Guest Blogger: Sunghee W. Sohn

iStock_WageIncrease.XSmall.jpgOn February 12, 2014, President Obama increased the minimum wage for federal contractors and subcontractors by an Executive Order to $10.10 per hour. This announcement comes on the heels of 13 states and 4 cities that also raised their own state and local minimum wages in 2014. Effective January 1, 2015, the federal contractors’ minimum wage will be the highest minimum wage in the country.

Which federal contractors are subject to the new minimum wage?

The Executive Order states federal contractors who receive new contracts on or after January 1, 2015 will be responsible for paying the new minimum wage. In addition, only contractors who win new contracts for procurement of services or construction, services covered by the Service Contract Act, concessions, and services in connection with federal property or lands will be subject to the new minimum wage. The government is expected to issue regulations by April 12, 2014 that will include three exclusions from the requirement. It is still unclear as to what classification of federal contractor or work will be excluded from the Executive Order. Employers who believe they will be impacted should begin to analyze and prepare their budgets, payroll, benefits and, for some, collective bargaining obligations in light of the order.

What will be the new hourly minimum wage and who is entitled?

Starting January 1, 2015, the Executive Order increases the hourly minimum wage to $10.10 for non-tip earning workers. In successive years, the minimum wage will increase by the same rate as the CPI. If the CPI does not rise in any given subsequent year, the minimum wage will remain unchanged that year. 

How will tip-earning workers be paid under the Executive Order?

Workers who earn tips as part of their wages will also benefit from the Executive Order. Tip-earners earn an hourly cash wage which is supplemented by their tips. The hourly cash wage will increase to $4.90 per hour on January 1, 2015. These workers can expect a yearly increase of either $0.95 cents or the amount necessary for the cash wage to equal 70% of the minimum wage of non-tip earning workers, whichever is less. When the cash wage equals 70% of the minimum wage, the cash wage will annually adjust to maintain that proportion. If the total wage, including tip, dips below the minimum wage ($10.10 in 2015) the employer must compensate for the difference and “bump” the worker up to the minimum wage.