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On April 27, 2021, President Joseph Biden issued E.O. 14026, Increasing the Minimum Wage for Federal Contractors to promote economy and efficiency in procurement by increasing the hourly minimum wage rate paid by parties that contract with the Federal Government to $15.00 for those employees working on or in connection with a Federal Government contract. These regulations will implement the Executive Order.

Statement of Need:

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 Executive order directs the Secretary to issue regulations by November 24, 2021, consistent with applicable law, to implement the order's requirements.

Summary of the Legal Basis:

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 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).

Alternatives:

The Department noted 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. In the final rule, the Department proposed to define the term United States, when used in a geographic sense, to mean 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 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 alternative was rejected because 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.

A second alternative the Department considered in the final rule was raising (or eliminating) the 20 percent threshold for an exclusion for FLSA-covered workers performing in connection with covered contracts. 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 this regulatory alternative 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.

Anticipated Costs and Benefits:

In the final rule, the Department estimated the number of employees who would, as a result of the Executive order and the proposed 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 of final rule). During the first 10 years the rule is in effect, average annualized direct employer costs are estimated to be $2.4 million (Table 1 of final rule) 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.

The direct transfer payments associated with this rule are transfers of income from employers to employees in the form of higher wage rates. Estimated average annualized transfer payments are $1.75 billion per year over 10 years.

The Department expects that increasing the minimum wage of Federal contract workers will generate several important benefits. However, due to data limitations, these benefits are not monetized. As noted in the Executive order, the NPRM will promote economy and efficiency. Specifically, the proposed 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.

Risks:

This action does not affect public health, safety, or the environment.