interpretation. The exclusion ensures the
broad coverage of workers performing on or in connection with covered
contracts directed by Executive Order 14026 while also acknowledging
the administrative challenges imposed by such broad coverage as
expressed by contractors during the Executive Order 13658 rulemaking.
The Department believes that the exclusion will assist both contractors
and workers in adjusting to the requirements of Executive Order 14026
and reduce costs while ensuring broad application of the Executive
order minimum wage.
V. Final Regulatory Flexibility Analysis (FRFA)
The Regulatory Flexibility Act of 1980 (RFA), as amended by the
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA),
hereafter jointly referred to as the RFA, requires agencies to prepare
regulatory flexibility analyses when they propose regulations that will
have a significant economic impact on a substantial number of small
entities. See 5 U.S.C. 603. Based on the analysis below, this rule is
not expected to have a significant economic impact on a substantial
number of small entities.
A. Need for Rulemaking
On April 27, 2021, President Joseph R. Biden, Jr. issued Executive
Order 14026, ``Increasing the Minimum Wage for Federal Contractors.''
The Executive order states that the Federal Government's procurement
interests in economy and efficiency are promoted when the Federal
Government contracts with sources that adequately compensate their
workers. The Executive order therefore seeks to raise the hourly
minimum wage paid by those contractors to workers performing work on or
in connection with covered Federal contracts to $15.00 per hour,
beginning January 30, 2022; and beginning January 1, 2023, and annually
thereafter, an amount determined by the Secretary of Labor (Secretary).
The Executive order directs the Secretary to issue regulations by
November 24, 2021, consistent with applicable law, to implement the
order's requirements. This final rule therefore establishes standards
and procedures for implementing and enforcing the minimum wage
protections of the Executive order.
B. Number of Affected Small Entities and Employees
The total number of potentially affected firms (507,200) is
explained in
[[Page 67218]]
section IV.B.2. This section describes how the Department determined
that 385,100 of those firms are smallentities. The RFA defines a
``small entity'' as a (1) small not-for-profit organization, (2) small
governmental jurisdiction, or (3) small business. SBA establishes
separate standards for each 6-digit NAICS industry code, and standard
cutoffs are typically based on either the average annual number of
employees or average annual receipts. For example, businesses may be
defined as small if employing fewer than 100 to 1,500 employees,
depending on the NAICS. In other industries, firms are small if annual
receipts are less than $1 million to $41.5 million.\139\
---------------------------------------------------------------------------
\139\ The most recent SBA size definitions were set in August
2019. See https://www.sba.gov/document/support--table-size-standards. However, some exceptions do exist, for example,
depository institutions (including credit unions, commercial banks,
and non-commercial banks) are classified by total assets.
---------------------------------------------------------------------------
The Department used three methods to identify small firms based on
the data source:
1. For firms identified in SAM, the Department identified small
contractors based on the six-digit NAICS code listed as their primary
NAICS and whether SAM flagged the firm as small in that NAICS.\140\ Of
the 428,300 firms in SAM, 327,900 are small firms. The data in SAM is
self-reported, so firms may not always indicate if they are small, or
may not update their data, which may result in firms being listed as
small when they no longer are. As a result, it is uncertain whether the
number of small firms in SAM may be an under- or over-estimate.
---------------------------------------------------------------------------
\140\ The ``NAICS CODE STRING'' variable (column 33) and the
``PRIMARY NAICS'' variable (column 31) were the specific variables
used. If the primary NAICS value contained a ``Y'' at the end when
listed in the ``NAICS CODE STRING'' column, the firm was identified
as small.
---------------------------------------------------------------------------
2. Because some subcontractors may not be in SAM, the Department
supplemented the SAM data with USAspending data (see section IV.B.2).
To identify small subcontractors in the USASpending data, the
Department searched for keywords ``Small'' or ``SBA'' in the business
type field. Of the 33,500 subcontractors identified, 12,200 are small
firms.
3. For entities operating under covered contracts on Federal
properties or lands (see section IV.B.2), the Department applied the
national ratio of businesses with less than 500 employees to total
businesses, by industry, from the 2017 Statistics of U.S. Businesses
(SUSB) data. The Department used businesses with fewer than 500
employees as a rough approximation for small businesses.\141\ Of the
45,500 firms identified, 45,000 are small firms.
---------------------------------------------------------------------------
\141\ As noted above, the SBA size standard definitions vary by
industry, but the Department believes businesses with less than 500
employees is a transparent method that provides a reasonable
approximation of the number of firms SBA defines as small
businesses. Additionally, to apply the separate definitions by NAICS
codes, the most recent data available with the information needed is
the 2012 SUSB.
---------------------------------------------------------------------------
4. For territories, the Department used the ``Contracting Officer's
Determination of Business Size'' in USASpending data. Of the 1,245
firms identified, 841 are small firms.
This estimated number of potentially affected small contractors
includes some firms with no current Federal contracts covered by the
Executive order. These firms may accrue regulatory familiarization
costs despite not having employees affected, although their cost will
be minimal. However, these firms should be removed when we consider
costs per establishment with affected employees. Information was not
available to eliminate these firms from the SAM database. Thus, the
Department used data from USASpending to estimate a more appropriate
number of small contractors with affected employees. Using the 2019
USASpending database, the Department found 64,500 private small prime
contracting firms.142 143 Adding in the small subcontractors
and the small entities operating under covered contracts on Federal
properties or lands, yields an estimated 121,700 small contractors with
active contracts in Year 1.
---------------------------------------------------------------------------
\142\ In the USASpending data, small contractors were identified
based on the ``contractingofficerbusinesssizedetermination''
variable. The description of this variable in the USASpending.gov
Data Dictionary is: ``The Contracting Officer's determination of
whether the selected contractor meets the small business size
standard for award to a small business for the NAICS code that is
applicable to the contract.'' The Data Dictionary is available at:
https://www.usaspending.gov/data-dictionary.
\143\ This number is smaller than the number of small firms
listed in SAM because it only includes firms with active covered
contracts.
---------------------------------------------------------------------------
The number of employees in small contracting firms is unknown. The
Department estimated the share of total Federal contracting
expenditures in the USASpending data associated with contractors
labeled as small, by industry. The Department then applied these shares
to all affected employees to estimate the share of affected employees
in small entities by industry, then summed over all industries, to find
that 97,900 employees of small contractors would be affected by the
rule in Year 1 (Table 13).
In industries where the number of affected employees is smaller
than the number of affected firms, the Department reduced the number of
affected firms to the number of affected employees. This results in an
estimated 67,700 small contractors with affected employees in Year 1.
The calculations of direct costs and transfers per small contractor
with affected employees, shown in Table 15 and Table 16, include only
these 67,700 small firms.
Table 13--Small Federal Contracting Firms and Their Employees
--------------------------------------------------------------------------------------------------------------------------------------------------------
Contractors \a\ % of Expenditure % of Affected Affected employees
-------------------------------------- in small employees in -------------------------------------
NAICS contracting firms small contracting
Total Small \b\ \c\ firms Total Small
--------------------------------------------------------------------------------------------------------------------------------------------------------
11.................................... 5,891 4,215 79.8 79.8 530 423
21.................................... 1,209 1,067 27.7 27.7 16 4
22.................................... 5,136 4,148 10.9 10.9 437 48
23.................................... 59,968 47,996 44.0 44.0 30,028 13,200
31-33................................. 55,688 42,481 11.2 11.2 10,291 1,157
42.................................... 20,324 17,252 66.7 66.7 78 52
44-45................................. 10,150 9,116 37.1 37.1 15,225 5,652
48-49................................. 22,145 19,387 21.2 21.2 42,284 8,976
51.................................... 19,571 17,191 22.8 22.8 4,884 1,112
52.................................... 3,713 2,382 3.0 3.0 2,428 73
53.................................... 20,247 8,012 58.0 58.0 112 65
54.................................... 119,289 93,513 31.4 31.4 48,126 15,093
[[Page 67219]]
55.................................... 551 259 0.0 0.0 0 0
56.................................... 39,261 32,615 27.7 27.7 104,544 28,979
61.................................... 17,188 11,717 33.9 33.9 6,119 2,074
62.................................... 36,587 16,916 21.3 21.3 18,808 4,013
71.................................... 29,195 27,654 65.5 65.5 5,648 3,697
72.................................... 15,587 13,186 37.7 37.7 25,060 9,444
81.................................... 24,277 15,143 25.5 25.5 5,505 1,402
Sum............................... 505,977 384,252 28.3 28.3 320,124 95,465
-----------------------------------------------------------------------------------------------------------------
Territories........................... 1,245 841 33.6 33.6 7,186 2,412
Total............................. 507,222 385,093 28.4 28.4 327,310 97,877
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Source: SAM May 2021. Companies with a missing primary NAICS code or a code of 92 are distributed proportionately amongst all industries. All firms
are assumed to be potentially affected. Includes 33,485 additional subcontractors identified in USASpending.gov from 2015-2019 and includes 45,454
firms with operations on Federal properties or lands. For territories, data from USASpending.gov 2019. These firms in territories are then subtracted
from the SAM firm counts by NAICS to avoid double-counting.
\b\ Includes 12,151 additional subcontractors identified in USASpending.gov as small and 45,016 firms with operations on Federal land or property as
small.
\c\ Source: USASpending.gov. Percentage of contracting expenditures for covered contracts in small businesses in 2019.
C. Small Entity Costs of the Final Rule
Small entities will have regulatory familiarization,
implementation, and payroll costs (i.e., transfers). These are
discussed in detail in section IV.C.2 and IV.C.3. and summarized below.
Total direct costs (i.e., excluding transfers) to small contractors in
Year 1 were estimated to be $11.3 million (Table 14). This is 66
percent of total direct costs, among all firms, in Year 1 (compared
with 30 percent of affected employees in small contracting firms).
Calculation of these costs is discussed in the following paragraphs.
Regulatory familiarization costs apply to all small firms that
potentially hold covered contracts (385,100). Regulatory
familiarization costs were assumed to take one half hour of time per
firm. This is an average across potentially affected contractors of all
sizes and those with and without affected employees. An hour of a
Compensation, Benefits, and Job Analysis Specialist's time is valued at
$52.65 per hour.144 145
---------------------------------------------------------------------------
\144\ This includes the mean base wage of $32.30 from the OEWS
plus benefits paid at a rate of 46 percent of the base wage, as
estimated from the BLS's ECEC data, plus 17 percent for overhead.
OEWS data available at: https://www.bls.gov/oes/current/oes131141.htm.
\145\ Time and wage estimates for small establishments are the
same as those used in the analysis for all contractors. The
Department has not tailored these to small businesses due to lack of
data.
---------------------------------------------------------------------------
Contractors with affected employees will experience implementation
costs. For each affected employee, a worker will have to implement the
changes and a manager will need to make minimal staffing changes and
considerations. There will be costs to adjust the pay rate in the
records and tell the affected employees, among other minimal staffing
changes and considerations made by managers The Department splits a
total implementation time of 10 minutes per affected employee between a
Compensation, Benefits, and Job Analysis Specialist and a manager.
Because of this component, costs vary with contractor size.
Compensation, Benefits, and Job Analysis Specialists earn a loaded
hourly wage of $52.65 per hour.\146\ Workers in management occupations
earn a loaded hourly wage of $86.02 per hour.\147\ The estimated number
of newly affected employees in Year 1 is 97,900 (Table 13). Therefore,
total Year 1 implementation costs were estimated to equal $1.1 million
([$52.65 x 5 minutes x 97,900 employees] + [$86.02 x 5 minutes x 97,900
employees]).
---------------------------------------------------------------------------
\146\ OEWS May 2020 reports a median base wage of $32.30 for
compensation, benefits, and job analysis specialist. The Department
supplemented this base wage with benefits paid at a rate of 46
percent of the base wage, as estimated from the BLS's ECEC data, and
overhead costs of 17 percent. OEWS data available at: http://www.bls.gov/oes/current/oes131141.htm.
\147\ OEWS May 2020 reports a median base wage of $52.77 for
management occupations. The Department supplemented this base wage
with benefits paid at a rate of 46 percent of the base wage, as
estimated from the BLS's ECEC data, and overhead costs of 17
percent. OEWS data available at: https://www.bls.gov/oes/current/oes110000.htm.
---------------------------------------------------------------------------
To calculate payroll costs, the Department began with total
transfers estimated in section IV.C.3. and multiplied this by the ratio
of affected employees in small contracting firms to all affected
employees. This yields the share of transfers occurring in small
Federal contracting firms, $508.1 million in Year 1 (Table 14), which
is 30 percent of total transfers for all contracting firms in Year 1.
Table 14--Costs and Transfers to Small Contractors in Year 1
[2020$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Direct employer costs ($1,000s)
--------------------------------------------------------------------------- Transfers in 2020$
NAICS Regulatory ($1,000s)
familiarization Implementation Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
11.................................................. $111 $5 $116 $2,918
21.................................................. 28 0 28 34
22.................................................. 109 1 110 301
23.................................................. 1,263 153 1,416 67,929
31-33............................................... 1,118 13 1,132 5,975
[[Page 67220]]
42.................................................. 454 1 455 303
44-45............................................... 240 65 305 27,545
48-49............................................... 510 104 614 51,235
51.................................................. 453 13 465 5,660
52.................................................. 63 1 64 349
53.................................................. 211 1 212 339
54.................................................. 2,462 174 2,636 76,167
55.................................................. 7 0 7 0
56.................................................. 859 335 1,193 150,625
61.................................................. 308 24 332 9,556
62.................................................. 445 46 492 20,121
71.................................................. 728 43 771 16,814
72.................................................. 347 109 456 54,225
81.................................................. 399 16 415 6,938
---------------------------------------------------------------------------------------------------
Sum............................................. 10,115 1,103 11,218 497,033
Territories......................................... 22 28 50 11,041
---------------------------------------------------------------------------------------------------
Total........................................... 10,137 1,131 11,268 508,074
--------------------------------------------------------------------------------------------------------------------------------------------------------
To assess the impact on small contracting firms with affected
employees, the Department assumed that affected employees would be
distributed uniformly over small contracting firms within each
industry. In an industry with fewer affected employees than firms, the
Department assumed one affected employee would be in each firm with
affected employees. For example, in NAICS 11, there are 423 affected
workers and 2,199 small contractors with potentially affected workers.
The Department assumed that 423 of the 2,199 firms would each have one
affected worker. In industries in which the number of affected workers
exceeds the number of small contractors, the Department divided the
number of affected workers by the number of small contractors. For
example, in NAICS 44-45, the Department assumed each of the 2,032 small
firms had 2.8 affected workers per firm (5,652 affected workers divided
by 2,032 small firms). Table 15 contains the average costs and
transfers per small contractor with affected employees by industry.
Average Year 1 costs and transfers per small contractor with affected
employees range from $4,578 to $14,221 by industry.
Table 15--Average Costs and Transfers per Small Contractor With Affected Employees in Year 1
[2020$]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total costs and
Small contractors Small contractors Direct employer Transfers transfers
NAICS \a\ with potentially with affected costs per small (increased wages) (increased wages)
affected employees contractor per small per small
employees \b\ contractor contractor
--------------------------------------------------------------------------------------------------------------------------------------------------------
11....................................................... 2,199 423 $30.71 $6,898 $6,928
21....................................................... 155 4 30.71 7,629 7,660
22....................................................... 2,757 48 30.71 6,307 6,338
23....................................................... 11,923 11,923 31.18 5,697 5,728
31-33.................................................... 5,910 1,157 30.71 5,163 5,194
42....................................................... 443 52 30.71 5,801 5,832
44-45.................................................... 2,032 2,032 38.53 13,557 13,595
48-49.................................................... 7,908 7,908 31.30 6,479 6,510
51....................................................... 8,073 1,112 30.71 5,088 5,119
52....................................................... 181 73 30.71 4,819 4,849
53....................................................... 1,995 65 30.71 5,222 5,253
54....................................................... 24,733 15,093 30.71 5,046 5,077
55....................................................... 0 0 N/A N/A N/A
56....................................................... 10,621 10,621 38.30 14,182 14,221
61....................................................... 2,275 2,074 30.71 4,607 4,637
62....................................................... 4,035 4,013 30.71 5,014 5,045
71....................................................... 24,677 3,697 30.71 4,548 4,578
72....................................................... 5,205 5,205 34.28 10,417 10,452
81....................................................... 5,710 1,402 30.71 4,950 4,980
----------------------------------------------------------------------------------------------
Sum.................................................. 120,834 66,903 N/A N/A N/A
Territories.............................................. 841 841 38.91 13,129 13,168
----------------------------------------------------------------------------------------------
[[Page 67221]]
Total................................................ 121,675 67,744 N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ 11 = Agriculture, forestry, fishing and hunting; 21 = Mining; 22 = Utilities; 23 = Construction; 31-33 = Manufacturing; 42 = Wholesale trade; 44-45
= Retail trade; 48-49 = Transportation and warehousing; 51 = Information; 52 = Finance and insurance; 53 = Real estate and rental and leasing; 54 =
Professional, scientific, and technical services; 55 = Management of companies and enterprises; 56 = Administrative and waste services; 61 =
Educational services; 62 = Health care and social assistance; 71 = Arts, entertainment, and recreation; 72 = Accommodation and food services; 81=Other
services.
\b\ Source: USASpending.gov 2019. Firms with contracting revenue, excluding contracts only for goods. Also includes 12,151 additional subcontractors
identified in USASpending.gov from 2015-2019 and 45,016 firms with operations on Federal properties or lands.
To estimate whether these costs and transfers will have a
substantial impact on these small entities with affected employees,
they are compared to total revenues for these firms. Based on SUSB
data, small Federal contractors with affected employees had total
annual revenues of $115.1 billion from all sources (Table 16).\148\
Transfers from small contractors and costs to small contractors in Year
1 ($499.2 million) are about 0.4 percent of revenues on average and
exceed 1.0 percent in only the administrative and waste services
industry (1.1 percent). Additionally, much of this cost will either be
reimbursed by the Federal Government or offset by productivity gains
and cost-savings. Therefore, the Department believes this final rule
will not have a significant impact on small businesses.
---------------------------------------------------------------------------
\148\ Total revenue for small firms from 2017 SUSB; inflated to
2020$ using the GDP deflator. Revenues for small contractors
calculated by multiplying total revenue by the ratio of contracting
firms that are small.
Table 16--Costs and Transfers as Share of Revenue in Small Contracting Firms in Year 1 \a\
----------------------------------------------------------------------------------------------------------------
Total costs and Small contracting firm Total as share of
NAICS transfers ($1,000s) revenues (billions) \b\ revenues (%)
----------------------------------------------------------------------------------------------------------------
11................................... $2,931 $0.6 0.489
21................................... 34 0.0 0.121
22................................... 302 0.9 0.033
23................................... 68,300 27.1 0.252
31-33................................ 6,010 6.6 0.091
42................................... 305 0.5 0.057
44-45................................ 27,624 6.4 0.430
48-49................................ 51,483 15.2 0.339
51................................... 5,694 3.7 0.154
52................................... 352 0.2 0.168
53................................... 341 0.1 0.385
54................................... 76,630 20.0 0.383
55................................... N/A 0.0 N/A
56................................... 151,031 13.1 1.149
61................................... 9,620 3.3 0.293
62................................... 20,245 5.9 0.344
71................................... 16,927 4.7 0.358
72................................... 54,403 5.5 0.988
81................................... 6,981 1.3 0.555
--------------------------------------------------------------------------
499,213 115.1 0.434
----------------------------------------------------------------------------------------------------------------
\a\ Excludes U.S. territories because SUSB does not include territories.
\b\ Source: Total revenue for firms with less than 500 employees from 2017 SUSB, inflated to 2020$ using the GDP
Deflator. Revenues for small contractors calculated by multiplying total revenue by the ratio of small
contracting firms to total number of small firms (approximated by those with less than 500 employees in the
2017 SUSB).
To estimate average annualized costs to small contracting firms the
Department projected small business costs and transfers forward 9
years. To do this, the Department calculated the ratio of affected
employees in small contracting firms to all affected employees in Year
1, then multiplied this ratio by the 10-year projections of national
costs and transfers (see section IV.C.). This yields the share of
projected costs and transfers attributable to small businesses (Table
17).
[[Page 67222]]
Table 17--Projected Costs to Small Businesses
(Millions of 2020$)
----------------------------------------------------------------------------------------------------------------
Year/discount rate Direct employer costs Transfers Total
----------------------------------------------------------------------------------------------------------------
Years 1 Through 10
----------------------------------------------------------------------------------------------------------------
Year 1............................... $11.3 $508.1 $519.3
Year 2............................... 0.0 511.1 511.1
Year 3............................... 0.0 514.2 514.2
Year 4............................... 0.0 517.3 517.3
Year 5............................... 0.0 520.5 520.5
Year 6............................... 0.0 523.6 523.6
Year 7............................... 0.0 526.8 526.8
Year 8............................... 0.0 530.0 530.0
Year 9............................... 0.0 533.2 533.2
Year 10.............................. 0.0 536.5 536.5
----------------------------------------------------------------------------------------------------------------
Average Annualized Amounts
----------------------------------------------------------------------------------------------------------------
3% discount rate..................... 1.3 521.4 522.7
7% discount rate..................... 1.5 520.4 521.9
----------------------------------------------------------------------------------------------------------------
D. Response to Public Comments on Issues Related to Small Businesses
Several commenters claimed that the Department underestimated the
impacts to small businesses. Some stated that small businesses are
already at a disadvantage for obtaining federal contracts and that this
regulation further exacerbates this disadvantage. For example,
Representatives Foxx and Keller claimed that ``[s]mall businesses
already face significant challenges when it comes to participating in
the federal procurement process'' and that this rule will increase
these challenges. However, these commenters did not provide data or
information on how these costs would impact small businesses in
particular. Other commenters noted that the Department did not include
the cost of extra overtime to small businesses. For example, SBA
Advocacy said, ``Small recreational businesses such as outfitters and
guides commented that the higher minimum wage requirement would be
extremely costly and unprofitable because they operate multi-day trips
in National Parks and log many overtime wage hours; at a cost of $22.50
per hour the increased costs would have a significant impact.'' As
discussed in Section IV.3.b, the Department has added in an estimate of
increased overtime payments for all businesses. Even with the inclusion
of these increased payments, costs are still only 0.4% of revenues for
small contracting firms. Other commenters claimed the Department
underestimated costs for a specific subset of small businesses. The
National Automatic Merchandising Association commented that the
Department needs to conduct an impact analysis for small businesses in
the convenience services industry. The AOA generally stated that the
``Proposed Rule wholly fails to account for its impact on the outfitter
and guiding industry.'' The Department notes that the small business
impacts presented are average impacts, meaning that some small
businesses will have smaller impacts while others will have larger
impacts. The Department conducted its analysis at a higher level of
industry aggregation because sufficient data at a more detailed level
are generally not available.\149\ Additionally, the AOA claimed that
the Department failed to include the payroll costs from increasing
wages that are not on or in connection with a federal contract, stating
that there are ``small businesses that may be more likely to have
employees splitting time between federal and non-federal work.'' As
noted in section IV.C.2.b., paying workers the minimum wage specified
in this rule is not required for non-federal contract work and the
Department disagrees that paying a worker different hourly wage rates
imposes a high cost on businesses.
---------------------------------------------------------------------------
\149\ For example, outfitters is a subset of the 6-digit NAICS
for ``all other amusement and recreation'' industries. Even if
adequate data are available for this 6-digit NAICS, that still does
not adequately reflect the outfitter industry.
---------------------------------------------------------------------------
E. Response to Comment Filed by the Chief Council for Advocacy of the
Small Business Administration
SBA Advocacy submitted a comment in response to the Department's
proposed rule. The Department has responded to specific parts of SBA
Advocacy's comment throughout this final rule in the relevant
discussions, but has also provided a summary here.
As a threshold matter, SBA asserted that because the Department
``provided an Initial Regulatory Flexibility Analysis (IRFA),
indicating that the proposed rule will have a significant economic
impact on a substantial number of small entities,'' the Department's
certification under Section 605 of the RFA that the rule will not have
a significant economic impact on a substantial number of small entities
``lacks a factual basis and is invalid.'' The Department disagrees that
the NPRM's inclusion of an IFRA constituted an acknowledgment that the
rule will have a significant economic impact on a substantial number of
small entities. Rather, as we did in the 2014 final rule to implement
Executive Order 13658,\150\ the Department prepared an IFRA in its
proposed rule as a courtesy to the public to better understand the
rulemaking to implement Executive Order 14026 and its impact on small
entities.
---------------------------------------------------------------------------
\150\ See 79 FR 60705 (``After careful consideration of the
comments received and based on the analysis below, the Department
believes that this final rule will not have an appreciable economic
impact on the vast majority of small businesses subject to
[Executive Order 13658]. However, in the interest of transparency,
the Department has prepared the following Final Regulatory
Flexibility Analysis (FRFA) to aid the public in understanding the
small entity impacts of the final rule.'').
---------------------------------------------------------------------------
SBA Advocacy's comment further stated that they are concerned that
the proposed rule will result in financial hardship for affected small
businesses and that they believe that DOL has underestimated small
business compliance costs. The Department notes that all direct
employer costs, such as rule familiarization and implementation costs,
are an average. Some contractors will spend more time reviewing the
rule and implementing any changes, and some contractors will spend less
or no time. Additionally, regarding wage costs, which are characterized
as
[[Page 67223]]
transfers in the regulatory impact analysis, the estimate of per
business cost also represents an average. Some businesses may have many
employees who currently earn the Executive Order 13658 minimum wage,
but others may currently be paying their employees closer to $15, so
will have a much lower wage cost.
SBA also said that the Department should consider regulatory
alternatives that would minimize the impact of the rule on small
entities. At both the NPRM stage and in this final rule, the Department
has explained why any alternatives are foreclosed by the prescriptive
language used in Executive Order 14026.
F. Alternatives to the Final Rule
Executive Order 14026 is prescriptive and does not authorize the
Department to consider less burdensome alternatives for small
businesses. The Department requested comments that identify
alternatives that would accomplish the stated objectives of Executive
Order 14026 and minimize any significant economic impact of the
proposed rule on small entities. Below, the Department considers the
specific alternatives required by section 603(c) of the RFA.
1. Differing Compliance and Reporting Requirements for Small Entities
This final rule provides for no differing compliance requirements
and reporting requirements for small entities. The Department has
strived to have this rule implement the minimum wage requirements of
Executive Order 14026 with the least possible burden for small
entities. The final rule provides a number of efficient and informal
alternative dispute mechanisms to resolve concerns about contractor
compliance, including having the contracting agency provide compliance
assistance to the contractor about the minimum wage requirements, and
allowing for the Department to attempt an informal conciliation of
complaints instead of engaging in extensive investigations. These tools
will provide contractors with an opportunity to resolve inadvertent
errors rapidly and before significant liabilities develop.
Some commenters stated that the Department did not fulfill the
requirements of the RFA because it did not provide alternatives such as
excluding small businesses from the regulation or a phasing-in of the
requirements for small businesses. The Department believes that such
alternatives are foreclosed by the prescriptive language used in
Executive Order 14026. The Executive order itself establishes the basic
coverage provisions, sets the minimum wage, and establishes the
timeframe when the minimum wage rate becomes effective. Section 3 of
Executive Order 14026 gradually phases in the full Executive order
minimum cash wage rate for tipped employees. With that lone exception,
the order clearly requires that, as of January 30, 2022, workers
performing on or in connection with covered contracts must be paid $15
per hour unless exempt. There is no indication in the Executive order
that the Department has authority to modify the amount or timing of the
minimum wage requirement, except where the Department is expressly
directed to implement the future annual inflation-based adjustments to
the wage rate pursuant to the methodology set forth in the order. See
86 FR 22835-39. In any event, the Department has determined that this
rule would not significantly impact small businesses and thus believes
it is not necessary to provide differing requirements for small
businesses. Additionally, the Department believes that having different
requirements for small businesses would undermine the benefits of
improved government services and increased productivity. It would also
cause inequality between employees of small businesses and those of
large businesses.
2. Clarification, Consolidation, and Simplification of Compliance and
Reporting Requirements for Small Entities
This final rule was drafted to clearly state the compliance
requirements for all contractors subject to Executive Order 14026. The
final rule does not contain any reporting requirements. The
recordkeeping requirements imposed by this final rule are necessary for
contractors to determine their compliance with the rule as well as for
the Department and workers to determine the contractor's compliance
with the law. The recordkeeping provisions apply generally to all
businesses--large and small--covered by the Executive order; no
rational basis exists for creating an exemption from compliance and
recordkeeping requirements for small businesses. The Department makes
available a variety of resources to employers for understanding their
obligations and achieving compliance.
3. Use of Performance Rather Than Design Standards
This final rule was written to provide clear guidelines to ensure
compliance with the Executive order minimum wage requirements. Under
the final rule, contractors may achieve compliance through a variety of
means. The Department makes available a variety of resources to
contractors for understanding their obligations and achieving
compliance.
4. Exemption From Coverage of the Rule for Small Entities
Executive Order 14026 establishes its own coverage and exemption
requirements; therefore, the Department has no authority to exempt
small businesses from the minimum wage requirements of the order.
VI. Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1532,
requires that agencies prepare a written statement, which includes an
assessment of anticipated costs and benefits, before proposing any
Federal mandate that may result in excess of $100 million (adjusted
annually for inflation) in expenditures in any one year by state,
local, and tribal governments in the aggregate, or by the private
sector. This statement must: (1) Identify the authorizing legislation;
(2) present the estimated costs and benefits of the rule and, to the
extent that such estimates are feasible and relevant, its estimated
effects on the national economy; (3) summarize and evaluate state,
local, and Tribal government input; and (4) identify reasonable
alternatives and select, or explain the non-selection, of the least
costly, most cost-effective, or least burdensome alternative.
A. Authorizing Legislation
This final rule is issued in response to section 4 of Executive
Order 14026, ``Increasing the Minimum Wage for Federal Contractors,''
which instructs the Department to ``issue regulations by November 24,
2021, to implement the requirements of this order.'' 86 FR 22836.
B. Assessment of Costs and Benefits
For purposes of the UMRA, this final rule includes a Federal
mandate that would result in increased expenditures by the private
sector of more than $158 million in at least one year, and could
potentially result in increased expenditures by state and local
governments that hold contracts with the Federal Government.\151\ It
will not result in increased expenditures by Tribal govenments because
they are
[[Page 67224]]
generally excluded from coverage under section 8(c) of the order. In
the Department's experience, state and local governments are parties to
a relatively small number of SCA- and DBA-covered contracts.
Additionally, because costs are a small share of revenues, impacts to
governments and tribes should be small.
---------------------------------------------------------------------------
\151\ Calculated using growth in the Gross Domestic Product
deflator from 1995 to 2020. Bureau of Economic Analysis. Table
1.1.9. Implicit Price Deflators for Gross Domestic Product.
---------------------------------------------------------------------------
The Department determined that the final rule would result in Year
1 direct employer costs to the private sector of $17.1 million, in
regulatory familiarization and implementation costs. The final rule
will also result in transfer payments for the private sector of $1.7
billion in Year 1, with an average annualized value of $1.8 billion
over ten years.
UMRA requires agencies to estimate the effect of a regulation on
the national economy if such estimates are reasonably feasible and the
effect is relevant and material.\152\ However, OMB guidance on this
requirement notes that such macroeconomic effects tend to be measurable
in nationwide econometric models only if the economic effect of the
regulation reaches 0.25 percent to 0.5 percent of Gross Domestic
Product (GDP), or in the range of $52.3 billion to $104.7 billion
(using 2020 GDP).\153\ A regulation with a smaller aggregate effect is
not likely to have a measurable effect in macroeconomic terms, unless
it is highly focused on a particular geographic region or economic
sector, which is not the case with this rule.
---------------------------------------------------------------------------
\152\ See 2 U.S.C. 1532(a)(4).
\153\ According to the Bureau of Economic Analysis, 2020 GDP was
$20.9 trillion. https://www.bea.gov/sites/default/files/2021-04/gdp1q21_adv.pdf.
---------------------------------------------------------------------------
The Department's RIA estimates that the total costs of the final
rule will be $1.8 billion. Given OMB's guidance, the Department has
determined that a full macroeconomic analysis is not likely to show
that these costs would have any measurable effect on the economy.
VII. Executive Order 13132, Federalism
The Department has (1) reviewed this final rule in accordance with
Executive Order 13132 regarding federalism and (2) determined that it
does not have federalism implications. The final rule will not have
substantial direct effects on the States, on the relationship between
the National Government and the States, or on the distribution of power
and responsibilities among the various levels of government.
VIII. Executive Order 13175, Indian Tribal Governments
This final rule will not have tribal implications under Executive
Order 13175 that would require a tribal summary impact statement. The
final rule will not have substantial direct effects on one or more
Indian tribes, on the relationship between the Federal Government and
Indian tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.
List of Subjects in 29 CFR Parts 10 and 23
Administrative practice and procedure, Construction, Government
contracts, Law enforcement, Minimum wages, Reporting and recordkeeping
requirements, Wages.
For the reasons set out in the preamble, the Department of Labor
amends 29 CFR subtitle A as follows:
PART 10--ESTABLISHING A MINIMUM WAGE FOR CONTRACTORS
0
1. The authority citation for part 10 is revised to read as follows:
Authority: 5 U.S.C. 301; section 4, E.O. 13658, 79 FR 9851, 3
CFR, 2014 Comp., p. 219; section 4, E.O. 14026, 86 FR 22835;
Secretary of Labor's Order No. 01-2014, 79 FR 77527.
0
2. Amend Sec. 10.1 by adding paragraph (d) to read as follows:
Sec. 10.1 Purpose and scope.
* * * * *
(d) Relation to Executive Order 14026. As of January 30, 2022,
Executive Order 13658 is superseded to the extent that it is
inconsistent with Executive Order 14026 of April 27, 2021, ``Increasing
the Minimum Wage for Federal Contractors,'' and its implementing
regulations at 29 CFR part 23. A covered contract that is entered into
on or after January 30, 2022, or that is renewed or extended (pursuant
to an option or otherwise) on or after January 30, 2022, is generally
subject to the higher minimum wage rate established by Executive Order
14026 and its regulations at 29 CFR part 23.
0
3. Amend Sec. 10.2 by revising the definition of ``New contract'' to
read as follows:
Sec. 10.2 Definitions.
* * * * *
New contract means a contract that results from a solicitation
issued on or between January 1, 2015 and January 29, 2022, or a
contract that is awarded outside the solicitation process on or between
January 1, 2015 and January 29, 2022. This term includes both new
contracts and replacements for expiring contracts. It does not apply to
the unilateral exercise of a pre-negotiated option to renew an existing
contract by the Federal Government. For purposes of the Executive
Order, a contract that is entered into prior to January 1, 2015 will
constitute a new contract if, through bilateral negotiation, on or
between January 1, 2015 and January 29, 2022:
(1) The contract is renewed;
(2) The contract is extended, unless the extension is made pursuant
to a term in the contract as of December 31, 2014, providing for a
short-term limited extension; or
(3) The contract is amended pursuant to a modification that is
outside the scope of the contract.
* * * * *
Sec. 10.4 [Amended]
0
4. Amend Sec. 10.4 by removing paragraph (g).
0
5. Amend Sec. 10.5 by adding a sentence at the end of paragraph (c) to
read as follows:
Sec. 10.5 Minimum wage for Federal contractors and subcontractors.
* * * * *
(c) * * * A covered contract that is entered into on or after
January 30, 2022, or that is renewed or extended (pursuant to an option
or otherwise) on or after January 30, 2022, is generally subject to the
higher minimum wage rate established by Executive Order 14026 of April
27, 2021, ``Increasing the Minimum Wage for Federal Contractors,'' and
its regulations at 29 CFR part 23.
0
6. Add part 23 to read as follows:
PART 23--INCREASING THE MINIMUM WAGE FOR FEDERAL CONTRACTORS
Subpart A--General
Sec.
23.10 Purpose and scope.
23.20 Definitions.
23.30 Coverage.
23.40 Exclusions.
23.50 Minimum wage for Federal contractors and subcontractors.
23.60 Antiretaliation.
23.70 Waiver of rights.
23.80 Severability.
Subpart B--Federal Government Requirements
23.110 Contracting agency requirements.
23.120 Department of Labor requirements.
Subpart C--Contractor Requirements
23.210 Contract clause.
23.220 Rate of pay.
23.230 Deductions.
23.240 Overtime payments.
23.250 Frequency of pay.
23.260 Records to be kept by contractors.
23.270 Anti-kickback.
23.280 Tipped employees.
23.290 Notice.
[[Page 67225]]
Subpart D--Enforcement
23.410 Complaints.
23.420 Wage and Hour Division conciliation.
23.430 Wage and Hour Division investigation.
23.440 Remedies and sanctions.
Subpart E--Administrative Proceedings
23.510 Disputes concerning contractor compliance.
23.520 Debarment proceedings.
23.530 Referral to Chief Administrative Law Judge; amendment of
pleadings.
23.540 Consent findings and order.
23.550 Proceedings of the Administrative Law Judge.
23.560 Petition for review.
23.570 Administrative Review Board proceedings.
23.580 Administrator ruling.
Appendix A to Part 23--Contract Clause
Authority: 5 U.S.C. 301; section 4, E.O. 14026, 86 FR 22835;
Secretary's Order 01-2014, 79 FR 77527.
Subpart A--General
Sec. 23.10 Purpose and scope.
(a) Purpose. This part contains the Department of Labor's rules
relating to the administration of Executive Order 14026 (Executive
Order or the Order), ``Increasing the Minimum Wage for Federal
Contractors,'' and implements the enforcement provisions of the
Executive Order. The Executive Order assigns responsibility for
investigating potential violations of and obtaining compliance with the
Executive Order to the Department of Labor.
(b) Policy. Executive Order 14026 states that the Federal
Government's procurement interests in economy and efficiency are
promoted when the Federal Government contracts with sources that
adequately compensate their workers. Specifically, the Order explains
that 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. Accordingly, Executive Order 14026 sets forth a general
position of the Federal Government that increasing the hourly minimum
wage paid by Federal contractors to $15.00 beginning January 30, 2022,
(with future annual increases based on inflation) will lead to improved
economy and efficiency in Federal procurement. The Order provides that
executive departments and agencies, including independent
establishments subject to the Federal Property and Administrative
Services Act, shall, to the extent permitted by law, ensure that new
covered contracts, contract-like instruments, and solicitations
(collectively referred to as ``contracts'') include a clause, which the
contractor and any covered subcontractors shall incorporate into lower-
tier subcontracts, specifying, as a condition of payment, that the
minimum wage to be paid to workers, including workers whose wages are
calculated pursuant to special certificates issued under 29 U.S.C.
214(c), performing work on or in connection with the contract or any
covered subcontract thereunder, shall be at least:
(1) $15.00 per hour beginning January 30, 2022; and
(2) Beginning January 1, 2023, and annually thereafter, an amount
determined by the Secretary of Labor (the Secretary) pursuant to the
Order. Nothing in Executive Order 14026 or this part shall excuse
noncompliance with any applicable Federal or state prevailing wage law
or any applicable law or municipal ordinance establishing a minimum
wage higher than the minimum wage established under the Order.
(c) Scope. Neither Executive Order 14026 nor this part creates or
changes any rights under the Contract Disputes Act, 41 U.S.C. 7101 et
seq., or any private right of action that may exist under other
applicable laws. The Executive Order provides that disputes regarding
whether a contractor has paid the minimum wages prescribed by the
Order, to the extent permitted by law, shall be disposed of only as
provided by the Secretary in regulations issued under the Order.
However, nothing in the Order or this part is intended to limit or
preclude a civil action under the False Claims Act, 31 U.S.C. 3730, or
criminal prosecution under 18 U.S.C. 1001. The Order similarly does not
preclude judicial review of final decisions by the Secretary in
accordance with the Administrative Procedure Act, 5 U.S.C. 701 et seq.
Sec. 23.20 Definitions.
For purposes of this part:
Administrative Review Board (ARB or Board) means the Administrative
Review Board, U.S. Department of Labor.
Administrator means the Administrator of the Wage and Hour Division
and includes any official of the Wage and Hour Division authorized to
perform any of the functions of the Administrator under this part.
Agency head means the Secretary, Attorney General, Administrator,
Governor, Chairperson, or other chief official of an executive agency,
unless otherwise indicated, including any deputy or assistant chief
official of an executive agency or any persons authorized to act on
behalf of the agency head.
Concessions contract or contract for concessions means a contract
under which the Federal Government grants a right to use Federal
property, including land or facilities, for furnishing services. The
term concessions contract includes but is not limited to a contract the
principal purpose of which is to furnish food, lodging, automobile
fuel, souvenirs, newspaper stands, and/or recreational equipment,
regardless of whether the services are of direct benefit to the
Government, its personnel, or the general public.
Contract or contract-like instrument means an agreement between two
or more parties creating obligations that are enforceable or otherwise
recognizable at law. This definition includes, but is not limited to, a
mutually binding legal relationship obligating one party to furnish
services (including construction) and another party to pay for them.
The term contract includes all contracts and any subcontracts of any
tier thereunder, whether negotiated or advertised, including any
procurement actions, lease agreements, cooperative agreements, provider
agreements, intergovernmental service agreements, service agreements,
licenses, permits, or any other type of agreement, regardless of
nomenclature, type, or particular form, and whether entered into
verbally or in writing. The term contract shall be interpreted broadly
as to include, but not be limited to, any contract within the
definition provided in the Federal Acquisition Regulation (FAR) at 48
CFR chapter 1 or applicable Federal statutes. This definition includes,
but is not limited to, any contract that may be covered under any
Federal procurement statute. Contracts may be the result of competitive
bidding or awarded to a single source under applicable authority to do
so. In addition to bilateral instruments, contracts include, but are
not limited to, awards and notices of awards; job orders or task
letters issued under basic ordering agreements; letter contracts;
orders, such as purchase orders, under which the contract becomes
effective by written acceptance or performance; exercised contract
options; and bilateral contract modifications. The term contract
includes contracts covered by the Service Contract Act, contracts
covered by the Davis-Bacon Act, concessions contracts not otherwise
subject to the Service Contract Act, and contracts in connection with
Federal property or land and related to offering services for Federal
employees, their dependents, or the general public.
[[Page 67226]]
Contracting officer means a person with the authority to enter
into, administer, and/or terminate contracts and make related
determinations and findings. This term includes certain authorized
representatives of the contracting officer acting within the limits of
their authority as delegated by the contracting officer.
Contractor means any individual or other legal entity that is
awarded a Federal Government contract or subcontract under a Federal
Government contract. The term contractor refers to both a prime
contractor and all of its subcontractors of any tier on a contract with
the Federal Government. The term contractor includes lessors and
lessees, as well as employers of workers performing on or in connection
with covered Federal contracts whose wages are calculated pursuant to
special certificates issued under 29 U.S.C. 214(c). The term employer
is used interchangeably with the terms contractor and subcontractor in
various sections of this part. The U.S. Government, its agencies, and
instrumentalities are not contractors, subcontractors, employers, or
joint employers for purposes of compliance with the provisions of the
Executive Order.
Davis-Bacon Act means the Davis-Bacon Act of 1931, as amended, 40
U.S.C. 3141 et seq., and the implementing regulations in this chapter.
Executive departments and agencies means executive departments,
military departments, or any independent establishments within the
meaning of 5 U.S.C. 101, 102, and 104(1), respectively, and any wholly
owned Government corporation within the meaning of 31 U.S.C. 9101.
Executive Order 13658 means Executive Order 13658 of February 12,
2014, ``Establishing a Minimum Wage for Contractors,'' 3 CFR, 2014
Comp., p. 219, and its implementing regulations at 29 CFR part 10.
Executive Order 14026 minimum wage means a wage that is at least:
(1) $15.00 per hour beginning January 30, 2022; and
(2) Beginning January 1, 2023, and annually thereafter, an amount
determined by the Secretary pursuant to section 2 of the Executive
Order.
Fair Labor Standards Act (FLSA) means the Fair Labor Standards Act
of 1938, as amended, 29 U.S.C. 201 et seq., and the implementing
regulations in this title.
Federal Government means an agency or instrumentality of the United
States that enters into a contract pursuant to authority derived from
the Constitution or the laws of the United States. For purposes of the
Executive Order and this part, this definition does not include the
District of Columbia or any Territory or possession of the United
States.
New contract means a contract that is entered into on or after
January 30, 2022, or a contract that is renewed or extended (pursuant
to an exercised option or otherwise) on or after January 30, 2022. For
purposes of the Executive Order, a contract that is entered into prior
to January 30, 2022 will constitute a new contract if, on or after
January 30, 2022:
(1) The contract is renewed;
(2) The contract is extended; or
(3) An option on the contract is exercised.
Office of Administrative Law Judges means the Office of
Administrative Law Judges, U.S. Department of Labor.
Option means a unilateral right in a contract by which, for a
specified time, the Government may elect to purchase additional
supplies or services called for by the contract, or may elect to extend
the term of the contract.
Procurement contract for construction means a procurement contract
for the construction, alteration, or repair (including painting and
decorating) of public buildings or public works and which requires or
involves the employment of mechanics or laborers, and any subcontract
of any tier thereunder. The term procurement contract for construction
includes any contract subject to the provisions of the Davis-Bacon Act,
as amended, and the implementing regulations in this chapter.
Procurement contract for services means a procurement contract the
principal purpose of which is to furnish services in the United States
through the use of service employees, and any subcontract of any tier
thereunder. The term procurement contract for services includes any
contract subject to the provisions of the Service Contract Act, as
amended, and the implementing regulations in this chapter.
Service Contract Act means the McNamara-O'Hara Service Contract Act
of 1965, as amended, 41 U.S.C. 6701 et seq., and the implementing
regulations in this chapter.
Solicitation means any request to submit offers, bids, or
quotations to the Federal Government.
Tipped employee means any employee engaged in an occupation in
which the employee customarily and regularly receives more than $30 a
month in tips. For purposes of the Executive Order, a worker performing
on or in connection with a contract covered by the Executive Order who
meets this definition is a tipped employee.
United States means the United States and all executive
departments, independent establishments, administrative agencies, and
instrumentalities of the United States, including corporations of which
all or substantially all of the stock is owned by the United States, by
the foregoing departments, establishments, agencies, instrumentalities,
and including nonappropriated fund instrumentalities. When used in a
geographic sense, the United States means the 50 States, the District
of Columbia, Puerto Rico, the Virgin Islands, Outer Continental Shelf
lands as defined in the Outer Continental Shelf Lands Act, American
Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Wake
Island, and Johnston Island.
Wage and Hour Division means the Wage and Hour Division, U.S.
Department of Labor.
Wage determination includes any determination of minimum hourly
wage rates or fringe benefits made by the Secretary of Labor pursuant
to the provisions of the Service Contract Act or the Davis-Bacon Act.
This term includes the original determination and any subsequent
determinations modifying, superseding, correcting, or otherwise
changing the provisions of the original determination.
Worker means any person engaged in performing work on or in
connection with a contract covered by the Executive Order, and whose
wages under such contract are governed by the Fair Labor Standards Act,
the Service Contract Act, or the Davis-Bacon Act, other than
individuals employed in a bona fide executive, administrative, or
professional capacity, as those terms are defined in 29 CFR part 541,
regardless of the contractual relationship alleged to exist between the
individual and the employer. The term worker includes workers
performing on or in connection with a covered contract whose wages are
calculated pursuant to special certificates issued under 29 U.S.C.
214(c), as well as any person working on or in connection with a
covered contract and individually registered in a bona fide
apprenticeship or training program registered with the U.S. Department
of Labor's Employment and Training Administration, Office of
Apprenticeship, or with a State Apprenticeship Agency recognized by the
Office of Apprenticeship. A worker performs ``on'' a contract if the
worker directly performs the specific services called for by the
contract. A worker
[[Page 67227]]
performs ``in connection with'' a contract if the worker's work
activities are necessary to the performance of a contract but are not
the specific services called for by the contract.
Sec. 23.30 Coverage.
(a) This part applies to any new contract, as defined in Sec.
23.20, with the Federal Government, unless excluded by Sec. 23.40,
provided that:
(1)(i) It is a procurement contract for construction covered by the
Davis-Bacon Act;
(ii) It is a contract for services covered by the Service Contract
Act;
(iii) It is a contract for concessions, including any concessions
contract excluded from coverage under the Service Contract Act by
Department of Labor regulations at 29 CFR 4.133(b); or
(iv) It is a contract entered into with the Federal Government in
connection with Federal property or lands and related to offering
services for Federal employees, their dependents, or the general
public; and
(2) The wages of workers under such contract are governed by the
Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon
Act.
(b) For contracts covered by the Service Contract Act or the Davis-
Bacon Act, this part applies to prime contracts only at the thresholds
specified in those statutes. For procurement contracts where workers'
wages are governed by the Fair Labor Standards Act, this part applies
when the prime contract exceeds the micro-purchase threshold, as
defined in 41 U.S.C. 1902(a).
(c) This part only applies to contracts with the Federal Government
requiring performance in whole or in part within the United States,
which when used in a geographic sense in this part means the 50 States,
the District of Columbia, Puerto Rico, the Virgin Islands, Outer
Continental Shelf lands as defined in the Outer Continental Shelf Lands
Act, American Samoa, Guam, the Commonwealth of the Northern Mariana
Islands, Wake Island, and Johnston Island. If a contract with the
Federal Government is to be performed in part within and in part
outside the United States and is otherwise covered by the Executive
Order and this part, the minimum wage requirements of the Order and
this part would apply with respect to that part of the contract that is
performed within the United States.
(d) This part does not apply to contracts for the manufacturing or
furnishing of materials, supplies, articles, or equipment to the
Federal Government, including those that are subject to the Walsh-
Healey Public Contracts Act, 41 U.S.C. 6501 et seq.
Sec. 23.40 Exclusions.
(a) Grants. The requirements of this part do not apply to grants
within the meaning of the Federal Grant and Cooperative Agreement Act,
as amended, 31 U.S.C. 6301 et seq.
(b) Contracts or agreements with Indian Tribes. This part does not
apply to contracts or agreements with Indian Tribes under the Indian
Self-Determination and Education Assistance Act, as amended, 25 U.S.C.
5301 et seq.
(c) Procurement contracts for construction that are excluded from
coverage of the Davis-Bacon Act. Procurement contracts for construction
that are not covered by the Davis-Bacon Act are not subject to this
part.
(d) Contracts for services that are exempted from coverage under
the Service Contract Act. Service contracts, except for those expressly
covered by Sec. 23.30(a)(1)(iii) or (iv), that are exempt from
coverage of the Service Contract Act pursuant to its statutory language
at 41 U.S.C. 6702(b) or its implementing regulations, including those
at 29 CFR 4.115 through 4.122 and 29 CFR 4.123(d) and (e), are not
subject to this part.
(e) Employees who are exempt from the minimum wage requirements of
the Fair Labor Standards Act under 29 U.S.C. 213(a) and 214(a)-(b).
Except for workers who are otherwise covered by the Davis-Bacon Act or
the Service Contract Act, this part does not apply to employees who are
not entitled to the minimum wage set forth at 29 U.S.C. 206(a)(1) of
the Fair Labor Standards Act pursuant to 29 U.S.C. 213(a) and 214(a)-
(b). Pursuant to the exclusion in this paragraph (e), individuals that
are not subject to the requirements of this part include but are not
limited to:
(1) Learners, apprentices, or messengers. This part does not apply
to learners, apprentices, or messengers whose wages are calculated
pursuant to special certificates issued under 29 U.S.C. 214(a).
(2) Students. This part does not apply to student workers whose
wages are calculated pursuant to special certificates issued under 29
U.S.C. 214(b).
(3) Individuals employed in a bona fide executive, administrative,
or professional capacity. This part does not apply to workers who are
employed by Federal contractors in a bona fide executive,
administrative, or professional capacity, as those terms are defined
and delimited in 29 CFR part 541.
(f) FLSA-covered workers performing in connection with covered
contracts for less than 20 percent of their work hours in a given
workweek. This part does not apply to FLSA-covered workers performing
in connection with covered contracts, i.e., those 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, that spend less than 20 percent of their hours worked in a
particular workweek performing in connection with such contracts. The
exclusion in this paragraph (f) is inapplicable to covered workers
performing on covered contracts, i.e., those workers directly engaged
in performing the specific work called for by the contract.
(g) Contracts that result from a solicitation issued before January
30, 2022, and that are entered into on or between January 30, 2022 and
March 30, 2022. This part does not apply to contracts that result from
a solicitation issued prior to January 30, 2022 and that are entered
into on or between January 30, 2022 and March 30, 2022. However, if
such a contract is subsequently extended or renewed, or an option is
subsequently exercised under that contract, the Executive Order and
this part shall apply to that extension, renewal, or option.
Sec. 23.50 Minimum wage for Federal contractors and subcontractors.
(a) General. Pursuant to Executive Order 14026, the minimum hourly
wage rate required to be paid to workers performing on or in connection
with covered contracts with the Federal Government is at least:
(1) $15.00 per hour beginning January 30, 2022; and
(2) Beginning January 1, 2023, and annually thereafter, an amount
determined by the Secretary pursuant to section 2 of Executive Order
14026. In accordance with section 2 of the Order, the Secretary will
determine the applicable minimum wage rate to be paid to workers
performing on or in connection with covered contracts on an annual
basis beginning at least 90 days before any new minimum wage is to take
effect.
(b) Method for determining the applicable Executive Order minimum
wage for workers. The minimum wage to be paid to workers, including
workers whose wages are calculated pursuant to special certificates
issued under 29 U.S.C. 214(c), in the performance of a covered contract
shall be at least:
(1) $15.00 per hour beginning January 30, 2022; and
(2) An amount determined by the Secretary, beginning January 1,
2023, and annually thereafter. The applicable
[[Page 67228]]
minimum wage determined for each calendar year by the Secretary shall
be:
(i) Not less than the amount in effect on the date of such
determination;
(ii) Increased from such amount by the annual percentage increase
in the Consumer Price Index for Urban Wage Earners and Clerical Workers
(United States city average, all items, not seasonally adjusted), or
its successor publication, as determined by the Bureau of Labor
Statistics; and
(iii) Rounded to the nearest multiple of $0.05. In calculating the
annual percentage increase in the Consumer Price Index for purposes of
this section, the Secretary shall compare such Consumer Price Index for
the most recent year available with the Consumer Price Index for the
preceding year.
(c) Relation to other laws. Nothing in the Executive Order or this
part shall excuse noncompliance with any applicable Federal or state
prevailing wage law or any applicable law or municipal ordinance, or
any applicable contract, establishing a minimum wage higher than the
minimum wage established under the Executive Order and this part.
(d) Relation to Executive Order 13658. As of January 30, 2022,
Executive Order 13658 is superseded to the extent that it is
inconsistent with Executive Order 14026 and this part. Unless otherwise
excluded by Sec. 23.40, workers performing on or in connection with a
covered new contract, as defined in Sec. 23.20, must be paid at least
the minimum hourly wage rate established by Executive Order 14026 and
this part rather than the lower hourly minimum wage rate established by
Executive Order 13658 and its implementing regulations in 29 CFR part
10.
Sec. 23.60 Antiretaliation.
It shall be unlawful for any person to discharge or in any other
manner discriminate against any worker because such worker has filed
any complaint or instituted or caused to be instituted any proceeding
under or related to Executive Order 14026 or this part, or has
testified or is about to testify in any such proceeding.
Sec. 23.70 Waiver of rights.
Workers cannot waive, nor may contractors induce workers to waive,
their rights under Executive Order 14026 or this part.
Sec. 23.80 Severability.
If any provision of this part is held to be invalid or
unenforceable by its terms, or as applied to any person or
circumstance, or stayed pending further agency action, the provision
shall be construed so as to continue to give the maximum effect to the
provision permitted by law, unless such holding shall be one of utter
invalidity or unenforceability, in which event the provision shall be
severable from this part and shall not affect the remainder thereof.
Subpart B--Federal Government Requirements
Sec. 23.110 Contracting agency requirements.
(a) Contract clause. The contracting agency shall include the
Executive Order minimum wage contract clause set forth in Appendix A of
this part in all covered contracts and solicitations for such
contracts, as described in Sec. 23.30, except for procurement
contracts subject to the FAR. The required contract clause directs, as
a condition of payment, that all workers performing work on or in
connection with covered contracts must be paid the applicable,
currently effective minimum wage under Executive Order 14026 and Sec.
23.50. For procurement contracts subject to the FAR, contracting
agencies must use the clause set forth in the FAR developed to
implement this section. Such clause will accomplish the same purposes
as the clause set forth in Appendix A of this part and be consistent
with the requirements set forth in this section.
(b) Failure to include the contract clause. Where the Department or
the contracting agency discovers or determines, whether before or
subsequent to a contract award, that a contracting agency made an
erroneous determination that Executive Order 14026 or this part did not
apply to a particular contract and/or failed to include the applicable
contract clause in a contract to which the Executive Order applies, the
contracting agency, on its own initiative or within 15 calendar days of
notification by an authorized representative of the Department of
Labor, shall incorporate the contract clause in the contract
retroactive to commencement of performance under the contract through
the exercise of any and all authority that may be needed (including,
where necessary, its authority to negotiate or amend, its authority to
pay any necessary additional costs, and its authority under any
contract provision authorizing changes, cancellation and termination).
(c) Withholding. A contracting officer shall upon his or her own
action or upon written request of an authorized representative of the
Department of Labor withhold or cause to be withheld from the prime
contractor under the covered contract or any other Federal contract
with the same prime contractor, so much of the accrued payments or
advances as may be considered necessary to pay workers the full amount
of wages required by the Executive Order. In the event of failure to
pay any covered workers all or part of the wages due under Executive
Order 14026, the agency may, after authorization or by direction of the
Department of Labor and written notification to the contractor, take
action to cause suspension of any further payment or advance of funds
until such violations have ceased. Additionally, any failure to comply
with the requirements of Executive Order 14026 may be grounds for
termination of the right to proceed with the contract work. In such
event, the contracting agency may enter into other contracts or
arrangements for completion of the work, charging the contractor in
default with any additional cost.
(d) Actions on complaints--(1) Reporting--(i) Reporting time frame.
The contracting agency shall forward all information listed in
paragraph (d)(1)(ii) of this section to the Division of Government
Contracts Enforcement, Wage and Hour Division, U.S. Department of
Labor, Washington, DC 20210 within 14 calendar days of receipt of a
complaint alleging contractor noncompliance with the Executive Order or
this part or within 14 calendar days of being contacted by the Wage and
Hour Division regarding any such complaint.
(ii) Report contents. The contracting agency shall forward to the
Division of Government Contracts Enforcement, Wage and Hour Division,
U.S. Department of Labor, Washington, DC 20210 any:
(A) Complaint of contractor noncompliance with Executive Order
14026 or this part;
(B) Available statements by the worker, contractor, or any other
person regarding the alleged violation;
(C) Evidence that the Executive Order minimum wage contract clause
was included in the contract;
(D) Information concerning known settlement negotiations between
the parties, if applicable; and
(E) Any other relevant facts known to the contracting agency or
other information requested by the Wage and Hour Division.
(2) [Reserved]
Sec. 23.120 Department of Labor requirements.
(a) In general. The Executive Order minimum wage applicable from
January 30, 2022 through December 31, 2022, is $15.00 per hour. The
Secretary will
[[Page 67229]]
determine the applicable minimum wage rate to be paid to workers
performing work on or in connection with covered contracts on an annual
basis, beginning January 1, 2023.
(b) Method for determining the applicable Executive Order minimum
wage. The Secretary will determine the applicable minimum wage under
the Executive Order, beginning January 1, 2023, by using the
methodology set forth in Sec. 23.50(b).
(c) Notice--(1) Timing of notification. The Administrator will
notify the public of the applicable minimum wage rate to be paid to
workers performing work on or in connection with covered contracts on
an annual basis at least 90 days before any new minimum wage is to take
effect.
(2) Method of notification--(i) Federal Register. The Administrator
will publish a notice in the Federal Register stating the applicable
minimum wage rate to be paid to workers performing work on or in
connection with covered contracts on an annual basis at least 90 days
before any new minimum wage is to take effect.
(ii) Website. The Administrator will publish and maintain on
https://alpha.sam.gov/content/wage-determinations, or any successor
site, the applicable minimum wage rate to be paid to workers performing
work on or in connection with covered contracts.
(iii) Wage determinations. The Administrator will publish a
prominent general notice on all wage determinations issued under the
Davis-Bacon Act and the Service Contract Act stating the Executive
Order minimum wage and that the Executive Order minimum wage applies to
all workers performing on or in connection with such contracts whose
wages are governed by the Fair Labor Standards Act, the Davis-Bacon
Act, and the Service Contract Act. The Administrator will update this
general notice on all such wage determinations annually.
(iv) Other means as appropriate. The Administrator may publish the
applicable minimum wage rate to be paid to workers performing work on
or in connection with covered contracts on an annual basis at least 90
days before any such new minimum wage is to take effect in any other
media that the Administrator deems appropriate.
(d) Notification to a contractor of the withholding of funds. If
the Administrator requests that a contracting agency withhold funds
from a contractor pursuant to Sec. 23.110(c), the Administrator and/or
contracting agency shall notify the affected prime contractor of the
Administrator's withholding request to the contracting agency.
Subpart C--Contractor Requirements
Sec. 23.210 Contract clause.
(a) Contract clause. The contractor, as a condition of payment,
shall abide by the terms of the applicable Executive Order minimum wage
contract clause referred to in Sec. 23.110(a).
(b) Flow-down requirement. The contractor and any subcontractors
shall include in any covered subcontracts the Executive Order minimum
wage contract clause referred to in Sec. 23.110(a) and shall require,
as a condition of payment, that the subcontractor include the minimum
wage contract clause in any lower-tier subcontracts. The prime
contractor and any upper-tier contractor shall be responsible for the
compliance by any subcontractor or lower-tier subcontractor with the
Executive Order minimum wage requirements, whether or not the contract
clause was included in the subcontract.
Sec. 23.220 Rate of pay.
(a) General. The contractor must pay each worker performing work on
or in connection with a covered contract no less than the applicable
Executive Order minimum wage for all hours worked on or in connection
with the covered contract, unless such worker is exempt under Sec.
23.40. In determining whether a worker is performing within the scope
of a covered contract, all workers who are engaged in working on or in
connection with the contract, either in performing the specific
services called for by its terms or in performing other duties
necessary to the performance of the contract, are thus subject to the
Executive Order and this part unless a specific exemption is
applicable. Nothing in the Executive Order or this part shall excuse
noncompliance with any applicable Federal or state prevailing wage law
or any applicable law or municipal ordinance establishing a minimum
wage higher than the minimum wage established under Executive Order
14026.
(b) Workers who receive fringe benefits. The contractor may not
discharge any part of its minimum wage obligation under the Executive
Order by furnishing fringe benefits or, with respect to workers whose
wages are governed by the Service Contract Act, the cash equivalent
thereof.
(c) Tipped employees. The contractor may satisfy the wage payment
obligation to a tipped employee under the Executive Order through a
combination of an hourly cash wage and a credit based on tips received
by such employee pursuant to the provisions in Sec. 23.280.
Sec. 23.230 Deductions.
The contractor may make deductions that reduce a worker's wages
below the Executive Order minimum wage rate only if such deduction
qualifies as a:
(a) Deduction required by Federal, state, or local law, such as
Federal or state withholding of income taxes;
(b) Deduction for payments made to third parties pursuant to court
order;
(c) Deduction directed by a voluntary assignment of the worker or
his or her authorized representative; or
(d) Deduction for the reasonable cost or fair value, as determined
by the Administrator, of furnishing such worker with ``board, lodging,
or other facilities,'' as defined in 29 U.S.C. 203(m)(1) and part 531
of this title.
Sec. 23.240 Overtime payments.
(a) General. The Fair Labor Standards Act and the Contract Work
Hours and Safety Standards Act require overtime payment of not less
than one and one-half times the regular rate of pay or basic rate of
pay for all hours worked over 40 hours in a workweek to covered
workers. The regular rate of pay under the Fair Labor Standards Act is
generally determined by dividing the worker's total earnings in any
workweek by the total number of hours actually worked by the worker in
that workweek for which such compensation was paid.
(b) Tipped employees. When overtime is worked by tipped employees
who are entitled to overtime pay under the Fair Labor Standards Act
and/or the Contract Work Hours and Safety Standards Act, the employees'
regular rate of pay includes both the cash wages paid by the employer
(see Sec. Sec. 23.220(a) and 23.280(a)(1)) and the amount of any tip
credit taken (see Sec. 23.280(a)(2)). (See part 778 of this title for
a detailed discussion of overtime compensation under the Fair Labor
Standards Act.) Any tips received by the employee in excess of the tip
credit are not included in the regular rate.
Sec. 23.250 Frequency of pay.
Wage payments to workers shall be made no later than one pay period
following the end of the regular pay period in which such wages were
earned or accrued. A pay period under Executive Order 14026 may not be
of any duration longer than semi-monthly.
Sec. 23.260 Records to be kept by contractors.
(a) Records. The contractor and each subcontractor performing work
subject to Executive Order 14026 shall make and maintain, for three
years, records
[[Page 67230]]
containing the information specified in paragraphs (a)(1) through (6)
of this section for each worker and shall make them available for
inspection and transcription by authorized representatives of the Wage
and Hour Division of the U.S. Department of Labor:
(1) Name, address, and social security number of each worker;
(2) The worker's occupation(s) or classification(s);
(3) The rate or rates of wages paid;
(4) The number of daily and weekly hours worked by each worker;
(5) Any deductions made; and
(6) The total wages paid.
(b) Interviews. The contractor shall permit authorized
representatives of the Wage and Hour Division to conduct interviews
with workers at the worksite during normal working hours.
(c) Other recordkeeping obligations. Nothing in this part limits or
otherwise modifies the contractor's recordkeeping obligations, if any,
under the Davis-Bacon Act, the Service Contract Act, or the Fair Labor
Standards Act, or their implementing regulations in this title.
Sec. 23.270 Anti-kickback.
All wages paid to workers performing on or in connection with
covered contracts must be paid free and clear and without subsequent
deduction (except as set forth in Sec. 23.230), rebate, or kickback on
any account. Kickbacks directly or indirectly to the employer or to
another person for the employer's benefit for the whole or part of the
wage are prohibited.
Sec. 23.280 Tipped employees.
(a) Payment of wages to tipped employees. With respect to workers
who are tipped employees as defined in Sec. 23.20 and this section,
the amount of wages paid to such employee by the employee's employer
shall be equal to:
(1) An hourly cash wage of at least:
(i) $10.50 an hour beginning on January 30, 2022;
(ii) Beginning January 1, 2023, 85 percent of the wage in effect
under section 2 of the Executive Order, rounded to the nearest multiple
of $0.05;
(iii) Beginning January 1, 2024, and for each subsequent year, 100
percent of the wage in effect under section 2 of the Executive Order;
and
(2) An additional amount on account of the tips received by such
employee (tip credit) which amount is equal to the difference between
the hourly cash wage in paragraph (a)(1) of this section and the wage
in effect under section 2 of the Executive Order. Where tipped
employees do not receive a sufficient amount of tips in the workweek to
equal the amount of the tip credit, the employer must increase the cash
wage paid for the workweek under paragraph (a)(1) of this section so
that the amount of the cash wage paid and the tips received by the
employee equal the minimum wage under section 2 of the Executive Order.
(3) An employer may pay a higher cash wage than required by
paragraph (a)(1) of this section and take a lower tip credit but may
not pay a lower cash wage than required by paragraph (a)(1) of this
section and take a greater tip credit. In order for the employer to
claim a tip credit, the employer must demonstrate that the worker
received at least the amount of the credit claimed in actual tips. If
the worker received less than the claimed tip credit amount in tips
during the workweek, the employer is required to pay the balance on the
regular payday so that the worker receives the wage in effect under
section 2 of the Executive Order with the defined combination of wages
and tips.
(4) If the cash wage required to be paid under the Service Contract
Act, 41 U.S.C. 6701 et seq., or any other applicable law or regulation
is higher than the wage required by section 2 of the Executive Order,
the employer shall pay additional cash wages equal to the difference
between the wage in effect under section 2 of the Executive Order and
the highest wage required to be paid.
(b) Requirements with respect to tipped employees. The definitions
and requirements concerning tipped employees, the tip credit, the
characteristics of tips, service charges, tip pooling, and notice set
forth in 29 CFR 10.28(b) through (f) apply with respect to workers who
are tipped employees, as defined in Sec. 23.20, performing on or in
connection with contracts covered under Executive Order 14026, except
that the minimum required cash wage shall be the minimum required cash
wage described in paragraph (a)(1) of this section for the purposes of
Executive 14026. For the purposes of this section, where 29 CFR
10.28(b) through (f) uses the term ``Executive Order,'' that term
refers to Executive Order 14026.
Sec. 23.290 Notice.
(a) The contractor must notify all workers performing work on or in
connection with a covered contract of the applicable minimum wage rate
under the Executive Order. With respect to service employees on
contracts covered by the Service Contract Act and laborers and
mechanics on contracts covered by the Davis-Bacon Act, the contractor
may meet the requirement in this paragraph (a) by posting, in a
prominent and accessible place at the worksite, the applicable wage
determination under those statutes.
(b) With respect to workers performing work on or in connection
with a covered contract whose wages are governed by the FLSA, the
contractor must post a notice provided by the Department of Labor in a
prominent and accessible place at the worksite so it may be readily
seen by workers.
(c) Contractors that customarily post notices to workers
electronically may post the notice electronically, provided such
electronic posting is displayed prominently on any website that is
maintained by the contractor, whether external or internal, and
customarily used for notices to workers about terms and conditions of
employment.
Subpart D--Enforcement
Sec. 23.410 Complaints.
(a) Filing a complaint. Any worker, contractor, labor organization,
trade organization, contracting agency, or other person or entity that
believes a violation of the Executive Order or this part has occurred
may file a complaint with any office of the Wage and Hour Division. No
particular form of complaint is required. A complaint may be filed
orally or in writing. The Wage and Hour Division will accept the
complaint in any language.
(b) Confidentiality. It is the policy of the Department of Labor to
protect the identity of its confidential sources and to prevent an
unwarranted invasion of personal privacy. Accordingly, the identity of
any individual who makes a written or oral statement as a complaint or
in the course of an investigation, as well as portions of the statement
which would reveal the individual's identity, shall not be disclosed in
any manner to anyone other than Federal officials without the prior
consent of the individual. Disclosure of such statements shall be
governed by the provisions of the Freedom of Information Act (5 U.S.C.
552, see 29 CFR part 70) and the Privacy Act of 1974 (5 U.S.C. 552a).
Sec. 23.420 Wage and Hour Division conciliation.
After receipt of a complaint, the Administrator may seek to resolve
the matter through conciliation.
Sec. 23.430 Wage and Hour Division investigation.
The Administrator may investigate possible violations of the
Executive Order or this part either as the result of
[[Page 67231]]
a complaint or at any time on his or her own initiative. As part of the
investigation, the Administrator may conduct interviews with the
relevant contractor, as well as the contractor's workers at the
worksite during normal work hours; inspect the relevant contractor's
records (including contract documents and payrolls, if applicable);
make copies and transcriptions of such records; and require the
production of any documentary or other evidence the Administrator deems
necessary to determine whether a violation, including conduct
warranting imposition of debarment, has occurred. Federal agencies and
contractors shall cooperate with any authorized representative of the
Department of Labor in the inspection of records, in interviews with
workers, and in all aspects of investigations.
Sec. 23.440 Remedies and sanctions.
(a) Unpaid wages. When the Administrator determines a contractor
has failed to pay the applicable Executive Order minimum wage to
workers, the Administrator will notify the contractor and the
applicable contracting agency of the unpaid wage violation and request
the contractor to remedy the violation. If the contractor does not
remedy the violation of the Executive Order or this part, the
Administrator shall direct the contractor to pay all unpaid wages to
the affected workers in the investigative findings letter it issues
pursuant to Sec. 23.510. The Administrator may additionally direct
that payments due on the contract or any other contract between the
contractor and the Government be withheld as necessary to pay unpaid
wages. Upon the final order of the Secretary that unpaid wages are due,
the Administrator may direct the relevant contracting agency to
transfer the withheld funds to the Department of Labor for
disbursement.
(b) Antiretaliation. When the Administrator determines that any
person has discharged or in any other manner discriminated against any
worker because such worker filed any complaint or instituted or caused
to be instituted any proceeding under or related to the Executive Order
or this part, or because such worker testified or is about to testify
in any such proceeding, the Administrator may provide for any relief to
the worker as may be appropriate, including employment, reinstatement,
promotion, and the payment of lost wages.
(c) Debarment. Whenever a contractor is found by the Secretary of
Labor to have disregarded its obligations under the Executive Order, or
this part, such contractor and its responsible officers, and any firm,
corporation, partnership, or association in which the contractor or
responsible officers have an interest, shall be ineligible to be
awarded any contract or subcontract subject to the Executive Order for
a period of up to three years from the date of publication of the name
of the contractor or responsible officer on the ineligible list.
Neither an order for debarment of any contractor or its responsible
officers from further Government contracts nor the inclusion of a
contractor or its responsible officers on a published list of
noncomplying contractors under this section shall be carried out
without affording the contractor or responsible officers an opportunity
for a hearing before an Administrative Law Judge.
(d) Civil action to recover greater underpayments than those
withheld. If the payments withheld under Sec. 23.110(c) are
insufficient to reimburse all workers' lost wages, or if there are no
payments to withhold, the Department of Labor, following a final order
of the Secretary, may bring action against the contractor in any court
of competent jurisdiction to recover the remaining amount of
underpayments. The Department of Labor shall, to the extent possible,
pay any sums it recovers in this manner directly to the underpaid
workers. Any sum not paid to a worker because of inability to do so
within three years shall be transferred into the Treasury of the United
States as miscellaneous receipts.
(e) Retroactive inclusion of contract clause. If a contracting
agency fails to include the applicable contract clause in a contract to
which the Executive Order applies, the contracting agency, on its own
initiative or within 15 calendar days of notification by an authorized
representative of the Department of Labor, shall incorporate the
contract clause in the contract retroactive to commencement of
performance under the contract through the exercise of any and all
authority that may be needed (including, where necessary, its authority
to negotiate or amend, its authority to pay any necessary additional
costs, and its authority under any contract provision authorizing
changes, cancellation and termination).
Subpart E--Administrative Proceedings
Sec. 23.510 Disputes concerning contractor compliance.
(a) This section sets forth the procedure for resolution of
disputes of fact or law concerning a contractor's compliance with
subpart C of this part. The procedures in this section may be initiated
upon the Administrator's own motion or upon request of the contractor.
(b)(1) In the event of a dispute described in paragraph (a) of this
section in which it appears that relevant facts are at issue, the
Administrator will notify the affected contractor(s) and the prime
contractor (if different) of the investigative findings by certified
mail to the last known address.
(2) A contractor desiring a hearing concerning the Administrator's
investigative findings letter shall request such a hearing by letter
postmarked within 30 calendar days of the date of the Administrator's
letter. The request shall set forth those findings which are in dispute
with respect to the violations and/or debarment, as appropriate, and
explain how the findings are in dispute, including by making reference
to any affirmative defenses.
(3) Upon receipt of a timely request for a hearing, the
Administrator shall refer the case to the Chief Administrative Law
Judge by Order of Reference, to which shall be attached a copy of the
investigative findings letter from the Administrator and response
thereto, for designation to an Administrative Law Judge to conduct such
hearings as may be necessary to resolve the disputed matters. The
hearing shall be conducted in accordance with the procedures set forth
in 29 CFR part 6.
(c)(1) In the event of a dispute described in paragraph (a) of this
section in which it appears that there are no relevant facts at issue,
and where there is not at that time reasonable cause to institute
debarment proceedings under Sec. 23.520, the Administrator shall
notify the contractor(s) of the investigation findings by certified
mail to the last known address, and shall issue a ruling in the
investigative findings letter on any issues of law known to be in
dispute.
(2)(i) If the contractor disagrees with the factual findings of the
Administrator or believes that there are relevant facts in dispute, the
contractor shall so advise the Administrator by letter postmarked
within 30 calendar days of the date of the Administrator's letter. In
the response, the contractor shall explain in detail the facts alleged
to be in dispute and attach any supporting documentation.
(ii) Upon receipt of a timely response under paragraph (c)(2)(i) of
this section alleging the existence of a factual dispute, the
Administrator shall examine the information submitted. If the
Administrator determines that there is a relevant issue of fact, the
Administrator shall refer the case to the
[[Page 67232]]
Chief Administrative Law Judge in accordance with paragraph (b)(3) of
this section. If the Administrator determines that there is no relevant
issue of fact, the Administrator shall so rule and advise the
contractor accordingly.
(3) If the contractor desires review of the ruling issued by the
Administrator under paragraph (c)(1) or (c)(2)(ii) of this section, the
contractor shall file a petition for review thereof with the
Administrative Review Board postmarked within 30 calendar days of the
date of the ruling, with a copy thereof to the Administrator. The
petition for review shall be filed in accordance with the procedures
set forth in 29 CFR part 7.
(d) If a timely response to the Administrator's investigative
findings letter is not made or a timely petition for review is not
filed, the Administrator's investigative findings letter shall become
the final order of the Secretary. If a timely response or petition for
review is filed, the Administrator's letter shall be inoperative unless
and until the decision is upheld by the Administrative Law Judge or the
Administrative Review Board, or otherwise becomes a final order of the
Secretary.
Sec. 23.520 Debarment proceedings.
(a) Whenever any contractor is found by the Secretary of Labor to
have disregarded its obligations to workers or subcontractors under
Executive Order 14026 or this part, such contractor and its responsible
officers, and any firm, corporation, partnership, or association in
which such contractor or responsible officers have an interest, shall
be ineligible for a period of up to three years to receive any
contracts or subcontracts subject to Executive Order 14026 from the
date of publication of the name or names of the contractor or persons
on the ineligible list.
(b)(1) Whenever the Administrator finds reasonable cause to believe
that a contractor has committed a violation of Executive Order 14026 or
this part which constitutes a disregard of its obligations to workers
or subcontractors, the Administrator shall notify by certified mail to
the last known address, the contractor and its responsible officers
(and any firms, corporations, partnerships, or associations in which
the contractor or responsible officers are known to have an interest),
of the finding. The Administrator shall afford such contractor and any
other parties notified an opportunity for a hearing as to whether
debarment action should be taken under Executive Order 14026 or this
part. The Administrator shall furnish to those notified a summary of
the investigative findings. If the contractor or any other parties
notified wish to request a hearing as to whether debarment action
should be taken, such a request shall be made by letter to the
Administrator postmarked within 30 calendar days of the date of the
investigative findings letter from the Administrator, and shall set
forth any findings which are in dispute and the reasons therefor,
including any affirmative defenses to be raised. Upon receipt of such
timely request for a hearing, the Administrator shall refer the case to
the Chief Administrative Law Judge by Order of Reference, to which
shall be attached a copy of the investigative findings letter from the
Administrator and the response thereto, for designation of an
Administrative Law Judge to conduct such hearings as may be necessary
to determine the matters in dispute.
(2) Hearings under this section shall be conducted in accordance
with the procedures set forth in 29 CFR part 6. If no hearing is
requested within 30 calendar days of the letter from the Administrator,
the Administrator's findings shall become the final order of the
Secretary.
Sec. 23.530 Referral to Chief Administrative Law Judge; amendment of
pleadings.
(a) Upon receipt of a timely request for a hearing under Sec.
23.510 (where the Administrator has determined that relevant facts are
in dispute) or Sec. 23.520 (debarment), the Administrator shall refer
the case to the Chief Administrative Law Judge by Order of Reference,
to which shall be attached a copy of the investigative findings letter
from the Administrator and response thereto, for designation of an
Administrative Law Judge to conduct such hearings as may be necessary
to decide the disputed matters. A copy of the Order of Reference and
attachments thereto shall be served upon the respondent. The
investigative findings letter from the Administrator and response
thereto shall be given the effect of a complaint and answer,
respectively, for purposes of the administrative proceedings.
(b) At any time prior to the closing of the hearing record, the
complaint (investigative findings letter) or answer (response) may be
amended with the permission of the Administrative Law Judge and upon
such terms as he/she may approve. For proceedings pursuant to Sec.
23.510, such an amendment may include a statement that debarment action
is warranted under Sec. 23.520. Such amendments shall be allowed when
justice and the presentation of the merits are served thereby, provided
there is no prejudice to the objecting party's presentation on the
merits. When issues not raised by the pleadings are reasonably within
the scope of the original complaint and are tried by express or implied
consent of the parties, they shall be treated in all respects as if
they had been raised in the pleadings, and such amendments may be made
as necessary to make them conform to the evidence. The presiding
Administrative Law Judge may, upon reasonable notice and upon such
terms as are just, permit supplemental pleadings setting forth
transactions, occurrences or events which have happened since the date
of the pleadings and which are relevant to any of the issues involved.
A continuance in the hearing may be granted or the record left open to
enable the new allegations to be addressed.
Sec. 23.540 Consent findings and order.
(a) At any time prior to the receipt of evidence or, at the
Administrative Law Judge's discretion prior to the issuance of the
Administrative Law Judge's decision, the parties may enter into consent
findings and an order disposing of the proceeding in whole or in part.
(b) Any agreement containing consent findings and an order
disposing of a proceeding in whole or in part shall also provide:
(1) That the order shall have the same force and effect as an order
made after full hearing;
(2) That the entire record on which any order may be based shall
consist solely of the Administrator's findings letter and the
agreement;
(3) A waiver of any further procedural steps before the
Administrative Law Judge and the Administrative Review Board regarding
those matters which are the subject of the agreement; and
(4) A waiver of any right to challenge or contest the validity of
the findings and order entered into in accordance with the agreement.
(c) Within 30 calendar days after receipt of an agreement
containing consent findings and an order disposing of the disputed
matter in whole, the Administrative Law Judge shall, if satisfied with
its form and substance, accept such agreement by issuing a decision
based upon the agreed findings and order. If such agreement disposes of
only a part of the disputed matter, a hearing shall be conducted on the
matters remaining in dispute.
Sec. 23.550 Proceedings of the Administrative Law Judge.
(a) General. The Office of Administrative Law Judges has
jurisdiction to hear and decide appeals
[[Page 67233]]
concerning questions of law and fact from the Administrator's
investigative findings letters issued under Sec. Sec. 23.510 and
23.520. Any party may, when requesting an appeal or during the pendency
of a proceeding on appeal, timely move an Administrative Law Judge to
consolidate a proceeding initiated hereunder with a proceeding
initiated under the Service Contract Act or the Davis-Bacon Act.
(b) Proposed findings of fact, conclusions, and order. Within 20
calendar days of filing of the transcript of the testimony or such
additional time as the Administrative Law Judge may allow, each party
may file with the Administrative Law Judge proposed findings of fact,
conclusions of law, and a proposed order, together with a supporting
brief expressing the reasons for such proposals. Each party shall serve
such proposals and brief on all other parties.
(c) Decision. (1) Within a reasonable period of time after the time
allowed for filing of proposed findings of fact, conclusions of law,
and order, or within 30 calendar days of receipt of an agreement
containing consent findings and order disposing of the disputed matter
in whole, the Administrative Law Judge shall issue a decision. The
decision shall contain appropriate findings, conclusions, and an order,
and be served upon all parties to the proceeding.
(2) If the respondent is found to have violated Executive Order
14026 or this part, and if the Administrator requested debarment, the
Administrative Law Judge shall issue an order as to whether the
respondent is to be subject to the ineligible list, including findings
that the contractor disregarded its obligations to workers or
subcontractors under the Executive Order or this part.
(d) Limit on scope of review. The Equal Access to Justice Act, as
amended, does not apply to proceedings under this part. Accordingly,
Administrative Law Judges shall have no authority to award attorney's
fees and/or other litigation expenses pursuant to the provisions of the
Equal Access to Justice Act for any proceeding under this part.
(e) Orders. If the Administrative Law Judge concludes a violation
occurred, the final order shall mandate action to remedy the violation,
including, but not limited to, monetary relief for unpaid wages. Where
the Administrator has sought imposition of debarment, the
Administrative Law Judge shall determine whether an order imposing
debarment is appropriate.
(f) Finality. The Administrative Law Judge's decision shall become
the final order of the Secretary, unless a timely petition for review
is filed with the Administrative Review Board.
Sec. 23.560 Petition for review.
(a) Filing a petition for review. Within 30 calendar days after the
date of the decision of the Administrative Law Judge (or such
additional time as is granted by the Administrative Review Board), any
party aggrieved thereby who desires review thereof shall file a
petition for review of the decision with supporting reasons. Such party
shall transmit the petition in writing to the Administrative Review
Board with a copy thereof to the Chief Administrative Law Judge. The
petition shall refer to the specific findings of fact, conclusions of
law, or order at issue. A petition concerning the decision on debarment
shall also state the disregard of obligations to workers and/or
subcontractors, or lack thereof, as appropriate. A party must serve the
petition for review, and all briefs, on all parties and the Chief
Administrative Law Judge. It must also timely serve copies of the
petition and all briefs on the Administrator, Wage and Hour Division,
and on the Associate Solicitor, Division of Fair Labor Standards,
Office of the Solicitor, U.S. Department of Labor, Washington, DC
20210.
(b) Effect of filing. If a party files a timely petition for
review, the Administrative Law Judge's decision shall be inoperative
unless and until the Administrative Review Board issues an order
affirming the letter or decision, or the letter or decision otherwise
becomes a final order of the Secretary. If a petition for review
concerns only the imposition of debarment, however, the remainder of
the decision shall be effective immediately. No judicial review shall
be available unless a timely petition for review to the Administrative
Review Board is first filed.
Sec. 23.570 Administrative Review Board proceedings.
(a) Authority--(1) General. The Administrative Review Board has
jurisdiction to hear and decide in its discretion appeals concerning
questions of law and fact from investigative findings letters of the
Administrator issued under Sec. 23.510(c)(1) or (2), Administrator's
rulings issued under Sec. 23.580, and decisions of Administrative Law
Judges issued under Sec. 23.550.
(2) Limit on scope of review. (i) The Board shall not have
jurisdiction to pass on the validity of any provision of this part. The
Board is an appellate body and shall decide cases properly before it on
the basis of substantial evidence contained in the entire record before
it. The Board shall not receive new evidence into the record.
(ii) The Equal Access to Justice Act, as amended, does not apply to
proceedings under this part. Accordingly, the Administrative Review
Board shall have no authority to award attorney's fees and/or other
litigation expenses pursuant to the provisions of the Equal Access to
Justice Act for any proceeding under this part.
(b) Decisions. The Board's final decision shall be issued within a
reasonable period of time following receipt of the petition for review
and shall be served upon all parties by mail to the last known address
and on the Chief Administrative Law Judge (in cases involving an appeal
from an Administrative Law Judge's decision).
(c) Orders. If the Board concludes a violation occurred, the final
order shall mandate action to remedy the violation, including, but not
limited to, monetary relief for unpaid wages. Where the Administrator
has sought imposition of debarment, the Board shall determine whether
an order imposing debarment is appropriate. The Board's order is
subject to discretionary review by the Secretary as provided in
Secretary's Order 01-2020 (or any successor to that order).
(d) Finality. The decision of the Administrative Review Board shall
become the final order of the Secretary in accordance with Secretary's
Order 01-2020 (or any successor to that order), which provides for
discretionary review of such orders by the Secretary.
Sec. 23.580 Administrator ruling.
(a) Questions regarding the application and interpretation of the
rules contained in this part may be referred to the Administrator, who
shall issue an appropriate ruling. Requests for such rulings should be
addressed to the Administrator, Wage and Hour Division, U.S. Department
of Labor, Washington, DC 20210.
(b) Any interested party may appeal to the Administrative Review
Board for review of a final ruling of the Administrator issued under
paragraph (a) of this section. The petition for review shall be filed
with the Administrative Review Board within 30 calendar days of the
date of the ruling.
Appendix A to Part 23--Contract Clause
The following clause shall be included by the contracting agency
in every contract, contract-like instrument, and solicitation to
which Executive Order 14026 applies, except for procurement
contracts subject to the Federal Acquisition Regulation (FAR):
(a) Executive Order 14026. This contract is subject to Executive
Order 14026, the
[[Page 67234]]
regulations issued by the Secretary of Labor in 29 CFR part 23
pursuant to the Executive Order, and the following provisions.
(b) Minimum wages. (1) Each worker (as defined in 29 CFR 23.20)
engaged in the performance of this contract by the prime contractor
or any subcontractor, regardless of any contractual relationship
which may be alleged to exist between the contractor and worker,
shall be paid not less than the applicable minimum wage under
Executive Order 14026.
(2) The minimum wage required to be paid to each worker
performing work on or in connection with this contract between
January 30, 2022 and December 31, 2022, shall be $15.00 per hour.
The minimum wage shall be adjusted each time the Secretary of
Labor's annual determination of the applicable minimum wage under
section 2(a)(ii) of Executive Order 14026 results in a higher
minimum wage. Adjustments to the Executive Order minimum wage under
section 2(a)(ii) of Executive Order 14026 will be effective for all
workers subject to the Executive Order beginning January 1 of the
following year. If appropriate, the contracting officer, or other
agency official overseeing this contract shall ensure the contractor
is compensated only for the increase in labor costs resulting from
the annual inflation increases in the Executive Order 14026 minimum
wage beginning on January 1, 2023. The Secretary of Labor will
publish annual determinations in the Federal Register no later than
90 days before such new wage is to take effect. The Secretary will
also publish the applicable minimum wage on https://alpha.sam.gov/content/wage-determinations (or any successor website). The
applicable published minimum wage is incorporated by reference into
this contract.
(3) The contractor shall pay unconditionally to each worker all
wages due free and clear and without subsequent deduction (except as
otherwise provided by 29 CFR 23.230), rebate, or kickback on any
account. Such payments shall be made no later than one pay period
following the end of the regular pay period in which such wages were
earned or accrued. A pay period under this Executive Order may not
be of any duration longer than semi-monthly.
(4) The prime contractor and any upper-tier subcontractor shall
be responsible for the compliance by any subcontractor or lower-tier
subcontractor with the Executive Order minimum wage requirements. In
the event of any violation of the minimum wage obligation of this
clause, the contractor and any subcontractor(s) responsible
therefore shall be liable for the unpaid wages.
(5) If the commensurate wage rate paid to a worker performing
work on or in connection with a covered contract whose wages are
calculated pursuant to a special certificate issued under 29 U.S.C.
214(c), whether hourly or piece rate, is less than the Executive
Order minimum wage, the contractor must pay the Executive Order
minimum wage rate to achieve compliance with the Order. If the
commensurate wage due under the certificate is greater than the
Executive Order minimum wage, the contractor must pay the worker the
greater commensurate wage.
(c) Withholding. The agency head shall upon its own action or
upon written request of an authorized representative of the
Department of Labor withhold or cause to be withheld from the prime
contractor under this or any other Federal contract with the same
prime contractor, so much of the accrued payments or advances as may
be considered necessary to pay workers the full amount of wages
required by Executive Order 14026.
(d) Contract suspension/Contract termination/Contractor
debarment. In the event of a failure to pay any worker all or part
of the wages due under Executive Order 14026 or 29 CFR part 23, or a
failure to comply with any other term or condition of Executive
Order 14026 or 29 CFR part 23, the contracting agency may on its own
action or after authorization or by direction of the Department of
Labor and written notification to the contractor, take action to
cause suspension of any further payment, advance or guarantee of
funds until such violations have ceased. Additionally, any failure
to comply with the requirements of this clause may be grounds for
termination of the right to proceed with the contract work. In such
event, the Government may enter into other contracts or arrangements
for completion of the work, charging the contractor in default with
any additional cost. A breach of the contract clause may be grounds
for debarment as a contractor and subcontractor as provided in 29
CFR 23.520.
(e) Workers who receive fringe benefits. The contractor may not
discharge any part of its minimum wage obligation under Executive
Order 14026 by furnishing fringe benefits or, with respect to
workers whose wages are governed by the Service Contract Act, the
cash equivalent thereof.
(f) Relation to other laws. Nothing herein shall relieve the
contractor of any other obligation under Federal, state or local
law, or under contract, for the payment of a higher wage to any
worker, nor shall a lower prevailing wage under any such Federal,
State, or local law, or under contract, entitle a contractor to pay
less than $15.00 (or the minimum wage as established each January
thereafter) to any worker.
(g) Payroll records. (1) The contractor shall make and maintain
for three years records containing the information specified in
paragraphs (g)(1)(i) through (vi) of this section for each worker
and shall make the records available for inspection and
transcription by authorized representatives of the Wage and Hour
Division of the U.S. Department of Labor:
(i) Name, address, and social security number;
(ii) The worker's occupation(s) or classification(s);
(iii) The rate or rates of wages paid;
(iv) The number of daily and weekly hours worked by each worker;
(v) Any deductions made; and
(vi) Total wages paid.
(2) The contractor shall also make available a copy of the
contract, as applicable, for inspection or transcription by
authorized representatives of the Wage and Hour Division.
(3) Failure to make and maintain or to make available such
records for inspection and transcription shall be a violation of 29
CFR part 23 and this contract, and in the case of failure to produce
such records, the contracting officer, upon direction of an
authorized representative of the Department of Labor, or under its
own action, shall take such action as may be necessary to cause
suspension of any further payment or advance of funds until such
time as the violations are discontinued.
(4) The contractor shall permit authorized representatives of
the Wage and Hour Division to conduct investigations, including
interviewing workers at the worksite during normal working hours.
(5) Nothing in this clause limits or otherwise modifies the
contractor's payroll and recordkeeping obligations, if any, under
the Davis-Bacon Act, as amended, and its implementing regulations;
the Service Contract Act, as amended, and its implementing
regulations; the Fair Labor Standards Act, as amended, and its
implementing regulations; or any other applicable law.
(h) Flow-down requirement. The contractor (as defined in 29 CFR
23.20) shall insert this clause in all of its covered subcontracts
and shall require its subcontractors to include this clause in any
covered lower-tier subcontracts. Executive Order 14026 does not
apply to subcontracts for the manufacturing or furnishing of
materials, supplies, articles, or equipment, and this clause is not
required to be inserted in such subcontracts. The prime contractor
and any upper-tier subcontractor shall be responsible for the
compliance by any subcontractor or lower-tier subcontractor with
this contract clause.
(i) Certification of eligibility. (1) By entering into this
contract, the contractor (and officials thereof) certifies that
neither it (nor he or she) nor any person or firm who has an
interest in the contractor's firm is a person or firm ineligible to
be awarded Government contracts by virtue of the sanctions imposed
pursuant to section 5 of the Service Contract Act, section 3(a) of
the Davis-Bacon Act, or 29 CFR 5.12(a)(1).
(2) No part of this contract shall be subcontracted to any
person or firm whose name appears on the list of persons or firms
ineligible to receive Federal contracts.
(3) The penalty for making false statements is prescribed in the
U.S. Criminal Code, 18 U.S.C. 1001.
(j) Tipped employees. In paying wages to a tipped employee as
defined in section 3(t) of the Fair Labor Standards Act, 29 U.S.C.
203(t), the contractor may take a partial credit against the wage
payment obligation (tip credit) to the extent permitted under
section 3(a) of Executive Order 14026. In order to take such a tip
credit, the employee must receive an amount of tips at least equal
to the amount of the credit taken; where the tipped employee does
not receive sufficient tips to equal the amount of the tip credit
the contractor must increase the cash wage paid for the workweek so
that the amount of cash wage paid and the tips received by the
employee equal the applicable minimum wage under Executive Order
14026. To utilize this proviso:
(1) The employer must inform the tipped employee in advance of
the use of the tip credit;
[[Page 67235]]
(2) The employer must inform the tipped employee of the amount
of cash wage that will be paid and the additional amount by which
the employee's wages will be considered increased on account of the
tip credit;
(3) The employees must be allowed to retain all tips
(individually or through a pooling arrangement and regardless of
whether the employer elects to take a credit for tips received); and
(4) The employer must be able to show by records that the tipped
employee receives at least the applicable Executive Order minimum
wage through the combination of direct wages and tip credit.
(k) Antiretaliation. It shall be unlawful for any person to
discharge or in any other manner discriminate against any worker
because such worker has filed any complaint or instituted or caused
to be instituted any proceeding under or related to Executive Order
14026 or 29 CFR part 23, or has testified or is about to testify in
any such proceeding.
(l) Disputes concerning labor standards. Disputes related to the
application of Executive Order 14026 to this contract shall not be
subject to the general disputes clause of the contract. Such
disputes shall be resolved in accordance with the procedures of the
Department of Labor set forth in 29 CFR part 23. Disputes within the
meaning of this contract clause include disputes between the
contractor (or any of its subcontractors) and the contracting
agency, the U.S. Department of Labor, or the workers or their
representatives.
(m) Notice. The contractor must notify all workers performing
work on or in connection with a covered contract of the applicable
minimum wage rate under the Executive Order. With respect to service
employees on contracts covered by the Service Contract Act and
laborers and mechanics on contracts covered by the Davis-Bacon Act,
the contractor may meet this requirement by posting, in a prominent
and accessible place at the worksite, the applicable wage
determination under those statutes. With respect to workers
performing work on or in connection with a covered contract whose
wages are governed by the FLSA, the contractor must post a notice
provided by the Department of Labor in a prominent and accessible
place at the worksite so it may be readily seen by workers.
Contractors that customarily post notices to workers electronically
may post the notice electronically provided such electronic posting
is displayed prominently on any website that is maintained by the
contractor, whether external or internal, and customarily used for
notices to workers about terms and conditions of employment.
Signed in Washington, DC, this 16th day of November, 2021.
Jessica Looman,
Acting Administrator, Wage and Hour Division.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix--Increasing the Minimum Wage for Federal Contractors
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[FR Doc. 2021-25317 Filed 11-23-21; 8:45 am]
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