The Minimum Wage Victory Parade Continues

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Tessara Smith, PayScale

Just when you thought Seattle approving $15 was the highlight of the minimum wage battle this year, it was announced that employees who work under independent contracts are also getting a pay day. On June 12, 2014 President Obama initiated the first of many executive actions to come that will boost minimum wage for workers under new federal contracts from $7.25 per hour to $10.10 per hour. This is exciting news for contractors, who will now be properly reclassified as employees in the eyes of the government, but it is only small part of a much larger effort to increase minimum wages for all workers within the United States.

The crusade to raise standard wages for employees working under contract began when The Department of Labor’s Wage and Hour Division filed Executive Order 13658, which called for the enactment of increased minimum wages for contractors. On February 12, 2014 President Obama affirmed this new legislation, after giving his State of the Union Address in which he discussed problems surrounding compensation. Here’s a rundown of the changes:

  • Employees who work under contracts or subcontracts will begin to see increases wages as early as January 1, 2015.
  • The new regulations will increases the minimum wage to $10.10/hour for typical contract workers. However, minimum wage will only be set to $4.90/hour for employees who work for tips; a tipped employee is considered to be anyone who makes $30 or more per month not included in their stipend.
  • In addition to wage changes, employees can anticipate standard amenities such as healthcare to be included in their new employee-employer agreements.  
  • Most importantly, the new policies will also require all contractors and subcontractors to pay minimum wage for each and every hour that employees work.

The changes here are significant upgrades from the lack of overtime pay and non-existent benefits packages that previously frustrated employees. The executive order is inclusive of all employees working under federal contracts as well as subcontracted employees. Once the executive order goes into effect it will be reviewed annually by the Secretary of Labor, Thomas Perez. Following January 1, 2016 if Perez determines that adjustments to the new minimum wage need to be made; contractors will have a three-month period to implement any changes.

Aside from paying their employees a higher wage, another inconvenience of this executive order is that it will require contractors to start managing and maintaining records of all their employees. This may prove to be difficult for contractors who are used to not having to keep track of employee history due to the single use nature of work agreements. Legally speaking, the information that will have to be accounted for are employees names, addresses,  social security numbers, the rates which wages are paid, the number of hours employees have worked, and any deductions that need to be made to their paychecks. Sounds pretty standard to the average employer, but for contractors it will require the building and designing of a whole new system within their companies.

The executive order certainly cracks down on enforcing regulations that contractors were not previously held to, but there are still caveats. The executive order provides a very vague definition of the term “contract”.  In order for a contract to fall under the jurisdiction of the executive order, it has to meet two requirements:

  • First of all it needs to be a either a procurement contract for construction by the Davis Bacon Act, a contract for services covered by the Service Contract Act, a contract for concessions, or a contract to provide services to federal employees, their dependents, or the general public on federal or public lands.
  • Secondly, wages paid under a contract must be regulated by the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act.

Although executive order 13658 is a major step towards fair pay for employees working under contract, there is still a long way to go before they can consider themselves to be fairly compensated.

Hopefully, this is not the end of minimum wage increases for employees. Obama is pushing for increased wages across the board and he is pleading with employers to do what they can to raise wages for their employees. The job market is frustrating to say the least, and there are plenty of people who take advantage of the system, but in the President’s opinion nobody working full time should have to live in poverty.

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