Establishing a Minimum Wage for Contractors, 60633-60733 [2014-23533]

Agencies

• DEPARTMENT OF LABOR
• Office of the Secretary

[Federal Register Volume 79, Number 194 (Tuesday, October 7, 2014)]
[Rules and Regulations]
[Pages 60633-60733]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-23533]



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Vol. 79

Tuesday,

No. 194

October 7, 2014

Part III





Department of Labor





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Office of the Secretary





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29 CFR Part 10





 Establishing a Minimum Wage for Contractors; Final Rule

Federal Register / Vol. 79 , No. 194 / Tuesday, October 7, 2014 / 
Rules and Regulations

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DEPARTMENT OF LABOR

Office of the Secretary

29 CFR Part 10

RIN 1235-AA10


Establishing a Minimum Wage for Contractors

AGENCY: Wage and Hour Division, Department of Labor.

ACTION: Final rule.

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SUMMARY: In this final rule, the Department of Labor issues final 
regulations to implement Executive Order 13658, Establishing a Minimum 
Wage for Contractors, which was signed by President Barack Obama on 
February 12, 2014. Executive Order 13658 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 covered Federal contracts to: $10.10 per 
hour, beginning January 1, 2015; and beginning January 1, 2016, and 
annually thereafter, an amount determined by the Secretary of Labor. 
The Executive Order directs the Secretary to issue regulations by 
October 1, 2014, to the extent permitted by law and consistent with the 
requirements of the Federal Property and Administrative Services Act, 
to implement the Order's requirements. This final rule therefore 
establishes standards and procedures for implementing and enforcing the 
minimum wage protections of Executive Order 13658. As required by the 
Order, the final rule incorporates to the extent practicable existing 
definitions, procedures, remedies, and enforcement processes under the 
Fair Labor Standards Act, the Service Contract Act, and the Davis-Bacon 
Act.

DATES: Effective date: This final rule is effective on December 8, 
2014.
    Applicability date: For procurement contracts subject to the 
Federal Acquisition Regulation and Executive Order 13658, this final 
rule is applicable beginning on the effective date of regulations 
revising 48 CFR parts 22 and 52 issued by the Federal Acquisition 
Regulatory Council.

FOR FURTHER INFORMATION CONTACT: Timothy Helm, Chief, Branch of 
Government Contracts Enforcement, Office of Government Contracts, Wage 
and Hour Division, U.S. Department of Labor, Room S-3006, 200 
Constitution Avenue NW., Washington, DC 20210; telephone: (202) 693-
0064 (this is not a toll-free number). Copies of this final rule may be 
obtained in alternative formats (Large Print, Braille, Audio Tape or 
Disc), upon request, by calling (202) 693-0675 (this is not a toll-free 
number). TTY/TDD callers may dial toll-free 1-877-889-5627 to obtain 
information or request materials in alternative formats.
    Questions of interpretation and/or enforcement of the agency's 
regulations may be directed to the nearest Wage and Hour Division (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 the WHD's Web site for a 
nationwide listing of WHD district and area offices at https://www.dol.gov/whd/america2.htm.

SUPPLEMENTARY INFORMATION:

I. Executive Order 13658 Requirements and Background

    On February 12, 2014, President Barack Obama signed Executive Order 
13658, Establishing a Minimum Wage for Contractors (the Executive Order 
or the Order). 79 FR 9851. 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. Id. The Order therefore ``seeks to 
increase efficiency and cost savings in the work performed by parties 
who contract with the Federal Government'' by raising the hourly 
minimum wage paid by those contractors to workers performing work on 
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 by the Secretary of Labor (Secretary) in accordance 
with the Executive Order. Id.
    Section 1 of Executive Order 13658 sets forth a general position of 
the Federal Government that increasing the hourly minimum wage paid by 
Federal contractors to $10.10 will ``increase efficiency and cost 
savings'' for the Federal Government. 79 FR 9851. The Order states that 
raising the pay of low-wage workers increases their morale and 
productivity and the quality of their work, lowers turnover and its 
accompanying costs, and reduces supervisory 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 13658 therefore establishes a minimum 
wage for Federal contractors and subcontractors. 79 FR 9851. The Order 
provides that executive departments and agencies (agencies) shall, to 
the extent permitted by law, ensure that new contracts, contract-like 
instruments, and solicitations (collectively referred to as 
``contracts''), as described in section 7 of the Order, include a 
clause, which the contractor and any 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),\1\ in the performance of the contract or any subcontract 
thereunder, shall be at least: (i) $10.10 per hour beginning January 1, 
2015; and (ii) beginning January 1, 2016, and annually thereafter, an 
amount determined by the Secretary in accordance with the Executive 
Order. 79 FR 9851. 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, if any, 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 
this section, the Secretary shall compare such CPI 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 for the same month 
in the preceding year, the same quarter in the preceding year, or the 
preceding year, respectively. 79 FR 9851. Pursuant to this section, 
nothing in the Order excuses noncompliance with any applicable Federal 
or State prevailing wage law or any applicable

[[Page 60635]]

law or municipal ordinance establishing a minimum wage higher than the 
minimum wage established under the Order. Id.
    Section 3 of Executive Order 13658 explains the application of the 
Order to tipped workers. 79 FR 9851-52. It provides that for workers 
covered by section 2 of the Order who are tipped employees pursuant to 
29 U.S.C. 203(t), the hourly cash wage that must be paid by an employer 
to such employees shall be at least: (i) $4.90 an hour, beginning on 
January 1, 2015; (ii) for each succeeding 1-year period until the 
hourly cash wage under this section equals 70 percent of the wage in 
effect under section 2 of the Order for such period, an hourly cash 
wage equal to the amount determined under section 3 of the Order for 
the preceding year, increased by the lesser of: (A) $0.95; or (B) the 
amount necessary for the hourly cash wage under section 3 to equal 70 
percent of the wage under section 2 of the Order; and (iii) for each 
subsequent year, 70 percent of the wage in effect under section 2 for 
such year rounded to the nearest multiple of $0.05. 79 FR 9851-52. 
Where workers do not receive a sufficient additional amount on account 
of tips, when combined with the hourly cash wage paid by the employer, 
such that their wages 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 their wages equal the minimum wage under section 
2 of the Order. 79 FR 9852. 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. Id.
    Section 4 of Executive Order 13658 provides that the Secretary 
shall issue regulations by October 1, 2014, to the extent permitted by 
law and consistent with the requirements of the Federal Property and 
Administrative Services Act, to implement the requirements of the 
Order, including providing exclusions from the requirements set forth 
in the Order where appropriate. 79 FR 9852. 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 issue regulations in the Federal Acquisition Regulation (FAR) to 
provide for inclusion of the contract clause in Federal procurement 
solicitations and contracts subject to the Executive Order. Id. 
Additionally, this section 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 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 after January 1, 2015, 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 this section 
should, to the extent practicable and consistent with section 8 of the 
Order, incorporate existing definitions, procedures, remedies, and 
enforcement processes under the Fair Labor Standards Act (FLSA), 29 
U.S.C. 201 et seq.; the SCA; and the Davis-Bacon Act (DBA), 40 U.S.C. 
3141 et seq. 79 FR 9852.
    Section 5 of Executive Order 13658 grants authority to the 
Secretary to investigate potential violations of and obtain compliance 
with the Order. 79 FR 9852. It also explains that Executive Order 13658 
does not create any rights under the Contract Disputes Act and that 
disputes regarding whether a contractor has paid the wages prescribed 
by the Order, to the extent permitted by law, shall be disposed of only 
as provided by the Secretary in regulations issued pursuant to the 
Order. Id.
    Section 6 of Executive Order 13658 establishes that if any 
provision of the Order or the application of such provision to any 
person or circumstance is held to be invalid, the remainder of the 
Order and the application shall not be affected. 79 FR 9852.
    Section 7 of the Executive Order provides that nothing in the Order 
shall be construed to impair or otherwise affect the authority granted 
by law to an 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. 79 FR 9852-53. It also states 
that the Order is to be implemented consistent with applicable law and 
subject to the availability of appropriations. 79 FR 9853. The Order 
explains that it 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.
    Section 7 of Executive Order 13658 further establishes that the 
Order shall apply only to a new contract, as defined by the Secretary 
in the regulations issued pursuant to section 4 of the Order, 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. 79 FR 9853. Section 7 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.\2\ 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),\3\ unless expressly made subject to 
the Order pursuant to regulations or actions taken under section 4 of 
the Order. 79 FR 9853. The Executive Order specifies that it shall not 
apply to grants; contracts and agreements with and grants to 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. 79 FR 
9853. The Order also strongly encourages independent agencies to comply 
with its requirements. Id.
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    \2\ 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.
    \3\ 41 U.S.C. 1902(a) defines the micro-purchase threshold as 
$3,000.
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    Section 8 of Executive Order 13658 provides that the Order is 
effective immediately and shall apply to covered contracts where the 
solicitation for such contract has been issued on or after: (i) January 
1, 2015, 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 1, 2015, consistent with the effective date for such action. 79 
FR 9853. It also

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specifies that the Order shall not apply to contracts entered into 
pursuant to solicitations issued on or before the effective date for 
the relevant action taken pursuant to section 4 of the Order. Id. 
Finally, section 8 states that, for all new contracts negotiated 
between the date of the Order and the effective dates set forth in this 
section, agencies are strongly encouraged to take all steps that are 
reasonable and legally permissible to ensure that individuals working 
pursuant to those contracts are paid an hourly wage of at least $10.10 
(as set forth under sections 2 and 3 of the Order) as of the effective 
dates set forth in this section. 79 FR 9854.

II. Discussion of Final Rule

A. Legal Authority

    The President issued Executive Order 13658 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. 79 FR 9851. 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 13658 delegates to the Secretary the authority 
to issue regulations to ``implement the requirements of this order.'' 
79 FR 9852. The Secretary has delegated his authority to promulgate 
these regulations to the Administrator of the WHD. Secretary's Order 
05-2010 (Sept. 2, 2010), 75 FR 55352 (published Sept. 10, 2010).

B. Discussion of the Final Rule

    On June 17, 2014, the Department published a Notice of Proposed 
Rulemaking (NPRM) in the Federal Register, inviting public comments for 
a period of 30 days on a proposal to implement the provisions of 
Executive Order 13658. See 79 FR 34568 (June 17, 2014). On July 8, 
2014, the Department extended the period for filing written comments 
until July 28, 2014. See 79 FR 38478. More than 6,500 individuals and 
entities commented on the Department's NPRM. Comments were received 
from a variety of interested stakeholders, such as labor organizations; 
contractors and contractor associations; worker advocates, including 
advocates for people with disabilities; contracting agencies; small 
businesses; and workers. Some organizations attached the views of some 
of their individual members. For example, 1,159 individuals joined in 
comments submitted by Interfaith Worker Justice and the National 
Women's Law Center submitted 5,127 individual comments.
    The Department received many comments, such as those submitted by 
the American Federation of Labor and Congress of Industrial 
Organizations (AFL-CIO), North America's Building Trades Unions 
(Building Trades), the National Women's Law Center, Interfaith Worker 
Justice, Demos, the National Employment Law Project (NELP), and the 
National Disability Rights Network (NDRN), expressing strong support 
for the Executive Order and for raising the minimum wage. Many of these 
commenters, such as Demos, commended the Department's NPRM as a 
``reasonable and appropriate'' implementation of Executive Order 13658. 
The Building Trades similarly applauded the Department's proposed rule 
as presenting ``a straightforward and comprehensive framework for 
implementing, policing and enforcing Executive Order 13658.'' Although 
the Professional Services Council (PSC) disagreed with some of the 
substantive interpretations set forth in the Department's NPRM, it also 
expressed its appreciation for ``the extensive explanatory material'' 
set forth in the preamble to the proposed rule and noted that such 
information provided ``valuable insight into the Department's approach 
and rationale.''
    However, the Department also received submissions from several 
commenters, including the National Restaurant Association (Association) 
and the International Franchise Association (IFA), the U.S. Chamber of 
Commerce (Chamber) and the National Federation of Independent Business 
(NFIB), the HR Policy Association, and the Associated Builders and 
Contractors, Inc. (ABC), expressing strong opposition to the Executive 
Order and questioning its legality and stated purpose. Comments 
questioning the legal authority and rationale underlying the Executive 
Order are not within the purview of this rulemaking action.
    The Department also received a number of comments requesting that 
the President take other executive actions to protect workers on 
Federal Government contracts. While the Department appreciates such 
input, comments requesting further executive actions are beyond the 
scope of this rule and the Department's rulemaking authority.
    Finally, the Center for Plain Language (CPL) submitted a comment 
regarding how the Federal Plain Language Guidelines could improve the 
general clarity of the final rule. The Department has carefully 
considered this comment and has endeavored to use plain language in the 
preamble and regulatory text of the final rule in instances where plain 
language is appropriate and does not change the substance of the rule. 
For example, the Department has avoided the use of ``prior to,'' 
``pursuant to,'' ``shall,'' ``such,'' and ``thereunder,'' where 
appropriate. In addition, the Department has made an effort to use 
shorter sentences and paragraphs where possible or appropriate. Some of 
the suggested changes, however, are not suitable to this final rule. 
For example, the Department does not find the use of the pronoun 
``you'' or headings in the form of questions to be appropriate here. 
Section 4(c) of Executive Order 13658 directs the Department to 
incorporate existing definitions and procedures from the DBA, the SCA, 
and the FLSA, to the extent practicable. Because the implementing 
regulations under those statutes do not use the pronoun ``you'' and do 
not use questions as headings, the Department has concluded that it 
would be inconsistent to do so in the final rule.
    All other comments, including comments raising specific concerns 
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 considering all timely and 
relevant comments received in response to the June 17, 2014 NPRM, the 
Department is issuing this final rule to implement the provisions of 
Executive Order 13658.
    The Department's final rule, which amends Title 29 of the Code of 
Federal Regulations (CFR) by adding part 10, establishes standards and 
procedures for implementing and enforcing Executive Order 13658. 
Subpart A of part 10 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 Order. It also sets 
forth the general minimum wage requirement for contractors established 
by the Executive Order, an antiretaliation provision, and a prohibition 
against waiver of rights. Subpart B establishes the requirements that 
contracting agencies and the Department must follow to comply with the 
minimum wage provisions of the Executive Order. Subpart C establishes 
the requirements that contractors must follow to comply with the 
minimum wage provisions of the Executive Order. Subparts D and E 
specify standards and procedures related to complaint intake, 
investigations, remedies, and administrative enforcement

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proceedings. Appendix A contains a contract clause to implement 
Executive Order 13658. 79 FR 9851. Appendix B sets forth a poster 
regarding the Executive Order minimum wage for contractors with FLSA-
covered workers performing work on or in connection with a covered 
contract.
    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.
Subpart A--General
    Executive Order 13658 seeks to raise the hourly minimum wage paid 
by those contractors to workers performing work on covered Federal 
contracts to: $10.10 per hour, beginning January 1, 2015; and beginning 
January 1, 2016, and annually thereafter, an amount determined by the 
Secretary of Labor in accordance with the Order.
    Subpart A of part 10 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 minimum wage requirement for 
contractors, an antiretaliation provision, and a prohibition against 
waiver of rights.
Section 10.1 Purpose and Scope
    Proposed Sec.  10.1(a) explained that the purpose of the proposed 
rule was to implement Executive Order 13658 and reiterated statements 
from the 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 further stated that there is evidence that boosting low 
wages can reduce turnover and absenteeism in the workplace, while also 
improving morale and incentives for workers, thereby leading to higher 
productivity overall. As stated in proposed Sec.  10.1(a), it is for 
these reasons that the Executive Order concludes that raising, to 
$10.10 per hour, the minimum wage for work performed by parties who 
contract with the Federal Government will lead to improved economy and 
efficiency in Government procurement. The NPRM stated that the 
Department believes 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.
    The Department received a number of comments asserting that 
Executive Order 13658 does not promote economy and efficiency in 
Federal Government procurement and challenging the determinations set 
forth in the Executive Order that are reflected in proposed Sec.  
10.1(a). As stated above, comments questioning the President's legal 
authority to issue the Executive Order are not within the scope of this 
rulemaking action. To the extent that such comments challenge specific 
conclusions made by the Department in its economic and regulatory 
flexibility analyses set forth in the NPRM, those comments are 
addressed in sections IV and V of the preamble to this final rule. The 
Department did not receive any other comments addressing proposed Sec.  
10.1(a) and therefore implements the provision as it was proposed in 
the NPRM.
    Proposed Sec.  10.1(b) explained the general Federal Government 
requirement established in Executive Order 13658 that new contracts 
with the Federal Government include a clause, which the contractor and 
any subcontractors shall incorporate into lower-tier subcontracts, 
requiring, as a condition of payment, that the contractor and any 
subcontractors pay workers performing work on the contract or any 
subcontract thereunder at least: (i) $10.10 per hour beginning January 
1, 2015; and (ii) an amount determined by the Secretary pursuant to the 
Order, beginning January 1, 2016, and annually thereafter. Proposed 
Sec.  10.1(b) also clarified that nothing in Executive Order 13658 or 
part 10 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 Order. The Department did not receive any 
comments on proposed Sec.  10.1(b) and therefore adopts the provision 
as proposed.
    Proposed Sec.  10.1(c) outlined the scope of this proposed rule and 
provided that neither Executive Order 13658 nor this part creates any 
rights under the Contract Disputes Act or any private right of action. 
In the NPRM, 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 Order, to the extent permitted by law, shall be 
disposed of only as provided by the Secretary in regulations issued 
under the Order. The provision clarified, however, that nothing in the 
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 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 PSC commented on proposed Sec.  10.1(c), noting that it 
concurred with the provision as written but recommended that the 
Department modify the phrase ``create any rights under the Contract 
Disputes Act'' in the first sentence of that provision to ``change any 
rights under the Contract Disputes Act'' to recognize that this rule 
does not impact existing Contract Disputes Act rights. The Department 
agrees with this comment and, as stated in the NPRM, does not interpret 
the Executive Order as limiting any existing rights under the Contract 
Disputes Act. See 79 FR 34571. Accordingly, the Department has provided 
in Sec.  10.1(c) of the final rule that neither Executive Order 13658 
nor this part ``creates or changes'' any rights under the Contract 
Disputes Act. The Department has also made a technical edit to this 
section by adding a citation to the Administrative Procedure Act.
Section 10.2 Definitions
    Proposed Sec.  10.2 defined terms for purposes of this rule 
implementing Executive Order 13658. 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, and the 
DBA ``to the extent practicable and consistent with section 8 of this 
order.'' 79 FR 9852. Most of the definitions provided in the 
Department's proposed rule were therefore based on either the Executive 
Order itself or the definitions of relevant terms set forth in the 
statutory text or implementing regulations of the FLSA, SCA, or DBA. 
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 also proposed to adopt, where applicable, definitions set 
forth in the Department's regulations implementing Executive Order 
13495, Nondisplacement of Qualified Workers Under Service Contracts. 29 
CFR 9.2. In the NPRM, the Department noted that, while the proposed 
definitions discussed in the proposed rule would govern the 
implementation and enforcement of Executive Order 13658, nothing in the 
proposed rule was

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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, several commenters, such as Demos and the AFL-
CIO, stated that the Department reasonably and appropriately defined 
the terms of the Executive Order. The AFL-CIO, for example, 
particularly supported ``the inclusive definitions and broad scope of 
the proposed rule.'' Many 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. This proposed definition was based on the definition of 
the term set forth in section 2.101 of the FAR. See 48 CFR 2.101. The 
CPL suggested that the Department consolidate this definition with the 
definition set forth for the term Administrator because the NPRM 
appeared to be using different terms to describe the same concept. The 
Department disagrees with the CPL's suggested consolidation of these 
two definitions because the term agency head is used to refer to the 
head of any executive agency whereas the term Administrator, as used in 
this part, refers specifically to the head of the Wage and Hour 
Division, U.S. Department of Labor. Because the Department did not 
receive any other comments addressing the term agency head, the 
Department has adopted 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. In the NPRM, the Department explained that 
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 included but was not limited to all concessions 
contracts excluded by Departmental regulations under the SCA at 29 CFR 
4.133(b).
    Demos expressed its support for the Department's proposed 
definition of concessions contract, noting that the definition 
appropriately does not impose restrictions on the beneficiary of 
services offered by parties to a concessions contract with the Federal 
Government (i.e., concessions contracts may be of direct or indirect 
benefit to the Federal Government, its property, its civilian or 
military personnel, or the general public). Several other commenters 
expressed concern or confusion regarding application of this definition 
to specific factual circumstances; such comments are addressed below in 
the preamble discussion of the coverage of concessions contracts. As 
the Department received no comments suggesting revisions to the 
proposed definition of this term, the Department adopts the definition 
as 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. This 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 explained that the proposed definition of the term 
contract shall be interpreted broadly to include, but not be limited 
to, any contract that may be consistent with the definition provided in 
the FAR or applicable Federal statutes. In the NPRM, the Department 
noted that this definition shall include, but shall not be limited to, 
any contract that may be covered under any Federal procurement statute. 
The Department specifically proposed to note in this definition that 
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 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; 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, and 
concessions contracts not otherwise subject to the SCA, as provided in 
section 7(d) of the Executive Order. See 79 FR 9853. The proposed 
definition of contract discussed herein was derived from the definition 
of the term contract set forth in Black's Law Dictionary (9th ed. 2009) 
and Sec.  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-.111, 4.130. The Department also incorporated the exclusions from 
coverage specified in section 7(f) of the Executive Order and provided 
that the term contract does not include grants; contracts and 
agreements with and grants to Indian Tribes under the Indian Self-
Determination and Education Assistance Act (Pub. L. 93-638), as 
amended; or any contracts or contract-like instruments expressly 
excluded by Sec.  10.4.
    The Department noted that the mere fact that a legal instrument 
constitutes a contract under this definition does not mean that the 
contract is subject to the Executive Order. The NPRM explained that, in 
order for a contract to be covered by the Executive Order and the 
proposed rule, the contract must qualify as one of the specifically 
enumerated types of contracts set forth in section 7(d) of the Order 
and proposed Sec.  10.3. For example, although a cooperative agreement 
would be considered a contract pursuant to the Department's proposed 
definition, a cooperative agreement would not be covered by the 
Executive Order and this part unless it was subject to the DBA or SCA, 
was a concessions contract, or was entered into ``in connection with 
Federal property or lands and related to offering services for Federal 
employees, their dependents, or the general public.'' 79 FR 9853. In 
other words, the NPRM explained that this part would not apply to 
cooperative agreements that did not involve providing services for 
Federal employees, their dependents, or the general public.
    Several individuals and entities submitted comments expressing 
their support for the Department's proposed definition of the terms 
contract and contract-like instrument. NELP and the

[[Page 60639]]

eight organizations that joined in its comment, for example, stated 
that the proposed definition ``fairly reflect[s] the increasing 
complexity of leasing and contracting relationships between the Federal 
Government and the private sector.'' The AFL-CIO similarly commended 
the Department's proposed definition because ``it is consistent both 
with the Executive Order and because it tracks the definitions 
contained in the SCA and DBA. . . . The proposal appropriately seeks to 
include the full range of contracts and other government procurement 
arrangements so as to effectuate the purposes of the Executive Order.''
    However, the Department received several comments, such as those 
submitted by the Associated General Contractors of America (AGC), the 
Chamber/NFIB, the Equal Employment Advisory Council (EEAC), and the 
Association/IFA, expressing confusion or concern regarding the breadth 
of the Department's proposed definition of the terms contract and 
contract-like instrument. The National Ski Areas Association (NSAA), 
for example, described this proposed definition as ``all-encompassing'' 
and ``remarkably broad.'' NSAA asserted that the proposed definition of 
the term contract was so broad that it could extend to cover ``any 
agreement with a federal agency'' and could ``include even those hotels 
that accept a GSA room rate for government employees.''
    The PSC similarly criticized the Department's ``very broad'' 
proposed definition and contended that it would cover situations and 
business relationships that are not subject to the FAR or the SCA's 
regulations, thus generating confusion among contractors. The PSC 
asserted that the proposed definition also ``over-scopes'' the term 
contract to include transactions, such as notices of awards that are 
not ``mutually binding legal relationships.'' The PSC further stated 
that the proposed definition of the term would cover instruments such 
as blanket purchase agreements, task orders, and delivery orders that 
it does not regard as ``contracts.'' The PSC thus urged the Department 
to adopt the definition of the term contract set forth in the FAR for 
purposes of covering Federal procurement transactions. The EEAC 
criticized the Department's proposed definition for including ``verbal 
agreements,'' and asserted that it is difficult to imagine how a 
proposed contract clause could be included in a verbal agreement. It 
further observed that the proposed definition would appear to cover any 
lease for space under the General Services Administration's (GSA) 
outlease program as well as any license or permit to use Federal land, 
including a permit to conduct a wedding on Federal property.
    As a threshold matter, the Department notes that its proposed 
definition of the terms contract and contract-like instrument was 
primarily derived from the definitions of those terms in the FAR and 
the SCA's regulations and thus it should not have been wholly 
unfamiliar or unduly confusing to contractors. See 48 CFR 2.101; 29 CFR 
4.110-.111, 4.130. For example, the PSC criticized the proposed 
definition for its inclusion of ``notices of awards,'' which the PSC 
argues are not ``mutually binding legal relationships.'' However, this 
language is taken verbatim from the FAR definition of the term contract 
that the PSC itself urges the Department to adopt. See 48 CFR 2.101 
(defining the term contract as ``a mutually binding legal 
relationship'' and specifically stating that ``contracts include (but 
are not limited to) awards and notices of awards'').
    Although the Department relied heavily on the FAR's definition of 
the term contract, the Department must reject the suggestion that it 
wholly adopt the FAR definition of the term because the term contract 
as used in the Executive Order applies to both procurement and non-
procurement legal arrangements whereas the FAR definition only applies 
to procurement contracts. For that reason, the Department has also 
relied upon the Department's interpretation of the term ``contract'' 
under the SCA. For example, the proposed definition includes ``verbal 
agreements'' because the SCA's regulations specifically provide that 
the mere fact that an agreement is not written does not render such 
contract outside the scope of the SCA's coverage, see 29 CFR 4.110, 
even though the SCA mandates inclusion of a written contract clause. 
The inclusion of verbal agreements in the definition of the terms 
contract and contract-like instrument helps to ensure that coverage of 
the Executive Order can extend to situations where contracting parties, 
for whatever reason, rely on an oral agreement rather than a written 
contract. Although such instances are likely to be exceptionally rare, 
workers should not be deprived of the Executive Order minimum wage 
merely because the contracting parties neglected to formally 
memorialize their mutual agreement in an executed written contract.
    With respect to all comments regarding the general breadth of the 
proposed definition of the terms contract and contract-like instrument, 
the Department notes that its proposed definition is intentionally all-
encompassing. The proposed definition of these terms could indeed be 
applied to an expansive range of different types of legal arrangements, 
including purchase and task orders; the use of the term ``contract-like 
instrument'' in the Executive Order 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. 
Importantly, however, the NPRM carefully explained that ``the mere fact 
that a legal instrument constitutes a contract under this definition 
does not mean that such contract is subject to the Executive Order.'' 
79 FR 34572.
    In order for a legal instrument to be covered by the Executive 
Order, the instrument must satisfy all of the following prongs: (1) It 
must qualify as a contract or contract-like instrument under the 
definition set forth in this part; (2) it must fall within one of the 
four specifically enumerated types of contracts set forth in section 
7(d) of the Order and Sec.  10.3 of this part; and (3) it must be a 
``new contract'' pursuant to the definition provided in Sec.  10.2. 
(Moreover, in order for the minimum wage protections of the Executive 
Order to actually extend to a particular worker on a covered contract, 
that worker's wages must be governed by the DBA, SCA, or FLSA.) For 
example, although an agreement between a contracting agency and a hotel 
pursuant to which the hotel accepts the 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 this part 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. The Department believes that this basic test for 
contract coverage was clearly stated in the NPRM, but has endeavored to 
provide additional clarification and examples of covered contracts in 
its preamble discussion of

[[Page 60640]]

the coverage provisions set forth at Sec.  10.3 in this final rule.
    Several other commenters, including AGC, requested that the 
Department separately define the term contract-like instrument and 
provide examples of contract-like instruments because the regulated 
community is generally unfamiliar with the term. The EEAC generally 
observed that the term contract-like instrument is not used in the FAR 
or the prevailing wage statutes with which most government contractors 
are familiar and thus the term has generated considerable confusion in 
the regulated community. Fortney and Scott, LLC (FortneyScott) 
similarly requested that the Department clarify the definition of a 
contract-like instrument. It asserted that all of the examples of 
``contract-like instruments'' set forth in the NPRM would in fact 
qualify as ``contracts'' and therefore asked whether there would be any 
instruments that would be deemed to be ``contract-like instruments'' 
that would not also be considered ``contracts.'' FortneyScott suggested 
that the Department should expressly state in the final rule that there 
are no ``contract-like instruments'' subject to the Executive Order 
other than those that would be covered by the definition of 
``contract.''
    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. As noted above, several commenters 
accurately observed that the Department's proposed definition of these 
terms is broad. The use of the term ``contract-like instrument'' in the 
Executive Order 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.'' For example, the 
term contract-like instrument would encompass Forest Service permits 
that ``possess contract characteristics,'' Son Broadcasting, Inc. v. 
United States, 52 Fed. Cl. 815, 823 (Ct. Cl. 2002), and that use 
``contract-like language.'' Meadow-Green Wildcat Corp. v. Hathaway, 936 
F.2d 601, 604 (1st Cir. 1991). The large number of specific comments 
that the Department received regarding the coverage of ``contracts for 
concessions'' and ``contracts in connection with Federal property'' 
underscores the importance of the term ``contract-like instrument'' in 
the Executive Order; as the EEAC itself observed, ``[e]mployers may not 
think of these arrangements as contracts at all, and indeed may be 
surprised to learn that the new minimum wage mandate applies.'' For 
this precise reason, the Executive Order utilized the term ``contract-
like instrument'' to help clarify that its minimum wage requirements 
are broadly applicable to all contractual arrangements so long as such 
arrangements fall within one of the four specifically enumerated types 
of arrangements set forth in section 7(d) of the Order. The Department 
acknowledges that the term contract-like instrument does not apply to 
an arrangement or an agreement that is truly not contractual. However, 
the use of such term helps to emphasize that the Executive Order was 
intended to sweep broadly to apply to concessions agreements and 
agreements 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, the Department believes that the Executive Order's use of the 
term contract-like instrument is intended to prevent disputes or 
extended discussions between contracting agencies and contractors 
regarding whether a particular legal instrument 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 arrangement is covered. The 
Department thus declines to separately define the term contract-like 
instrument as suggested by some commenters because the term is best 
understood contextually in conjunction with the well-known term 
contract.
    The United States Department of Agriculture's Forest Service (FS) 
commented that the Department should consolidate the definition of the 
terms contract and contract-like instrument with the definition of the 
term concessions contract because it believes that the definition of 
concessions contract is subsumed in the more general definition of 
contract. Although the Department agrees that the definition of the 
term contract is relevant to determining whether a legal instrument 
qualifies as a ``contract for concessions,'' the Department continues 
to believe that a separate definition is necessary to inform the 
regulated community about the meaning of the term ``contract for 
concessions.'' As noted above, commenters such as Demos expressed their 
strong support for the proposed definition of the term ``contract for 
concessions.'' The need for this specific and separate definition is 
underscored by the large number of comments that the Department 
received regarding the coverage of concessions contracts and contracts 
in connection with Federal property or lands. The Department addresses 
the specific concerns raised regarding the coverage of concessions 
contracts in the preamble discussion of coverage provisions below.
    Several other commenters, including the America Outdoors 
Association (AOA) and the Association/IFA, urged the Department to 
include separate definitions of the terms subcontract and subcontractor 
in the final rule. In the NPRM, 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 AOA and the Association/IFA expressed confusion regarding the 
``flow-down'' provisions of the Executive Order and suggested that the 
Department could help to clarify coverage of subcontracts by expressly 
defining that term.
    The applicability of the Executive Order to subcontracts is 
addressed 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 set forth definitions of those terms in the 
final rule because it could generate significant confusion for 
contracting agencies, contractors, and workers. The Department notes 
that many commenters, including the Association/IFA itself, strongly 
urged the Department to align its definitions and coverage provisions 
with those set forth in the SCA, the DBA, and the FAR to ensure 
compliance and to minimize confusion. Neither 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 SCA and DBA, all of the provisions of the Executive 
Order that

[[Page 60641]]

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 7(e) of the Order 
that only pertain to prime contracts. The final rule provides more 
clarity with respect to the rule's flow-down provisions and 
subcontractor coverage and liability below. For these reasons and to 
avoid using unnecessary and duplicative terms throughout this part, the 
Department therefore will continue to utilize the term contract to 
refer to all contracts and any subcontracts thereunder and use the term 
contractor to refer to a prime contractor and all of its subcontractors 
in the final rule, unless otherwise noted.
    The Department has carefully considered all of the comments 
received on the proposed definition of the terms contract and contract-
like instrument but, for the reasons set forth above, ultimately 
declines to make any of the suggested changes. However, the Department 
has modified the proposed definition of contract to delete reference to 
the exclusions from coverage specified in section 7(f) of the Executive 
Order (i.e., grants; contracts and agreements with and grants to Indian 
Tribes under the Indian Self-Determination and Education Assistance Act 
(Pub. L. 93-638), as amended; or any contracts or contract-like 
instruments expressly excluded by Sec.  10.4). As the Department has 
explained throughout this rule, the mere fact that an agreement 
qualifies as a ``contract'' under this definition does not necessarily 
mean that the agreement is covered by the Order. Accordingly, the 
Department has determined that its proposed reference to the 
exclusionary provisions of the Order in this definition is unnecessary 
and potentially confusing for the public. The Department has also made 
a clarifying edit to the definition of contract to reflect application 
of the Executive Order to contracts in connection with Federal property 
or land and related to offering services for Federal employees, their 
dependents, or the general public. Other than these changes, the 
Department adopts the definition as proposed in the NPRM.
    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 
included 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. 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 defined contractor to mean any individual or other 
legal entity that (1) directly or indirectly (e.g., through an 
affiliate), submits offers for or is awarded, or reasonably may be 
expected to submit offers for or be awarded, a Government contract or a 
subcontract under a Government contract; or (2) conducts business, or 
reasonably may be expected to conduct business, with the Government as 
an agent or representative of another contractor. In the NPRM, the 
Department noted that the term contractor refers to both a prime 
contractor and all of its subcontractors of any tier on a contract with 
the Federal Government. This proposed definition incorporated relevant 
aspects of the definitions of the term contractor in section 9.403 of 
the FAR, see 48 CFR 9.403; the SCA's regulations at 29 CFR 4.1a(f); and 
the Department's regulations implementing Executive Order 13495, 
Nondisplacement of Qualified Workers Under Service Contracts at 29 CFR 
9.2. This 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 this part. The proposed rule also explained that 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 
13658.
    The Department received several comments on its proposed definition 
of the term contractor. The PSC, for example, contended that the 
proposed definition improperly covers entities that are not subject to 
the Executive Order, the FAR, or the SCA's regulations. In its comment, 
the PSC observed that the proposed definition covers an entity that 
``submits an offer or reasonably may be expected to submit offers for'' 
a government contract and asserted that it is ``not aware of any 
federal procurement provision that applies to entities who `may be 
expected to submit offers''' and urged the Department to delete this 
language. The Association/IFA similarly criticized the Department's 
proposed definition of the term contractor as including prospective 
bidders on a government contract ``with no explanation provided in the 
preamble.'' The Association/IFA further urged the Department to define 
specific words that appear in the proposed definition of contractor, 
such as ``affiliate'' and ``indirectly,'' and to clarify what it means 
to ``indirectly'' submit offers. The Association/IFA also challenged 
the proposed definition as including an ``exceedingly broad'' category 
of entities because it would apply to entities such as law firms that 
``reasonably may be expected to conduct business . . . with the 
Government as an agent or representative of another contractor.'' The 
Association/IFA expressed concern that the Department's proposed 
definition could potentially cover ``hundreds of thousands of entities 
that never before considered themselves `government contractors''' and 
would need to ascertain what, if any, legal obligations they have under 
the Executive Order. The National Industry Liaison Group (NILG) 
similarly requested that the Department narrow its proposed definition 
of the term contractor to exclude prospective and former Federal 
contractors.
    The Department notes that all of the proposed definitional language 
to which the PSC, the Association/IFA, and the NILG object is taken 
verbatim from the FAR's definition of the term contractor. See 48 CFR 
9.403. The Department proposed this definition, in part, because it 
believed that the definition would be of general familiarity to 
contractors. Moreover, the proposed definition purposely included both 
prospective and former contractors because, like section 9.403 of the 
FAR, this final rule also sets forth standards regarding the debarment, 
suspension, and ineligibility of contractors.
    However, in light of the comments received by the Department 
expressing concern and confusion regarding the breadth of the proposed 
definition of the term contractor, the Department has decided to 
simplify the definition in the final rule to assist the general public 
in understanding coverage of the Executive Order. In the final rule, 
the Department has therefore deleted the first sentence of the 
definition derived from the FAR and instead defines 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 has therefore removed the proposed definition's 
reference to prospective contractors and has eliminated use of terms 
such as ``affiliate'' and ``indirectly,'' which apparently confused 
several commenters. However, the Department notes that, despite the

[[Page 60642]]

removal of language regarding prospective contractors from this 
definition, such a deletion has no impact on the suspension and 
debarment provisions of the final rule. In other words, an individual 
that is awarded a Federal Government contract may be debarred pursuant 
to Sec.  10.52 if he or she has disregarded obligations to workers or 
subcontractors under the Executive Order or this part.
    Importantly, the Department notes that the mere fact that an 
individual or entity qualifies as a contractor under the Department's 
definition does not mean that such an entity has any 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, while an individual that is 
awarded a contract with the Federal Government will qualify as a 
``contractor'' pursuant to the Department's definition, that individual 
will only be subject to the minimum wage requirements of the Executive 
Order if he or she is awarded a ``new'' contract that falls within the 
scope of one of the four specifically enumerated categories of 
contracts covered by the Order.
    Other than the revisions to the first sentence of the proposed 
definition of the term contractor explained above, the Department has 
retained the remainder of the proposed definition, which incorporates 
relevant aspects of the definition from the SCA's regulations at 29 CFR 
4.1a(f) and the Department's regulations implementing Executive Order 
13495, Nondisplacement of Qualified Workers Under Service Contracts at 
29 CFR 9.2. As in the proposed rule, the Department thus explains that 
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 Department also notes that the term contractor includes lessors and 
lessees, as well as employers of workers performing on covered Federal 
contracts whose wages are calculated pursuant to special certificates 
issued under 29 U.S.C. 214(c). Finally, as stated in the NPRM, the 
Department explains that the term employer is used interchangeably with 
the terms contractor and subcontractor in various sections of this part 
and that 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.
    The PSC commented on the portion of the proposed definition of 
contractor that states that neither the U.S. Government nor its agents 
are contractors or employers for purposes of the rule and stated that 
it has not yet had an opportunity to research whether the Department 
has the authority to make ``such a binding declaration by regulation'' 
or the potential effects of such a statement. The Department notes that 
this language identified by the PSC is taken directly from the SCA's 
definition of the term contractor, see 29 CFR 4.1a(f), and merely 
reflects that for purposes of this Executive Order the Federal 
Government does not contract with itself or enter into employment 
relationships with the contractors with whom it conducts business.
    Finally, the Association/IFA suggested that the Department define 
the term ``Government contract'' because it is used in the definition 
of contractor. The Department disagrees with this comment because this 
part already contains definitions of the term Federal Government and 
contract. Because other commenters such as the CPL have urged the 
Department to avoid creating duplicative definitions and the Department 
believes that readers of this part already have clear guidance about 
what types of agreements qualify as contracts with the Federal 
Government, the Department declines to make this suggested revision.
    For the reasons explained above, the Department has revised the 
first sentence of the definition of the term contractor as proposed in 
the NPRM to assist the general public in understanding coverage of the 
Executive Order, but has retained the remainder of the proposed 
definition in the final rule.
    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. Because the Department did not receive 
any comments on this proposed definition, the Department adopts the 
proposed definition in this final rule.
    In the NPRM, the Department defined executive departments and 
agencies that are subject to Executive Order 13658 by adopting the 
definition of executive agency provided in section 2.101 of the FAR. 48 
CFR 2.101. The Department therefore interpreted 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 did not interpret this definition as including the District 
of Columbia or any Territory or possession of the United States. No 
comments were received on this proposed definition; the final rule 
therefore adopts the definition as set forth in the NPRM.
    The Department defined the term Executive Order minimum wage as a 
wage that is at least: (i) $10.10 per hour beginning January 1, 2015; 
and (ii) beginning January 1, 2016, and annually thereafter, an amount 
determined by the Secretary pursuant to section 2 of Executive Order 
13658. This definition was based on the language set forth in section 2 
of the Executive Order. 79 FR 9851-52. 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. The Department did not receive any 
comments on this proposed definition and therefore adopts the 
definition as proposed, except that it has added the acronym FLSA to 
the definition.
    The term Federal Government was defined in the NPRM 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 of 
Federal Government set forth in 29 CFR 9.2, but eliminated the term 
``procurement'' from that definition because Executive Order 13658 
applies to both procurement and non-procurement contracts covered by 
section 7(d) of the Order. Consistent with 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). For purposes of the 
Executive Order and this part, the Department's proposed definition did 
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 with one modification. For the 
reasons explained in the NPRM and set forth below, independent 
regulatory agencies within the meaning of 44 U.S.C. 3502(5) are not 
subject to the Executive Order or this part. The Department has 
therefore made a clarifying edit to this definition to reflect that, 
for purposes of the Executive Order, independent regulatory agencies 
are not included in the definition of Federal Government.

[[Page 60643]]

    The Department proposed to define the term independent agencies, 
for the purposes of Executive Order 13658, as any independent 
regulatory agency within the meaning of 44 U.S.C. 3502(5). Section 7(g) 
of the Executive Order states that ``[i]ndependent agencies are 
strongly encouraged to comply with the requirements of this order.'' 
The Department interpreted this provision to mean that independent 
agencies are not required to comply with this Executive Order. This 
proposed definition was therefore based on other Executive Orders that 
similarly exempt independent regulatory agencies within the meaning of 
44 U.S.C. 3502(5) from the definition of agency or include language 
requesting that they comply. See, e.g., Executive Order 13636, 78 FR 
11739 (Feb. 12, 2013) (defining agency as any executive department, 
military department, Government corporation, Government-controlled 
operation, or other establishment in the executive branch of the 
Government but excluding independent regulatory agencies as defined in 
44 U.S.C. 3502(5)); Executive Order 13610, 77 FR 28469 (May 10, 2012) 
(same); Executive Order 12861, 58 FR 48255 (September 11, 1993) (``Sec. 
4 Independent Agencies. All independent regulatory commissions and 
agencies are requested to comply with the provisions of this order.''); 
Executive Order 12837, 58 FR 8205 (Feb. 10, 1993) (``Sec. 4. All 
independent regulatory commissions and agencies are requested to comply 
with the provisions of this order.''). The Department did not receive 
any comments on the proposed definition of this term and therefore 
adopts the definition as proposed in this final rule.
    The Department proposed to define the term new contract as 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. The proposed definition noted that this term 
includes both new contracts and replacements for expiring contracts 
provided that the contract results from a solicitation issued on or 
after January 1, 2015, or is awarded outside the solicitation process 
on or after January 1, 2015. This language was based on section 8 of 
the Executive Order, 79 FR 9853, and was consistent with the convention 
set forth in section 1.108(d) of the FAR, 48 CFR 1.108(d). The PSC 
commented that it supports the proposed definition of this term. In 
response to several comments requesting clarification of the Executive 
Order's applicability to new contracts, the Department has revised the 
definition of ``new contract'' provided in Sec.  10.2 of the proposed 
rule, as explained below in the preamble discussion of the ``new 
contract'' coverage provisions set forth at Sec.  10.3.
    Proposed Sec.  10.2 defined the term option by adopting the 
definition set forth 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. As noted above, many 
commenters expressed confusion or concern with the Department's 
discussion of the coverage of new contracts, including its proposed 
interpretation that the exercise of an option clause by the Federal 
Government does not constitute a ``new contract'' for purposes of the 
Executive Order. All such comments are addressed below in the preamble 
discussion of the coverage provisions set forth at Sec.  10.3.
    Several other commenters, including Bond, Schoeneck, and King, 
PLLC, and the Civil Works Program of the U.S. Army Corps of Engineers 
(USACE), observed that the Department's proposed definition of the term 
option refers only to a unilateral contractual right held by the 
Federal Government; these commenters questioned whether the Department 
would also include situations in which a contractor exercises a 
unilateral right to extend the term of a contact within its definition 
of an option. The USACE noted, for example, that many of its leases of 
Federal lands to third parties contain options for renewal that provide 
the lessee with the unilateral right to renew the lease with all terms 
and conditions of the existing lease, except that they occasionally 
provide for increased rent and are subject to USACE's discretion to 
terminate the lease or decline renewal of the lease for non-compliance 
with the terms and conditions of the agreement.
    In response to these comments, the Department notes that its 
proposed definition of the term option, which solely refers to a 
unilateral contractual right exercised by the Federal Government, is 
taken directly from the FAR. See 48 CFR 2.101. The Department chose to 
utilize this definition in order to provide clarity and consistency 
with well-established contracting concepts to the regulated community. 
The Department understands that it is rare for the Federal Government 
to enter into agreements under which a contractor would have the 
unilateral right to extend the term of the contract without entering 
into bilateral negotiations with the contracting agency. Insofar as 
such a situation may arise in which a contractor holds a unilateral 
right to extend the contract, however, the Department believes that the 
interests of the Executive Order are best effectuated by adhering to 
its conclusion that only the unilateral exercise of a pre-negotiated 
option clause by the Federal Government itself falls outside the scope 
of the Order; if a contractor unilaterally elects to exercise an option 
period after January 1, 2015, that option period may be subject to the 
minimum wage requirements of the Order. After thorough review and 
consideration of these comments, the Department has decided to 
implement the definition as proposed in the NPRM without modification.
    The Department proposed to define the term procurement contract for 
construction to mean a 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 derived from language found at 40 U.S.C. 3142(a) and 29 CFR 5.2(h). 
The Department did not receive any comments on this proposed definition 
and it is therefore adopted as set forth 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 derived from language set forth in 41 U.S.C. 6702(a), 29 CFR 
4.1a(e), and 29 CFR 9.2. No comments were submitted on this definition; 
accordingly, the Department implements the definition as proposed.
    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 any comments on the proposed 
definition of this term and thus adopts the definition as proposed for 
purposes of the final rule.
    In the NPRM, the term solicitation was defined to mean any request 
to

[[Page 60644]]

submit offers or quotations to the Federal Government. This definition 
was based on the language found at 29 CFR 9.2. 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. In its comment, 
the PSC did not object to the proposed definition of this term as set 
forth in the regulatory text itself, but stated that the NPRM's 
preamble discussion of this term reflected that the Department intended 
to cover ``informal requests'' by the Federal Government to submit 
offers or quotations. The PSC urged the Department to reject this 
interpretation because it could be construed to inappropriately cover 
``requests for information'' whereby agencies seek information from the 
public without providing any commitment to issuing solicitations or 
making awards. The PSC similarly contended that this interpretation of 
``solicitation'' could even be deemed to apply to informal 
conversations with Federal workers. In response to the PSC's concerns, 
the Department has clarified that requests for information issued by 
Federal agencies and informal conversations with Federal workers are 
not ``solicitations'' for purposes of the Executive Order.
    The final rule therefore adopts the definition as proposed, except 
that it clarifies that the term solicitation also includes any request 
to submit ``bids'' to the Federal Government. The Department believes 
that the NPRM was clear that ``bids'' were included within its 
reference to ``offers or quotations,'' but has determined that it would 
be helpful to the regulated community to include the more colloquially 
used term ``bids'' in the final rule.
    The Department adopted in the proposed rule the definition of 
tipped employee in section 3(t) of the FLSA, that is, any employee 
engaged in an occupation in which he or she customarily and regularly 
receives more than $30 a month in tips. See 29 U.S.C. 203(t). The NPRM 
explained that, 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. One commenter, 
the CPL, criticized the Department for defining the term tipped 
employee twice in its proposed rule--first in the ``definitions'' 
section at proposed Sec.  10.2 and subsequently in the section 
addressing contractor requirements with respect to tipped employees at 
proposed Sec.  10.28(b)(1). The CPL added that the definition provided 
in proposed Sec.  10.2 was ``incomplete'' because it did not include 
the additional clarifications provided in proposed Sec.  10.28(b)(1). 
In response, the Department notes that the two definitions are 
consistent and believes that keeping the definitions of ``tipped 
employee'' in both sections is appropriate to the extent that doing so 
obviates the need for contractors to cross reference between sections 
when attempting to understand their obligations to tipped employees. 
For that reason, the Department adopts the definition of ``tipped 
employee'' in Sec.  10.2 as it was originally proposed.
    In proposed Sec.  10.2, the Department defined the term United 
States by adopting the definition set forth in 29 CFR 9.2, which 
provides that the term 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. The proposed 
definition also incorporated the definition of the term that appears in 
the FAR at 48 CFR 2.101, which explains that when the term is used in a 
geographic sense, the United States means the 50 States and the 
District of Columbia. The Department's proposed rule did not adopt any 
of the exceptions to the definition of this term that are set forth in 
the FAR. No comments were received on this proposed definition and it 
is therefore implemented in the final rule.
    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 derived from 29 CFR 4.1a(h) and 29 CFR 5.2(q). The 
Department did not receive any comments on this proposed definition and 
thus adopts it as proposed for the final rule.
    The Department proposed to define worker as any person engaged in 
the performance of 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 79 FR 9851, 9853. The proposed 
definition also included 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). 
Consistent with the FLSA, SCA, and DBA and their implementing 
regulations, this 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 also emphasized the well-established principle under 
those statutes 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 proposed rule noted that, as 
reflected in the proposed definition, the Executive Order is intended 
to apply to a wide range of employment relationships. The Department 
thus explained that 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.
    The AFL-CIO supported the Department's proposed definition of the 
term worker, noting that it ``appropriately comports with the very 
broad definition of `employee' contained in the FLSA,'' as well as with 
the relevant definitions of covered workers under the SCA and DBA.
    A few commenters such as the Association/IFA noted a technical 
inconsistency in the regulatory text pertaining to the scope of the 
definition of the term worker. In the NPRM, the Department repeatedly 
stated in its preamble discussion that workers are entitled to the 
Executive Order minimum wage for all hours worked ``on or in connection 
with'' a covered contract. This language regarding coverage of workers 
performing ``on or

[[Page 60645]]

in connection with'' a covered contract is also set forth in the 
proposed definition of the term worker in specific reference to certain 
apprentices and workers whose wages are calculated pursuant to special 
certificates issued under section 14(c) of the FLSA; that language did 
not, however, appear in the regulatory text of the proposed definition 
in a more generally applicable way.
    Based on the number of comments received regarding this standard 
and its application to all covered workers, the Department believes 
that commenters clearly understood the NPRM's intent to apply this 
standard to all covered workers. As recommended by the Association/IFA, 
however, the Department has added clarifying language to reconcile the 
definition of the term worker with its preamble discussion of worker 
coverage, reflecting that the definition applies to all individuals 
performing work on or in connection with a covered contract.
    The Department also received many comments regarding its proposed 
interpretation of worker coverage under the Executive Order, all of 
which are addressed in the preamble and regulatory text for the 
coverage provisions at Sec.  10.3 below.
    Finally, the Department proposed to adopt the definitions for the 
terms Administrative Review Board, Administrator, Office of 
Administrative Law Judges, and Wage and Hour Division set forth in 29 
CFR 9.2. No comments were received on the proposed definitions of these 
terms, and the Department thus adopts those definitions in the final 
rule with a technical modification. The Department has added the 
acronym ARB to the definition of Administrative Review Board.
Section 10.3 Coverage
    Proposed Sec.  10.3 addressed and implemented the coverage 
provisions of Executive Order 13658. Proposed Sec.  10.3 explained the 
scope of the Executive Order and its coverage of executive agencies, 
new contracts, types of contractual arrangements and workers. Proposed 
Sec.  10.4 implemented the exclusions expressly set forth in section 
7(f) of the Executive Order and provided other limited exclusions to 
coverage as authorized by section 4(a) of the Order. 79 FR 9852-53. 
Several commenters, such as AGC and the Association/IFA, requested that 
the Department provide additional clarification and examples regarding 
covered contracts, workers, and work throughout its preamble discussion 
of this provision. The Association/IFA also generally urged the 
Department to include additional discussion of the coverage provisions 
in both the preamble and regulatory text. In response to these comments 
and as set forth below, the Department has endeavored to further 
clarify the scope of the Executive Order's coverage in both the 
preamble and regulatory text for Sec.  10.3.
    A number of commenters requested that the Department determine 
whether the Executive Order applies to a wide variety of particular 
factual arrangements and circumstances. To the extent that such 
commenters provided sufficient specific factual information for the 
Department to opine on 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.
    Executive Order 13658 provides that agencies must, to the extent 
permitted by law, ensure that new contracts, as described in section 7 
of the Order, include a clause specifying, as a condition of payment, 
that the minimum wage to be paid to workers in the performance of the 
contract shall be at least: (i) $10.10 per hour beginning January 1, 
2015; and (ii) an amount determined by the Secretary, beginning January 
1, 2016, and annually thereafter. 79 FR 9851. Section 7(d) of the 
Executive Order establishes that the Order's minimum wage requirement 
only applies to a new contract 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. 79 FR 9853. Section 7(e) 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. 79 FR 9853. 
The Executive Order states that it does not apply to grants; contracts 
and agreements with and grants to 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. 79 FR 9853.
    Proposed Sec.  10.3(a) implemented these coverage provisions by 
stating that Executive Order 13658 and this part apply to any contract 
with the Federal Government, unless excluded by Sec.  10.4, that 
results from a solicitation issued on or after January 1, 2015, or that 
is awarded outside the solicitation process on or after January 1, 
2015, 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. 79 FR 
9853. Proposed Sec.  10.3(b) incorporated the monetary value thresholds 
referred to in section 7(e) of the Executive Order. Id. Finally, 
proposed Sec.  10.3(c) stated that the Executive Order and this part 
only apply to contracts with the Federal Government requiring 
performance in whole or in part within the United States. Several 
issues relating to the coverage provisions of the Executive Order and 
proposed Sec.  10.3 are discussed below.
Coverage of Executive Agencies and Departments
    Executive Order 13658 applies to all ``[e]xecutive departments and 
agencies.'' 79 FR 9851. As explained above, the Department proposed to 
define executive departments and agencies by adopting the definition of 
executive agency provided in section 2.101 of the Federal Acquisition 
Regulation (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. Pursuant to this 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.

[[Page 60646]]

    The Executive Order strongly encourages, but does not compel, 
``[i]ndependent agencies'' to comply with its requirements. 79 FR 9853. 
The Department interpreted this provision, in light of the Executive 
Order's broad goal of adequately compensating workers on contracts with 
the Federal Government, as a narrow exemption from coverage. See 79 FR 
9851. As discussed above, the proposed rule interpreted independent 
agencies to mean any independent regulatory agency within the meaning 
of 44 U.S.C. 3502(5). This interpretation is consistent with provisions 
in other Executive Orders. See, e.g., Executive Order 13636, 78 FR 
11739 (Feb. 12, 2013); Executive Order 12861, 58 FR 48255 (Sept. 11, 
1993). Thus, under the proposed rule, the Executive Order would cover 
executive departments and agencies but would not cover any independent 
regulatory agency within the meaning of 44 U.S.C. 3502(5).
    The Department did not receive any comments on its discussion of 
the proposed coverage of executive agencies and departments and thus 
adopts this coverage discussion in the final rule.
Coverage of New Contracts With the Federal Government
    Proposed Sec.  10.3(a) provided that the requirements of the 
Executive Order generally apply to ``contracts with the Federal 
Government.'' As discussed above, the NPRM set forth a broadly 
inclusive definition of the term contract that would include all 
contracts and contract-like instruments and any subcontracts of any 
tier thereunder, whether negotiated or advertised, including any 
procurement actions, lease agreements, cooperative agreements, 
intergovernmental service agreements, provider agreements, service 
agreements, licenses, permits, awards and notices of awards, job orders 
or task letters issued under basic ordering agreements, letter 
contracts, purchase orders, or any other type of agreement, regardless 
of nomenclature, type, or particular form, and whether entered into 
verbally or in writing. Unless otherwise noted, the use of the term 
contract throughout the Executive Order and this part therefore 
included contract-like instruments and subcontracts of any tier.
    As reflected in proposed Sec.  10.3(a), the minimum wage 
requirements of Executive Order 13658 apply only to ``new contracts'' 
with the Federal Government within the meaning of section 8 of the 
Order. 79 FR 9853-54. Section 8 of the Executive Order states that the 
Order shall apply to covered contracts where the solicitation for such 
contract has been issued on or after: (i) January 1, 2015, 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 1, 
2015, consistent with the effective date for such action. 79 FR 9853-
54. Proposed Sec.  10.3(a) of this rule therefore stated that this part 
applies to contracts with the Federal Government, unless excluded by 
Sec.  10.4, that result from solicitations issued on or after January 
1, 2015, or to contracts that are awarded outside the solicitation 
process on or after January 1, 2015. As stated in the NPRM, the 
Executive Order and this part thus would apply to both new contracts 
and replacements for expiring contracts provided that such a contract 
results from a solicitation issued on or after January 1, 2015, or is 
awarded outside the solicitation process on or after January 1, 2015. 
The Department proposed that the Executive Order and this part do not 
apply to subcontracts unless the prime contract under which the 
subcontract is awarded results from a solicitation issued on or after 
January 1, 2015, or is awarded outside the solicitation process on or 
after January 1, 2015. Pursuant to the proposed rule, the requirements 
of the Executive Order and this part would not apply to contracts 
entered into pursuant to solicitations issued prior to January 1, 2015, 
the automatic renewal of such contracts, or the exercise of options 
under such contracts. Under the NPRM, existing contracts would have 
been treated as ``new contracts'' subject to the Executive Order if 
they were extended, renewed, or modified in any way (other than 
administrative changes) as a result of bilateral negotiations on or 
after January 1, 2015.
    As discussed above in the context of the Department's proposed 
definitions in Sec.  10.2, the term option meant 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. In the NPRM, the Department noted that only truly automatic 
renewals of contracts or exercises of options devoid of any bilateral 
negotiations fall outside the scope of the Executive Order. As 
discussed above, the Department's proposed definition of the term 
contract specifically included bilateral contract modifications. 
Pursuant to the proposed rule, any renewals or extensions of contracts 
resulting from bilateral negotiations involving contractual 
modifications other than administrative changes would therefore qualify 
as ``new contracts'' subject to the Executive Order if they are awarded 
on or after January 1, 2015, even if such negotiations occur during 
option periods. For example, pursuant to the proposed interpretation, 
renewals of GSA Schedule Contracts that occur on or after January 1, 
2015, and subsequent task orders under such contracts, would be covered 
by the Executive Order and this part to the extent that such renewals 
reflect bilateral negotiations. By way of another example, if on 
January 1, 2015, a contracting agency and contractor renew an existing 
contract for construction after engaging in negotiations regarding the 
type, size, cost, or location for the construction work to be performed 
under the contract, the Department would view such a contractual 
renewal as a ``new contract'' subject to the Executive Order. However, 
when a contracting agency exercises its unilateral right to extend the 
term of an existing service contract and simply makes pricing 
adjustments based on increased labor costs that result from its 
obligation to include a current SCA wage determination pursuant to 29 
CFR 4.4 but no bilateral negotiations occur (other than any necessary 
to determine and effectuate those pricing adjustments), the Department 
would not view the exercise of that option as a ``new contract'' 
covered by the Executive Order.
    The Department received a number of comments relating to its 
proposed interpretation of ``new contracts'' that are subject to the 
minimum wage requirements of the Executive Order. As a general matter, 
the PSC expressed its support for the formulation of proposed Sec.  
10.3(a) because ``it is consistent with the definition of a `new 
contract' in Section 10.2 and the provisions of the Executive Order.'' 
Other commenters, however, expressed confusion or concern regarding the 
Department's proposed interpretation, resulting in some changes to the 
proposed definition discussed above. Each of these comments, and any 
resulting change made, is addressed below.
    A few comments were submitted regarding the Department's proposed 
interpretation that the minimum wage requirements of Executive Order 
13658 do not apply to a unilateral exercise of an option clause because 
it is not a ``new contract.'' The AFL-CIO, the Office and Professional 
Employees International Union (OPEIU) and the Industrial Technical & 
Professional Employees Union, OPEIU Local 4873 (ITPEU), and the 
Building Trades

[[Page 60647]]

expressed concern regarding the Department's proposed interpretation of 
the term new contract and urged the Department to redefine the term in 
the Final Rule such that the exercise of an option period under an 
existing contract would be subject to the Executive Order if it is 
exercised on or after January 1, 2015. Those commenters noted that, 
under the SCA and DBA, the Department and the FARC require the 
inclusion of new or current prevailing wage determinations upon the 
exercise of options under existing contracts. See, e.g., 48 CFR 22.404-
1(a)(1). The Building Trades and AFL-CIO argued that the Department 
should apply this same standard to the Executive Order. The OPEIU and 
the ITPEU similarly asserted that the exercise of an option clause 
under an existing contract should be covered and suggested that the 
Department clarify that its proposed definition of contract-like 
instrument includes the exercise of an option period because it 
qualifies as a ``bilateral contract modification.'' This commenter 
cautioned that if the exercise of options is not considered a covered 
contract, the application of the Executive Order to many service 
contract workers could be delayed for years because concessions 
contracts are often long-term in nature.
    The Department appreciates and has carefully considered the 
comments received on this issue, but ultimately declines to alter its 
conclusion that the unilateral exercise of an option clause under an 
existing contract does not qualify as a ``new contract'' for purposes 
of the Executive Order. As a threshold matter, the Department notes 
that its definition of the term option only refers to a pre-negotiated 
unilateral contractual right held by the Federal Government to purchase 
additional supplies or services or extend the term of the contract; 
contrary to the assertion made by the OPEIU and the ITPEU, the 
unilateral exercise of an option clause does not qualify as a 
``bilateral contract modification'' for purposes of the Order because 
it is a pre-negotiated unilateral contractual right affording the 
contracting agency discretion in whether to exercise the option.
    Sections 2(a), 7(d), and 8(a) of the Executive Order all contain 
express directives that the minimum wage requirements of the Order only 
extend to ``new contracts.'' 79 FR 9851-53. In extending only to ``new 
contracts,'' the Executive Order ensures that contracting agencies and 
contractors will have sufficient notice of any obligations under 
Executive Order 13658 and can take into account any potential economic 
impact of the Order on projected labor costs prior to negotiating ``new 
contracts'' on or after January 1, 2015.
    The Department recognizes that, under the SCA and DBA, the 
Department and the FARC generally require the inclusion of new or 
current prevailing wage determinations upon the exercise of option 
clauses under existing contracts. 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, 1997).\4\ 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). The rationale underlying this 
treatment of the exercise of option periods for purposes of the SCA and 
DBA, however, is distinguishable from the equities present with the 
Executive Order. Under the SCA and DBA, the interpretation of an 
exercise of an option period as a ``new contract'' is relevant for 
purposes of inserting a new or current prevailing wage determination in 
an existing multi-year contract that is already subject to the SCA or 
DBA; contracting parties affected by this interpretation thus knew that 
the agreement was covered by the prevailing wage statute at the time 
they entered into the original contract. Under the Executive Order, 
however, the ``new contract'' determination triggers coverage of the 
minimum wage requirements for contracts that previously were not 
subject to the Order at all. The Department thus finds its treatment of 
option periods under the SCA and DBA serves a substantively different 
purpose and function than its interpretation of option periods under 
the Executive Order.
---------------------------------------------------------------------------

    \4\ As stated in AAM 157 and as recognized by the Building 
Trades, 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, 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.
---------------------------------------------------------------------------

    For these reasons, the Department adheres to its conclusion that 
the unilateral exercise of a pre-negotiated option clause by the 
Federal Government under an existing contract is not a ``new contract'' 
for purposes of the Executive Order.
    Under the Department's proposed interpretation set forth in the 
NPRM, any renewals extensions, or modifications of existing contracts 
resulting from bilateral negotiations (other than administrative 
changes) on or after January 1, 2015 would have qualified as ``new 
contracts'' subject to the Executive Order, even if such negotiations 
occurred during option periods. The USACE commented on this proposed 
interpretation, requesting clarification as to what constitutes an 
``administrative change'' and as to what degree of contractual 
modification is required in order for a modification to be considered a 
``new contract'' subject to the Executive Order, particularly for 
covered contracts that are not subject to the FAR. The USACE 
specifically wondered whether the Department would regard a change of 
ownership or control under a contract (e.g., assignment of a lease) as 
an ``administrative change'' or if such change would be sufficient to 
trigger a ``new contract'' under this part.
    The FS similarly requested clarification on the scope of bilateral 
contract modifications that would require application of the Executive 
Order minimum wage requirements to a concessions contract. It 
specifically asked the Department to explain whether the Executive 
Order is intended to apply to bilateral contract modifications 
exclusively in the context of contractual renewals or extensions, or 
whether bilateral contract modifications in any context (e.g., 
revisions during the term of an existing concessions contract that do 
not modify the scope of the authorized use of Federal land or property) 
would be regarded as ``new contracts'' subject to the Order. The FS 
also asked the Department to clarify whether the Executive Order 
applies exclusively to bilateral contract modifications that affect the 
scope of offered services or facilities, or would extend more generally 
to any type of bilateral contract modifications, including those that 
do not change the scope of authorized services or facilities (such as 
updating annual operating plans or utilizing a land use fee offset 
agreement).
    Similarly, the AOA asked about the application of the Executive 
Order to contractual amendments, specifically with respect to 
amendments to existing contracts and permits on Federal land. It also 
requested clarification as to whether the Executive Order would apply 
to extensions of National Park Service (NPS) concessions contracts 
pursuant to the Concessions Management Improvement Act or to extensions 
and/or renewals of FS priority use permits.
    Under the NPRM, existing contracts would have been treated as ``new 
contracts'' if extended, renewed, or

[[Page 60648]]

modified in any way except for administrative changes as a result of 
bilateral negotiations on or after January 1, 2015. Based upon a 
thorough review of comments received and careful consideration of the 
issue, the Department has decided to modify and clarify its approach to 
``new contract'' coverage in this final rule. A contractual arrangement 
is a ``new contract'' subject to the Executive Order if it is 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. The Department notes that this term includes 
both new contracts and replacements for expiring contracts, but it does 
not apply to the unilateral exercise of a pre-negotiated option to 
renew an existing contract by the Federal Government. The Department 
further clarifies that, for purposes of the Executive Order, a contract 
entered into prior to January 1, 2015 will be deemed to be a new 
contract if, through bilateral negotiation, on or after January 1, 
2015: (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. The FARC, in consultation with the Department, 
will develop additional guidance, as necessary, as to what constitutes 
a short-term limited extension for these purposes.
    In this final rule, the Department adopts its proposed 
interpretation in the NPRM that existing contracts that are renewed on 
or after January 1, 2015 as a result of bilateral negotiations qualify 
as ``new contracts'' subject to the Executive Order. As noted above, 
however, the final rule makes two changes with respect to the NPRM's 
treatment of contract extensions and modifications on or after January 
1, 2015. First, extensions would not be treated as ``new contracts'' if 
such extensions were made pursuant to terms in the contract as of 
December 31, 2014 that authorized a short-term limited contract 
extension. Second, modifications (other than extensions or renewals 
that constitute new contracts) would not be treated as ``new 
contracts'' unless they qualify as modifications outside the scope of 
the contract. Each of these changes to the Department's proposed 
treatment of ``new contracts'' set forth in the NPRM are discussed 
below.
    With respect to the coverage of contract modifications, the 
Department's approach in this final rule is designed to reflect that 
modifications within the scope of the contract do not in fact 
constitute new contracts. Long-standing contracting principles 
recognize that an existing contract, especially a larger one, will 
often require modifications, which may include very modest changes 
(e.g., a small change to a delivery schedule). Therefore, regulations 
such as the FAR do not require agencies to create new contracts to 
support these actions. Accordingly, contract modifications that are 
within the scope of the contract within the meaning of the FAR, see 48 
CFR 6.001(c) and related case law, are not ``new contracts'' for 
purposes of the Executive Order.
    However, if the parties bilaterally negotiate a modification that 
is outside the scope of the contract, the agency will be required to 
create a new contract, triggering solicitation and/or justification 
requirements, and thus such a modification after January 1, 2015 will 
constitute a ``new contract'' subject to the minimum wage requirements 
of this rule. For example, if an existing SCA-covered contract for 
janitorial services at a Federal office building is modified by 
bilateral negotiation after January 1, 2015 to also provide for 
security services at that building, such a modification would likely be 
regarded as outside the scope of the contract and thus qualify as a 
``new contract'' subject to the Executive Order. Similarly, if an 
existing DBA-covered contract for construction work at Site A was 
modified by bilateral negotiation after January 1, 2015 to also cover 
construction work at Site B, such a modification would generally be 
viewed as outside the scope of the contract and thus trigger coverage 
of the Executive Order. The Department cautions, however, that whether 
a modification qualifies as ``within the scope'' or ``outside the 
scope'' of the contract is necessarily a fact-specific determination. 
See, e.g., AT&T Communications, Inc. v. Wiltel, Inc., 1 F.3d 1201 (Fed. 
Cir. 1993).
    The Department further notes that, while in scope modifications do 
not create ``new contracts'' under this final rule, the Department 
strongly encourages agencies to bilaterally negotiate, as part of any 
such modification, application of the minimum wage requirements so that 
these contracts can take advantage of the benefits of a higher minimum 
wage.
    With respect to contract extensions, the Department generally 
affirms its proposed approach that a bilaterally negotiated extension 
of an existing contract on or after January 1, 2015 will be viewed as a 
``new contract.'' Importantly, however, the Department has carved out 
one exception to this general principle: If the extension is made 
pursuant to a term in the contract as of December 31, 2014 providing 
for a short-term limited extension, the extension will not constitute a 
``new contract'' and will not be covered. These changes to the 
definition of new contract better align the final rule with notions of 
in scope and out of scope actions while still providing an important 
limitation on the length of the bilaterally negotiated extension. Thus, 
a short-term extension of contract terms (e.g., an extension of six 
months or less) that was provided for by the pre-negotiated terms of 
the contract prior to January 1, 2015 would be an in scope change and 
would not constitute a new contract. Bilaterally negotiated extensions 
envisioned in the contract that are limited in duration, such as a 
bridge to prevent a gap in service, would not be considered a ``new 
contract,'' but a long-term extension that is tantamount to a 
replacement contract will be treated as a ``new contract'' for purposes 
of this rule. Similarly, an extension that was bilaterally negotiated 
and not previously authorized by the terms of the existing contract 
would be a ``new contract'' subject to the minimum wage requirements. 
The Department also notes that a long-term extension of an existing 
contract will qualify as a ``new contract'' subject to the Executive 
Order, even if such an extension was provided for by a pre-negotiated 
term of the contract. The Department would regard a long-term extension 
as tantamount to a renewal or replacement, which are covered by the 
Order.
    The Department has consulted with the FARC and notes that contract 
extensions are commonly accomplished through options created by the 
agency pursuant to FAR clause 52.217-8 (which allows for an extension 
of time of up to six months for a contractor to perform services that 
were acquired but not provided during the contract period) or FAR 
clause 52.217-9 (which provides for an extension of the contract term 
to provide additional services for a limited term specified in the 
contract at previously agreed upon prices). The contracting agency's 
exercise of extensions under these clauses would not trigger 
application of the minimum wage requirements because the clauses give 
the contracting agency a discretionary right to unilaterally exercise 
the option to extend and unilateral options are excluded from the 
definition of ``new contract.'' However, as explained above, if an 
extension was

[[Page 60649]]

bilaterally negotiated and not made pursuant to an existing clause as 
of January 1, 2015, such action would create a new relationship with 
the Federal Government. As a result, such action would be treated as 
creating a ``new contract'' for purposes of this rule and trigger 
application of the minimum wage requirements.
    The Department believes that these changes to its proposed approach 
to ``new contract'' coverage are responsive to several commenters, such 
as the USACE, the FS, and the AOA, that expressed confusion regarding 
the type or extent of contract modifications that the Department would 
consider sufficient to trigger coverage of the Executive Order. For 
example, with respect to the USACE's comment seeking clarification on 
the meaning of the phrase ``administrative change,'' as explained 
above, the Department has modified the definition of new contract in 
the final rule and removed reference to ``administrative changes.''
    With respect to the specific questions raised by the AOA, the 
approach described above governs whether a ``new contract'' has been 
created for purposes of the Executive Order. Extensions of existing NPS 
concessions contracts pursuant to the Concessions Management 
Improvement Act will be treated in the same manner as all other 
concessions contracts. If the NPS exercises its unilateral right to 
exercise an option to extend the contract and no substantive 
modifications are made to the agreement, such agreement will not be 
considered a ``new contract.'' However, if, on or after January 1, 
2015, the parties renew the agreement or extend the agreement 
bilaterally and such extension was not made pursuant to the terms of 
the contract as of December 31, 2014 or is not a short-term extension, 
the Department would view the resulting agreement as a ``new contract'' 
subject to the Executive Order. Similarly, if the parties amend the 
concessions contract pursuant to a modification that is outside the 
scope of the contract, the Department would regard the resulting 
agreement as a ``new contract'' subject to the Order.
    Several commenters also requested the Department to clarify whether 
its interpretation of ``new contracts'' subject to the Executive Order 
applies to task orders issued on or after January 1, 2015, under 
existing master contracts. The AGC, for example, sought clarification 
as to whether the Order applies to task orders issued on or after 
January 1, 2015, pursuant to an ``indefinite delivery, indefinite 
quantity'' (IDIQ) contract that was awarded prior to January 1, 2015. 
FortneyScott similarly sought clarification regarding the coverage of 
task orders issued by a contracting agency under a GSA Schedule 
Contract. It specifically asked whether, if a GSA Schedule Contract is 
entered into prior to January 1, 2015, and remains unmodified after 
that date, any task orders issued under the GSA Schedule Contract, even 
if issued on or after January 1, 2015, would be subject to the Order. 
FortneyScott asked that the Department explicitly state in the 
regulations that task orders issued under GSA Schedule Contracts 
entered into prior to January 1, 2015, and prior to the renewal or 
modification of the GSA Schedule Contract are not subject to the 
Executive Order. Alternatively, it proposed that if the Department 
determines that such task orders are covered, contractors should be 
entitled to a contract price adjustment. Relatedly, the PSC observed 
that the Department's proposed interpretation of the coverage of new 
contracts would treat each new order under a task order as a new 
contract and that such an interpretation would raise labor costs 
without the contractor being able to anticipate or recover any price 
increase resulting from the minimum wage requirement, notwithstanding 
the pricing regimes in the base contract.
    Under this final rule, a contract awarded under the GSA Schedules 
will be considered a ``new contract'' in certain situations. Of 
particular note, any covered contracts that are added to the GSA 
Schedule in response to GSA Schedule solicitations issued on or after 
January 1, 2015, qualify as ``new contracts'' subject to the Order; any 
covered task orders issued pursuant to those contracts would be deemed 
to be ``new contracts.'' This would include contracts to add new 
covered services as well as contracts to replace expiring contracts. As 
explained above, the Department is strongly encouraging agencies to 
bilaterally modify existing contracts, as appropriate, to include the 
minimum wage requirements of this rule when such contracts are not 
otherwise considered to be a ``new contract'' under the terms of this 
rule. For example, the FARC should encourage, if not require, 
contracting officers to modify existing indefinite-delivery, 
indefinite-quantity contracts in accordance with FAR section 
1.108(d)(3) to include the Executive Order minimum wage requirements, 
particularly with respect to future orders if the amount of work or 
number of orders expected under the remaining performance period is 
substantial.
    The Department declines the request made by FortneyScott to direct 
that a contract price adjustment be given to contractors reflecting any 
higher short-term labor costs that may arise by applying the Order to 
new task or purchase orders on or after January 1, 2015, that are 
issued under master contracts that were entered into prior to January 
1, 2015. As a general matter, price adjustments, if appropriate, would 
need to be negotiated by the parties and based on the specific nature 
of the contract. In addition, as explained above, the Department is 
encouraging, but not requiring, agencies to modify existing IDIQ 
contracts that do not otherwise meet the definition of a new contract. 
Pursuant to this final rule, task orders that are issued under IDIQ 
contracts entered into prior to January 1, 2015 will thus only be 
covered by the Executive Order if and when the master contract is 
modified to include the minimum wage requirement.
    The Department also received many comments from individuals and 
organizations such as the National Federation of the Blind and the 
National Association of Blind Lawyers urging the Department not to 
exempt contracts placed on the AbilityOne Procurement List from the 
Executive Order minimum wage requirements. These commenters noted that, 
although such contracts are exempt from external competition once 
placed on the Procurement List, they are subject to renewal and 
renegotiation in the same manner as any other contract. The Department 
agrees with such commenters that procurements through the AbilityOne 
program are not exempt and will be covered in the same manner as any 
other contract. For example, if an AbilityOne service contract was 
awarded on January 1, 2011 and provided for a five-year contract term, 
a decision by the contracting parties to renew the contract on January 
1, 2016 would qualify as a ``new contract'' subject to the Executive 
Order.
    The Department therefore adopts Sec.  10.3(a) as proposed, except 
that it has used the term new contract in the regulatory text to 
improve clarity. As explained above, the Department has also revised 
its proposed definition of the term new contract set forth in Sec.  
10.2.
Coverage of Types of Contractual Arrangements
    Proposed Sec.  10.3(a)(1) set forth the specific types of 
contractual arrangements with the Federal Government that are covered 
by the Executive Order. As explained in the NPRM, Executive Order 13658 
and this part are intended to apply to a wide range of contracts with 
the Federal Government for services or construction. Proposed Sec.  
10.3(a)(1)

[[Page 60650]]

implemented 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. Each of these categories of 
contractual agreements is discussed in greater detail below.
    Procurement Contracts for Construction: Section 7(d)(i)(A) of the 
Executive Order extends coverage to ``procurement contract[s] for . . . 
construction.'' 79 FR 9853. The proposed rule at Sec.  10.3(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 this part 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).
    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 ``contract for construction'' is not limited to contracts 
entered into with a construction contractor; rather, a contract for 
construction ``would seem to require only that there be a contract, and 
that one of the things required by that contract be construction of a 
public work.'' Id. at *3-4. 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.  10.3(b) implemented section 7(e) of Executive Order 
13658, 79 FR 9853, 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.
    Several commenters, including the EEAC, expressed support for the 
Department's discussion of this category of covered contracts. In its 
comment, the EEAC noted that it concurred with the Department's 
interpretation that the Executive Order does not apply to contracts 
subject only to the Davis-Bacon Related Acts and appreciated that 
clarification in the NPRM's preamble.
    The Building Trades submitted a comment expressing concern 
regarding the Department's interpretation that the Executive Order only 
applies to procurement contracts for construction that are subject to 
the DBA. The Building Trades argued that there is no ``legitimate or 
reasonable explanation'' for excluding FLSA-covered workers on 
construction contracts that are not subject to the DBA because the 
plain language of section 7(d) of the Executive Order states that its 
minimum wage requirements apply to workers on ``procurement contract[s] 
. . . for construction'' whose wages are governed by the FLSA, SCA, or 
DBA. In other words, the Building Trades urged the Department to extend 
coverage of the Executive Order to FLSA-covered workers performing work 
on prime construction contracts that are not subject to the Davis-Bacon 
Act because the value of the prime contract does not exceed the DBA's 
$2,000 statutory threshold.
    As explained above, the DBA applies to all prime contracts for 
construction over $2,000 and all subcontracts thereunder regardless of 
the value of the subcontract. See 40 U.S.C. 3142(a). The Department has 
interpreted the Executive Order as applying to all procurement 
construction contracts covered by the DBA, which means that the Order 
covers all prime procurement contracts for construction worth at least 
$2,000 and all covered subcontracts thereunder. Based on the 
Department's enforcement experience under the DBA, there are very few 
construction contracts with the Federal Government that fall below the 
$2,000 statutory value threshold.
    However, insofar as construction contracts with the Federal 
Government that fall below the $2,000 statutory value threshold may 
exist, the Department believes that it is constrained, by the plain 
language of section 7(e) of the Executive Order, from extending the 
protections of the Executive Order to FLSA-covered workers on prime 
construction contracts that are valued at less than $2,000. See 79 FR 
9853. That provision expressly states that, for procurement contracts 
where workers' wages are governed by the FLSA, the Order applies only 
to contracts that exceed the $3,000 micro-purchase threshold, as 
defined in 41 U.S.C. 1902(a). Although section 7(e) of the Order allows 
the Department to depart from these value threshold standards in its 
regulations where appropriate, the Department believes that this 
provision constitutes compelling evidence that the Executive Order is 
not intended for construction contracts that are not covered by the DBA 
to be subject to the Order. Moreover, the Department received many 
comments specifically requesting it to align coverage of the Executive 
Order with coverage of the SCA and DBA to the greatest extent possible. 
Although the Department appreciates and has carefully considered the 
comment submitted by the Building Trades on this issue, the Department 
believes that its interpretation that only procurement contracts for 
construction that are subject to the DBA are within the scope of the 
Executive Order is reasonable and appropriate.
    Contracts for Services: Proposed Sec.  10.3(a)(1)(ii) provided that 
coverage of the Executive Order and this part encompasses ``contract[s] 
for services covered by the Service Contract Act.'' This proposed 
provision implemented sections 7(d)(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.'' 79 FR 
9853. The Department interpreted a ``procurement contract for 
services,'' as set forth in section 7(d)(i)(A) of the Executive Order, 
to mean a procurement contract that is subject to the SCA, as amended, 
and its implementing regulations. The proposed rule viewed a ``contract 
for services covered by the Service Contract Act'' under section 
7(d)(i)(B) of the Order as including both procurement

[[Page 60651]]

and non-procurement contracts for services that are covered by the SCA. 
The Department therefore incorporated sections 7(d)(i)(A) and (B) of 
the Executive Order in proposed Sec.  10.3(a)(1)(ii) by expressly 
stating that the requirements of the Order apply to service contracts 
covered by the SCA.
    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 this part. See 41 U.S.C. 6702(a)(3); 29 CFR 4.113(a), 4.156; 
WHD Field Operations Handbook (FOH) ]] 14b05, 14c07.
    Although the SCA covers all non-exempted 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.  10.3(b) of 
this rule implemented section 7(e) 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. 79 FR 9853. 
Consistent with the SCA, there is no value threshold requirement for 
subcontracts awarded under such prime contracts.
    Some commenters, including the EEAC, expressed support for the 
Department's interpretation of this category of covered contracts, 
noting that ``[b]y directly linking . . . coverage of service contracts 
to SCA coverage, the NPRM eliminates most of the confusion generated by 
the EO as to what service contracts might be covered as `procurement 
contracts for services' but which are not `contracts for services 
covered' by the SCA.'' However, other commenters such as the AFL-CIO 
and the Building Trades urged the Department to extend the Executive 
Order's minimum wage requirements to all service contracts with the 
Federal Government and not to restrict coverage to those service 
contracts covered by the SCA. The AFL-CIO noted, for example, that 
``certain employees who perform service tasks on contracts that are 
exempt from the SCA because the principal purpose of the contract is 
not provision of services'' would not be covered under the proposed 
rule. It urged the Department to reconsider this approach for contracts 
that exceed the micro-purchase threshold because the plain language of 
the Executive Order extends coverage to workers performing on 
``procurement contract[s] for services'' whose wages are governed by 
the FLSA.
    The Department's proposed approach to interpret sections 7(d)(i)(A) 
and (B) of the Executive Order as referring to SCA-covered procurement 
and nonprocurement service contracts was similar to the manner in which 
the Department interpreted section 7(d)(i)(A) as referring to DBA-
covered procurement construction contracts. The Department intended its 
interpretation of these two categories of contracts to be aligned with 
well-established SCA and DBA contract coverage standards in order to 
assist contracting agencies and contractors in determining their 
obligations under the Order and this part. The Department believes that 
this approach best effectuates the purposes of the Executive Order and 
is consistent with the directive set forth in section 4(c) of the Order 
to draft regulations that incorporate existing definitions, procedures, 
and processes under the FLSA, SCA, and DBA to the extent practicable. 
The Department emphasizes, however, 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 
7(d)(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 anticipates that most service contracts with the Federal 
Government will be covered by the Executive Order and this part.
    The Department received a comment from an individual seeking 
clarification as to whether non-profit service providers who provide 
home and community-based services through the Medicaid waiver program 
are subject to the Executive Order because the Medicaid waiver program 
involves Federal funds. In response, the Department notes the mere 
receipt of Federal financial assistance by an individual or entity does 
not render an agreement subject to the Executive Order. With respect to 
the specific concerns raised by this commenter, contracts let under the 
Medicaid program that are financed by Federally-assisted grants to the 
states, and contracts that provide for insurance benefits to third 
parties under the Medicare program, are not subject to the SCA. See 29 
CFR 4.107(b), 4.134(a); WHD FOH ] 14e01. Because such an agreement is 
not covered by the SCA and would not fall within the scope of the other 
three types of contracts covered by the Executive Order (e.g., it is 
not a construction contract covered by the DBA, a concessions contract, 
or a contract in connection with Federal property or lands), the 
agreement is not subject to the requirements of the Order.
    The American Health Care Association (AHCA) submitted a comment on 
the proposed coverage of service contracts under the Executive Order, 
seeking clarification as to the coverage of provider agreements with 
the Veterans Administration (VA). The AHCA noted that a proposed rule 
issued by the VA in 2013 would exempt nursing facilities operating 
under provider agreements with the VA from SCA coverage and such 
agreements would therefore not be covered by the Executive Order. The 
AHCA requested that, if the VA's proposed rule is not finalized by the 
time that the Department issues its final rule, the Department should 
expressly exempt VA provider agreements from coverage of the Executive 
Order. The AHCA asserted that if the Executive Order were

[[Page 60652]]

deemed to apply to nursing facilities operating pursuant to VA provider 
agreements, many such facilities would be unable to continue their VA 
contracts because nursing facilities ``will not be able to afford to 
pay all of their staff the wage increase.'' As a result, the AHCA 
maintained that application of the Executive Order to such nursing 
facilities ``will result in a health care access issue for our nation's 
veterans because a number of [nursing facilities] will no longer be 
able to provide VA services.''
    For purposes of determining coverage under the Executive Order, the 
relevant inquiry is whether VA provider agreements fall into one of the 
specifically enumerated categories of covered contracts set forth in 
section 7(d) of the Order, i.e., whether such agreements are covered by 
the SCA.\5\ The SCA grants authority and responsibility for 
administering and enforcing the SCA to the Secretary of Labor. See 41 
U.S.C. 6707(a) and (b) (stating that the Secretary of Labor has 
authority ``to enforce this chapter, . . . prescribe regulations, issue 
orders, hold hearings, make decisions based on findings of fact, and 
take other appropriate action'' and to ``provide reasonable 
limitations'' and ``prescribe regulations allowing reasonable 
variation, tolerances, and exemptions'' as the Secretary deems 
necessary and proper). The Secretary's authority includes the ability 
to make final determinations regarding coverage of the SCA, and such 
decisions are binding on contracting agencies. See id.; Collins Int'l 
Serv. Co. v. United States, 744 F.2d 812 (Fed. Cir. 1984); Curtiss-
Wright Corp. v. McLucas, 381 F. Supp. 657 (D. N.J. 1974); Midwest 
Service and Supply Co., Decision of the Comptroller General No. B-
191554 (July 13, 1978); 43 Op. Atty. Gen. 14 (March 9, 1979). The 
Department is not asserting SCA coverage of VA provider agreements 
through this rulemaking; in fact, the AHCA has not pointed to any 
examples of VA provider agreements for which the Department has 
asserted SCA coverage. In the event that the Department is called upon 
to issue a coverage determination under the SCA regarding VA provider 
agreements and determines that such contracts are not covered by the 
SCA, they would not be subject to Executive Order 13658. In this 
circumstance, and because the Department finds that the AHCA's general 
claims of hardship that could result from application of the Order to 
VA provider agreements are inconsistent with the economy and efficiency 
rationale underlying the Executive Order, the Department believes that 
it would be inappropriate to grant a special exemption from the 
Executive Order for this type of agreement.
---------------------------------------------------------------------------

    \5\ Based on the information provided by the AHCA in its 
comment, it does not appear that its VA provider agreements 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 Department also received a comment from EAP Lifestyle 
Management, LLC, seeking clarification about whether the Executive 
Order would apply to its provision of employee assistance programs, 
including critical incident response services, provided for Federal 
employees on private land. The Department notes that, based on the 
limited amount of information received, such a contract appears to be 
subject to the SCA because it is a contract with the Federal Government 
principally for services through the use of service employees and thus 
would indeed be covered by the Executive Order regardless of whether 
the services are performed on public or private land.
    Finally, the AOA and the O.A.R.S. Companies, Inc. (O.A.R.S.) sought 
guidance regarding whether the Executive Order applies to special use 
permits issued by the FS, Commercial Use Authorizations (CUAs) issued 
by the NPS, and outfitter and guide permits issued by the Bureau of 
Land Management (BLM) and the United States Fish and Wildlife Service 
(USFWS), respectively. The Department notes that FS special use permits 
generally are SCA-covered contracts, unless a permit holder can invoke 
the SCA exemption for certain concessions contracts contained in 29 CFR 
4.133(b). See Cradle of Forestry in America Interpretive Association, 
ARB Case No. 99-035, 2001 WL 328132, at *5 (ARB March 30, 2001) (noting 
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, FS special 
use permits will normally be subject to the Executive Order's 
requirements under section 7(d)(i)(B) of the Order and Sec.  
10.3(a)(1)(ii). To the extent that a contractor may be able to invoke 
the 29 CFR 4.133(b) exemption from the SCA with respect to a specific 
special use permit, such a contract will be subject to the Executive 
Order's requirements under section 7(d)(i)(C) of the Order and Sec.  
10.3(a)(1)(iii).
    The AOA also represents that its members ``provide services to the 
public on federal lands.'' O.A.R.S. refers to itself as a 
``recreational service provider on federal lands.'' Accordingly, the 
Department's understanding is that the AOA's members and O.A.R.S. enter 
into CUA agreements with the NPS, and outfitter and guide permit 
agreements with the BLM and USFWS, respectively, the principal purpose 
of which (akin to the agreement at issue in the Cradle of Forestry 
decision cited above) is to furnish services through the use of service 
employees. Assuming this is true, the SCA, and thus the Executive 
Order, covers the CUA and outfitter and guide permit agreements that 
the AOA's members, and O.A.R.S., enter into with the NPS, BLM, and 
USFWS, respectively. The Department notes that a further discussion of 
the application of section 7(d)(i)(D) of the Executive Order to FS 
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.
    Contracts for Concessions: Proposed Sec.  10.3(a)(1)(iii) 
implemented the Executive Order's coverage of a ``contract or contract-
like instrument for concessions, including any concessions contract 
excluded by the Department of Labor's regulations at 29 CFR 4.133(b).'' 
79 FR 9853. As explained above, the NPRM interpreted a ``contract or 
contract-like instrument for concessions'' under section 7(d)(i)(C) of 
the Executive Order as a contract under which the Federal Government 
grants a right to use Federal property, including land or facilities, 
for furnishing services. The proposed definition of the term 
concessions contract included every 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. The SCA generally covers contracts for 
concessionaire services. See 29 CFR 4.130(a)(11). However, pursuant to 
the Secretary's authority under section 4(b) of the SCA, 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); Preamble to the SCA final rule, 48 FR 49736, 
49753 (Oct. 27, 1983). Section 7(d)(i)(C) of the Executive Order 
specifies that the Order applies to all contracts with the Federal 
Government for concessions, including any concessions contracts that 
are

[[Page 60653]]

excluded from SCA coverage by 29 CFR 4.133(b). Proposed Sec.  
10.3(a)(1)(iii) implemented this provision and extended coverage of the 
Executive Order and this part to all concession contracts with the 
Federal Government. Consistent with the SCA's implementing regulations 
at 29 CFR 4.107(a), the Department noted in the NPRM that the Executive 
Order generally applies to concessions contracts with nonappropriated 
fund instrumentalities under the jurisdiction of the Armed Forces or of 
other Federal agencies.
    Proposed Sec.  10.3(b) of this rule implemented the value threshold 
requirements of section 7(e) of Executive Order 13658. 79 FR 9853. 
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 7(e) of the Executive Order further provides that, 
for procurement contracts where workers' wages are governed by the 
FLSA, such as procurement contracts for concessionaire services that 
are excluded from SCA coverage under 29 CFR 4.133(b), this part applies 
only to contracts that exceed the $3,000 micro-purchase threshold, as 
defined in 41 U.S.C. 1902(a). There is no value threshold for 
subcontracts awarded under prime contracts or for non-procurement 
concessions contracts or contracts in connection with Federal property 
or lands and related to offering services for Federal employees, their 
dependents, or the general public.
    The Department received several comments expressing concern 
regarding application of the Executive Order to restaurant franchises 
on military bases. These comments, which were submitted by individual 
franchisees as well as organizations such as the Association/IFA and 
the Dunkin' Donuts Independent Franchise Owners, assert that the 
minimum wage requirements of the Order impose a uniquely burdensome 
obligation 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 and that such funds are used to support the military's 
Morale, Welfare and Recreation (MWR) Programs. 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.
    Many franchise owners on military installations commented that they 
are small businesses and will not be able to absorb the increase in 
cost that may result from the Executive Order. These commenters 
asserted that having to pay the Executive Order minimum wage would 
result in their businesses reducing employee work hours, terminating 
workers, or closing store locations, all of which would affect customer 
service. The Coalition of Franchisee Associations similarly noted that 
the closure of such businesses could substantially impact the 
military's MWR Programs that are funded by the concessionaires' rent 
payments. These franchise owners also argued that application of the 
Executive Order minimum wage to their 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. The Association/IFA, for example, 
maintained that the application of the Executive Order minimum wage to 
concessions contracts and contracts in connection with Federal property 
and related to offering services places businesses operating under such 
contracts on an unfair playing field because their competitors are 
generally not subject to the minimum wage increase and thus have a 
competitive advantage due to their lower labor costs. Many of the 
commenters raising these concerns also noted that the potential 
economic impact of the Executive Order upon their businesses should not 
be analyzed in isolation; rather, they asked that the Department 
consider the costs of the Executive Order minimum wage as well as the 
costs associated with legal obligations to which they may be subject 
under other Federal laws (e.g., SCA fringe benefit obligations). For 
these reasons, some commenters urged the Department to exempt from the 
Executive Order minimum wage requirements any entities that do not 
receive direct funds from the Federal Government (e.g., 
concessionaires).
    In response to all of the comments received about the economic 
impact of the Executive Order upon businesses operating on military 
installations under concessions contracts, the Department notes that 
such comments fail to account for a number of factors that the 
Department anticipates will substantially offset many potential adverse 
economic effects on their businesses. In particular, these commenters 
fail 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 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.
    Moreover, and significantly, the Executive Order minimum wage 
requirements apply only to ``new contracts.'' Contracting agencies and 
contractors negotiating ``new contracts'' after January 1, 2015, will 
be aware of Executive Order 13658 and can take into account any 
potential economic impact of the Order on projected labor costs. For 
example, with respect to several commenters' concerns regarding the 
restrictions on pricing imposed by their concessions contracts, the 
Department notes that contractors typically will 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 assertion that a franchisee must 
terminate workers or close businesses due to the Executive Order 
minimum wage requirements thus overlooks the benefits of the Executive 
Order wage increase as well as alternatives available through contract 
renegotiation. Sections 7(d)(i)(C) and (D) of the Executive Order 
reflects a clear intent that concessions contracts with the Federal 
Government are subject to the minimum wage requirement. The Department 
therefore declines the commenters' request to create an exemption for 
entities that do not receive direct funds from the Federal Government 
(e.g., concessionaires).
    A few commenters, such as ACCSES and SourceAmerica, requested that 
the Department address whether officers clubs and restaurants on 
military bases operated by nonappropriated Federal funds are subject to 
the Executive Order. The Department noted in the NPRM that, consistent 
with the SCA, the proposed definition of the term Federal Government 
includes nonappropriated fund instrumentalities under the jurisdiction 
of the Armed Forces or of other Federal agencies. See 29 CFR 4.107(a). 
Businesses that contract with nonappropriated fund instrumentalities to 
operate on military installations are thus subject to the Executive 
Order minimum wage requirement if the contract falls within one of the 
four specifically enumerated categories of contracts covered by the 
Order.

[[Page 60654]]

Contracts to operate officers clubs and restaurants on military bases 
would likely qualify as SCA-covered contracts as well as concessions 
contracts or contracts in connection with Federal lands and related to 
offering services; any such contracts which qualify as a ``new 
contract'' as explained in this part will thus be subject to the 
Executive Order.
    The EEAC commented on the Department's interpretation of 
concessions contract coverage, noting it would be helpful for the 
Department to provide more examples of covered contracts. The EEAC 
further stated that the Executive Order ``appears to effectively 
eliminate the regulatory exception that the Department created for 
certain concessions contracts now codified at 29 CFR Sec.  4.133(b).'' 
The EEAC also expressed confusion because it viewed the NPRM as 
implying that there might be concessions contracts covered by the third 
category of the Executive Order that are not exempt under the SCA's 
regulations.
    Contrary to the EEAC's claim, the Executive Order does not 
eliminate the regulatory exemption to the SCA's requirements that the 
Department created for certain concessions contracts at 29 CFR 
4.133(b). Even after enactment of Executive Order 13658, the SCA still 
does not apply to such contracts. While the Executive Order establishes 
a minimum wage for such contracts, SCA prevailing wage rate and fringe 
benefit requirements remain inapplicable to concessions contracts that 
fall within the 29 CFR 4.133(b) exemption.
    With respect to this commenter's confusion about the types of 
concessions contracts that are not exempt from the SCA under 29 CFR 
4.133(b), the regulatory text of that provision expressly states that 
the exemption only applies to certain kinds of concessions contracts. 
The SCA's regulatory exemption applies to certain concessions contracts 
that provide services to the general public; it does not, however, 
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). The Executive Order expressly applies to all 
concessions contracts with the Federal Government, including those 
exempted from the SCA's requirements. For example, the Executive 
Order's minimum wage requirements generally extend to fast food 
restaurants on military bases, souvenir shops at national monuments, 
child care centers in Federal buildings, and boat rental facilities at 
national parks.
    The comment submitted by the FS also raised several issues 
pertaining to the Executive Order's coverage of concessions contracts. 
First, the FS urged the Department to consolidate the definition for 
the terms contract and contract-like instrument with the definition for 
the term concessions contract. As discussed above in the context of 
Sec.  10.2, the Department has considered and declined this request. 
Second, the FS noted its disagreement with the Department's proposed 
interpretation of the term ``concessions.'' This commenter stated that 
``the FS construes the term `concession' much more narrowly'' than the 
definition proposed by the Department and that it specifically 
interprets the term ``to include only commercial recreation public 
services such as ski areas, marinas, and outfitting and guiding.'' The 
FS stated that it does not view ``concessions'' as including the 
provision of noncommercial educational or interpretive services or 
covering the provision of energy, transportation, communications, or 
water services to the public. Finally, the FS requested that the 
Department create a $3,000 de minimis threshold for nonprocurement 
concessions contracts whose workers' wages are subject to the FLSA. The 
FS noted that the Executive Order has value threshold requirements for 
SCA- and DBA-covered prime contracts, as well as for covered prime 
procurement contracts on which FLSA-covered workers perform work, but 
that it does not have a value threshold for nonprocurement concessions 
contracts under which workers' wages are subject to the FLSA. It urged 
the Department to apply the micro-purchase threshold set forth at 41 
U.S.C. 1902(a) to all such nonprocurement concessions contracts and 
thus to determine that nonprocurement contracts under which a land use 
fee to the Federal Government falls below the $3,000 threshold are not 
covered by the Executive Order.
    With respect to the FS's comment on the scope of the term 
``concessions,'' the Department does not believe that the narrow view 
of the term proffered by the FS is an appropriate interpretation for 
purposes of the Executive Order.\6\ The Department has proposed to more 
broadly define 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. The Department received supportive comments on its 
proposed definition of this term from several commenters such as Demos 
and NELP. Moreover, this broad interpretation of the term 
``concessions'' best effectuates the inclusive nature of the Executive 
Order. By expressly applying to both concessions contracts covered by 
the SCA as well as concessions contracts exempt from the SCA, the 
Executive Order clearly is 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. Regardless of the scope of the term 
``concessions,'' however, the Department notes that such contracts may 
qualify as SCA-covered contracts and are also likely to fall within the 
ambit of the fourth category of covered contracts set forth at section 
7(d)(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.''
---------------------------------------------------------------------------

    \6\ The Department's interpretation of the term ``concessions'' 
for purposes of Executive Order 13658 and this final rule of course 
does not determine how that term may be interpreted under other 
laws, including laws implemented by the FS.
---------------------------------------------------------------------------

    With respect to the FS's request that the Department establish a 
$3,000 de minimis threshold for nonprocurement concessions contracts, 
the Department has carefully considered this request. The Department 
declines to create such an exception to coverage of the Executive 
Order, however, because section 7(e) of the Order sets forth very 
specific value threshold requirements for other types of contracts and 
notably does not include a value threshold for nonprocurement contracts 
under which workers' wages are governed by the FLSA. The Department 
views such an omission as a deliberate decision reflecting a clear 
intent of the Executive

[[Page 60655]]

Order to cover concessions contracts regardless of dollar amount.
    Contracts in Connection with Federal Property or Lands and Related 
to Offering Services: Proposed Sec.  10.3(a)(1)(iv) implemented Section 
7(d)(i)(D) of the Executive Order, which extends coverage of the Order 
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 79 FR 
9853. To the extent that such agreements were not otherwise covered by 
Sec.  10.3(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, under 
the Department's proposed interpretation, private entities that lease 
space in a Federal building to provide services to Federal employees or 
the general public would be covered by the Executive Order and this 
part.
    In the NPRM, the Department noted that 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 7(d)(i)(D) of the Executive Order and Sec.  10.3(a)(1)(iv). 
Pursuant to this interpretation, 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 minimum wage 
requirement. Additional examples of agreements that would generally be 
covered by the Executive Order and this part under the Department's 
proposed approach include 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, barber shop, or fitness 
center in the Federal agency building to serve Federal employees and/or 
the general public.
    Some commenters expressed support for the Department's 
interpretation of this category of covered contracts. In particular, 
NELP specifically supported extending coverage to contracts offering 
services to Federal employees, their dependents, or the general public. 
Similarly, the AFL-CIO applauded the inclusion of workers engaged on 
contracts connected to Federal property and lands (and related to 
offering services) within the scope of the Executive Order and 
implementing regulations. At the same time, a number of commenters 
raised questions and concerns regarding application of the Executive 
Order minimum wage in this context.
    Two commenters, the AOA and O.A.R.S., specifically sought 
clarification as to whether FS special use permits (SUPs), NPS CUAs, 
and BLM and USFWS outfitter and guide permits constitute contracts 
under the Executive Order. As noted previously, the Department has 
defined the term 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. 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 (SUPs, CUAs, and outfitter and 
guide permits) identified by the AOA and O.A.R.S. authorize the use of 
Federal land for specific purposes in exchange for the payment of fees 
to the Federal Government. Indeed, as the AOA explained in its comment 
on the NPRM, AOA members that hold CUAs issued by the NPS or permits 
issued by the FS, BLM, and USFWS ``provide services to the public on 
federal lands.'' Such instruments create obligations that are 
enforceable or otherwise recognizable at law and hence constitute 
contracts for purposes of the Executive Order and this part.
    Although the determination of whether an agreement qualifies as a 
contract or contract-like instrument under the Executive Order and this 
part does not turn on whether such agreements are characterized as 
``contracts'' for other purposes (such as in connection with the 
specific programs under which they are administered), the Department 
nonetheless notes that its conclusion that such instruments are 
contracts for purposes of the Executive Order is consistent with 
pertinent precedent. For example, the Department's Administrative 
Review Board (ARB) previously has held that a FS SUP is a contract 
under the SCA, see Cradle of Forestry, 2001 WL 328132, at *5, and the 
Department likewise has determined that FS SUPs constitute contracts 
for purposes of the FLSA. See DOL Opinion Letter, WH-449, 1978 WL 51447 
(Jan. 26, 1978) (FS SUP was a contract for purposes of FLSA section 
13(a)(3)). See also 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)).
    Colorado Ski Country USA (CSCUSA) asserted that FS ski area permits 
should not be treated as contracts under the Executive Order and this 
final rule because they have never been considered Federal contracts 
subject to Federal procurement requirements. Similarly, the AOA 
observed that an FS SUP is not a contract for purposes of the Contract 
Disputes Act, and NSAA noted that the FS has informed it that its 
members are not Federal contractors for purposes of the Crime Control 
Act of 1990. NSAA also asserted that because FS ski area permits are 
revocable at any time, they are not contracts.
    In response to these comments, the Department notes that Executive 
Order 13658 expressly applies to non-procurement contracts that are not 
subject to the FAR; CSCUSA's assertion that FS ski area permits are not 
subject to Federal procurement requirements therefore does not weigh 
against application of the Executive Order to such permits. Similarly, 
the fact that a particular instrument may not be subject to the 
Contract Disputes Act or constitute a contract for purposes of a 
particular statute such as the Crime Control Act of 1990 is not 
determinative with respect to coverage of the instrument under 
Executive Order 13658. Indeed, the Department notes that 
notwithstanding Executive Order 13658's express application to 
contracts entered into with the Federal Government in connection with 
Federal property or lands and relating to offering services, the 
Executive Order provides that it creates no rights under the Contract 
Disputes Act. See 79 FR 9852.
    As for NSAA's assertion that FS ski area permits are not contracts 
because they are revocable at any time, it remains that FS ski area 
permits constitute an agreement with the Federal Government creating 
obligations that are enforceable or otherwise recognizable at law. 
Furthermore, the Department understands that FS ski area permits may be 
revoked only for specified reasons. See 16 U.S.C. 497b(b)(5); 36 CFR 
251.60.
    NSAA and O.A.R.S. also expressed concern that the Department's 
designation of their members' agreements with the Federal Government as 
contracts for purposes of the Executive Order would render them subject 
to the legal requirements of a ``federal contractor.'' However, the 
Department's conclusion that FS SUPs,

[[Page 60656]]

CUAs, and similar instruments constitute contracts under Executive 
Order 13658 and this final rule does not render NSAA's members and 
O.A.R.S. ``federal contractors'' with respect to other Federal laws.
    That FS SUPs, NPS CUAs, and BLM and USFWS outfitter and guide 
permits are contracts for purposes of the Executive Order does not 
necessarily mean individuals performing work on or in connection with 
the contract are covered workers. 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 be governed by the FLSA, SCA, or DBA. The FLSA 
generally governs the wages of employees of holders of CUAs issued by 
the NPS and permits issued by the FS, BLM and USFWS, at least to the 
extent such instruments are not covered by the SCA. 29 U.S.C. 213(a)(3) 
exempts employees of certain amusement and recreational establishments 
from the minimum wage and overtime provisions of the FLSA, but, as the 
AOA acknowledged, that provision ``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 FS, BLM and USFWS, are operating under a 
contract with the Secretary of the Interior or the Secretary of 
Agriculture. Thus, the exemption from the FLSA's minimum wage 
requirement will normally not apply and the FLSA will usually govern 
the wages of the employees of such holders for purposes of the 
Executive Order (unless, as noted, the SCA applies to such contracts).
    NSAA also sought clarification as to whether the Executive Order 
applies to the holder of an FS ski area permit issued by the Department 
of Agriculture that provides services or facilities directly related to 
skiing. The AOA asserted that the Executive Order does not apply to FS 
ski area permits because entities providing services or facilities 
directly related to skiing under an FS special use permit are exempt 
from the FLSA's minimum wage requirements under section 213(a)(3) of 
the FLSA. To the extent that an entity providing services or facilities 
directly related to skiing satisfies the criteria for this specific 
exemption from the FLSA's minimum wage requirements, and to the extent 
that the wages of the entity's workers are also not governed by the SCA 
or DBA, Executive Order 13658 would not apply in this specific context 
because the contractor would not have any workers on the contract whose 
wages were governed by the FLSA, SCA, or DBA.
    Multiple commenters, including the AOA, O.A.R.S., Ski New 
Hampshire, and CSCUSA assert that FS SUPs, NPS CUAs, and BLM and USFWS 
outfitter and guide permits create a relationship that, unlike 
procurement contracts, does not contain a mechanism by which the holder 
of the instrument can ``pass on'' costs related to operation of the 
Executive Order to contracting agencies. Such commenters generally 
asserted that an increase in the minimum wage permit holders will have 
to pay will cause them to operate at a competitive disadvantage because 
competitor businesses not operating under contracts covered by the 
Executive Order would not be affected. The AOA in particular asserted 
that its members believe application of the Executive Order will place 
a significant strain on their businesses. Another commenter, Advocacy, 
observed that small businesses have informed it that application of the 
Executive Order minimum wage requirement to these contracts will render 
their operations unprofitable. For these reasons, the AOA, Ski New 
Hampshire, O.A.R.S., and similar commenters requested an exemption from 
the Executive Order for permit and CUA holders' contracts with the 
Federal Government.
    In response to these comments concerning the economic impact of the 
Executive Order upon permit and CUA holders' contracts with the Federal 
Government, the Department notes that, as with the comments from 
businesses operating on military installations under concessions 
contracts, the permit and CUA holders' comments fail to account for 
various factors that the Department anticipates will substantially 
offset many potential adverse economic effects on their businesses. In 
particular, these commenters fail 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 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.
    Moreover, as noted previously, the Executive Order minimum wage 
requirements apply only to ``new contracts.'' Contracting agencies and 
contractors negotiating ``new contracts'' after January 1, 2015 will be 
aware of Executive Order 13658 and can take into account any potential 
economic impact of the Executive Order on projected labor costs. For 
example, the Department notes that the holders of covered permits and 
CUAs will likely have the ability to negotiate a lower fee in new 
contracts prior to application of the Executive Order that could help 
offset any costs that may be incurred as a result of the Order.
    Section 7(d)(i)(D) of the Executive Order 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. For the reasons explained above, the 
Department therefore declines the commenters' request to create an 
exemption for permit and CUA holders' contracts with the Federal 
Government.
    The AOA also expressed concern that the annual minimum wage 
increases the Executive Order authorizes the Secretary of Labor to make 
will create budgeting and pricing uncertainty for contractors operating 
under FS SUPs, NPS CUAs, and BLM and USFWS permits. As discussed below, 
however, the contract clause in the Department's final rule reflects 
that contractors may be compensated, if appropriate, for the increase 
in labor costs resulting from the annual inflation increases in the 
Executive Order minimum wage beginning on January 1, 2016. In addition, 
the CPI-W is published monthly, which allows parties, on a regular 
basis, to estimate what the annual wage increase will be. These 
circumstances should significantly reduce, if not eliminate, the 
budgeting and pricing uncertainty the AOA contends its members will 
face based on annual increases in the Executive Order minimum wage.
    The EEAC sought clarification regarding whether the Department 
intended to interpret ``related to offering services'' in section 
7(d)(i)(D) in a manner consistent with the principal purpose test the 
Department uses under the SCA. The threshold for a contract to ``relate 
to offering'' services is lower than the threshold for a contract to 
have as its ``principal purpose'' the furnishing of services. For 
example, the SCA will typically not cover a professional services 
contract with a

[[Page 60657]]

medical services company to operate a clinic for Federal employees on 
Federal land because the contract is not principally for services 
through the use of ``service employees.'' See 29 CFR 4.113(a)(2). 
However, because such a professional services agreement would 
constitute a contract with the Federal Government in connection with 
Federal property or lands and would be related to offering medical 
services to Federal employees, it would constitute a covered contract 
under section 7(d)(i)(D) of the Order. The Department accordingly has 
concluded that engrafting a ``principal purpose'' requirement onto the 
``related to offering services'' standard set forth in section 
7(d)(i)(D) of the Executive Order would be inconsistent with the text 
of the Executive Order. The Department notes, however, that pursuant to 
Sec.  10.4(e), the Executive Order minimum wage does not apply to 
workers who are exempt from the minimum wage requirements of the FLSA 
under 29 U.S.C. 213(a) unless they are otherwise covered by the DBA or 
the SCA. An individual employed in a bona fide executive, 
administrative, or professional capacity performing on a professional 
services contract, for example, is thus not entitled to the Executive 
Order minimum wage.
    The EEAC sought examples of arrangements that would not be covered 
contracts pursuant to section 7(d)(i)(D) of the Executive Order. As was 
mentioned in the NPRM, coverage of this section only extends to 
contracts that are ``in connection with Federal property or lands.'' 79 
FR 9853. The Department does not interpret section 7(d)(i)(D)'s 
reference to ``Federal 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 this final rule. Section 
7(d)(i)(D) coverage additionally only extends to contracts ``related to 
offering services for Federal employees, their dependents, or the 
general public.'' Thus, if a Federal agency contracts with a company to 
solely supply materials in connection with Federal property or lands, 
the Department will not consider the contract to be covered by section 
7(d)(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 7(d)(i)(D).
    Relation to the Walsh-Healey Public Contracts Act: Finally, the 
Department noted in the proposed rule that contracts for the 
manufacturing or furnishing of materials, supplies, articles, or 
equipment to the Federal Government, i.e., those subject to the Walsh-
Healey Public Contracts Act (PCA), 41 U.S.C. 6501 et seq., are not 
covered by Executive Order 13658 or this part. The Department stated 
that it intended 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 the Executive Order). 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) applies 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 are covered by the 
Executive Order for the hours that they spend performing on such DBA-
covered construction work.
    The EEAC and Ogletree Deakins submitted comments expressing support 
for the NPRM's provision that the Executive Order does not apply to 
contracts subject to the PCA and recommending that the Department 
include some of the preamble discussion on this issue in the regulatory 
text of the final rule. The Department also received comments from NELP 
and the National Center for Law and Economic Justice (NCLEJ) expressing 
disappointment that Executive Order 13658 does not cover workers 
subject to the PCA.
    The Executive Order expressly only applies to the enumerated types 
of service and construction contracts under which workers' wages are 
governed by the FLSA, SCA, or the DBA. The Department does not have the 
authority to extend coverage beyond the terms of the Order to PCA-
covered workers or contracts. Because the lack of PCA contract coverage 
is an important limitation on the coverage of the Executive Order, the 
Department agrees with the comments recommending that the Department 
include some of its preamble discussion of this issue in the regulatory 
text itself. Accordingly, the Department has added a provision at Sec.  
10.3(d) clarifying that neither the Executive Order nor this part apply 
to PCA contracts.
Coverage of Subcontracts
    The Department also received comments from ABC, AGC, the 
Association/IFA, the AOA, the Chamber/NFIB, and others requesting 
clarification of the Executive Order's coverage of subcontracts. AGC, 
for example, asked whether a subcontract for the manufacturing or 
furnishing of materials, supplies, articles, or equipment to the 
Federal Government between a manufacturer or other supplier and a high-
tier construction subcontractor for use on a DBA-covered construction 
project would be covered by the Order. The Chamber/NFIB similarly 
questioned whether, for example, a soft drink supplier to a fast food 
restaurant franchise on a military base would be considered a covered 
subcontractor under the Executive Order. The Mercatus Center at George 
Mason University also asserted that the Department overreached in its 
proposed interpretations and that ``if a federal contractor ordered 
materials from [a] construction materials retailer, it is conceivable 
that the rule could be applied to the retailer.'' The Mercatus Center 
noted that, if such an interpretation was applied, the retailer would 
then be considered a subcontractor and ``any supplier from whom the 
retailer purchased would also be considered bound by the rule.''
    In response to these comments, the Department notes that the same 
test for determining application of the Executive Order 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 7(e) of the Order do not 
apply to subcontracts. In other words, in order for the requirements of 
the Order 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 this part, (2) it 
must fall within one of the four specifically enumerated types of 
contracts set forth in section 7(d) of the Order and Sec.  10.3, 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. 
The Department has endeavored to clarify this point by referring to 
``covered subcontracts'' rather than ``subcontracts'' more generally in 
the contract clause set forth at Appendix A. Just as the Executive

[[Page 60658]]

Order does not apply to prime contracts that are subject to the PCA, 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 covered 
contractor for use on a covered Federal contract (e.g., a contract to 
supply napkins and utensils to a fast food restaurant franchise 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; the 
Mercatus Center's concerns about overreaching are therefore misplaced.
Coverage of Workers
    Proposed Sec.  10.3(a)(2) implemented section 7(d)(ii) of Executive 
Order 13658, which provides that the minimum wage requirements of the 
Order only apply to contracts covered by section 7(d)(i) of the Order 
if the wages of workers under such contracts are subject to the FLSA, 
SCA, or DBA. 79 FR 9853. 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 are governed by 
the FLSA, SCA, or DBA. Id. For example, the Order does not extend to 
workers whose wages are governed by the PCA. Moreover, as discussed 
below, the Department proposes 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) are similarly not subject to the minimum wage 
protections of Executive Order 13658 and this part.
    In determining whether a worker's wages are ``governed by'' the 
FLSA for purposes of section 7(d)(ii) of the Executive Order and this 
part, 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 4.150-56. 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 7(d)(ii) of 
Executive Order 13658 and proposed Sec.  10.3(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).\7\ In the NPRM, the Department explained that 
such workers would be covered by the plain language of section 7(d) 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.
---------------------------------------------------------------------------

    \7\ 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 4.150-155; 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).
---------------------------------------------------------------------------

    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 
includes 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 7(d)(ii) of 
Executive Order 13658 and proposed Sec.  10.3(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 7(d) of the Executive Order. 79 FR 9853. The NPRM extended 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 noted in the NPRM that where state or local 
government workers are performing on covered contracts and their wages 
are subject to the FLSA or the SCA, such workers are entitled to the 
protections of the Executive Order and this part. The DBA does not 
apply to construction performed by state or local government workers.
    The Department received a number of comments regarding the coverage 
of workers under the Executive Order. Some of these comments raised 
questions or concerns regarding the general application of the Order to 
workers, while others addressed very specific coverage issues pertinent 
to particular subsets of workers performing on or in connection with 
covered contracts. All of these comments are addressed below.
FLSA-Covered Workers on DBA and SCA Contracts
    The Department received a number of comments regarding its proposed 
coverage of FLSA-covered workers performing on or in connection with 
SCA- and DBA-covered contracts. Some of the commenters, including NELP, 
the AFL-CIO, and the Building Trades, strongly supported the proposed 
coverage of such workers. However, other commenters, such as ABC and 
the National Industry Liaison Group, expressed significant concern 
regarding the inclusion of such workers. ABC, for example, generally 
argued that coverage of FLSA workers ``creates unnecessary confusion 
and imposes administrative burdens'' for SCA and DBA contractors by 
creating new wage and recordkeeping obligations for workers who are not 
``laborers and mechanics'' or ``service employees'' and therefore are 
not subject to the prevailing wage laws, and who may not even be 
physically present on ``the site of the work.'' Many of these 
commenters similarly raised concerns regarding the meaning and scope of 
the Department's statement that the Executive Order minimum wage must 
be paid to all

[[Page 60659]]

covered workers ``performing on or in connection with'' a covered 
contract, which will be addressed in the section following this 
discussion of FLSA-covered workers.
    The Department disagrees with such comments challenging its 
proposed inclusion of FLSA-covered workers performing on or in 
connection with SCA and DBA contracts. The Department views the plain 
language of section 7 of the Executive Order as compelling such 
coverage because it extends its minimum wage requirements to all SCA- 
and DBA-covered contracts where ``the wages of workers under such 
contract . . . are governed by the Fair Labor Standards Act.'' The 
Department thus believes that it reasonably and appropriately 
interpreted both the plain language and intent of the Executive Order 
to cover FLSA-covered employees that provide support on a SCA-covered 
contract but are not ``service employees'' for purposes of the SCA as 
well as workers who provide support on DBA-covered contracts for 
construction who are not ``laborers'' or ``mechanics'' for purposes of 
the DBA but whose wages are governed by the FLSA.
Workers ``Performing on or in Connection With'' Covered Contracts
    In the NPRM, the Department proposed that all covered workers 
engaged in working ``on or in connection with'' a covered contract are 
entitled to the Executive Order minimum wage for all hours spent 
performing on the covered contract. The Department explained that this 
standard was intended to cover workers directly performing the specific 
services called for by the contract's terms (i.e., ``service 
employees'' on SCA contracts and ``laborers and mechanics'' on DBA 
contracts) as well as those workers performing other duties necessary 
to the performance of the contract (i.e., FLSA-covered administrative 
personnel on SCA and DBA contracts).
    The Department received many comments regarding the meaning and 
scope of its proposed interpretation that workers performing ``on or in 
connection with'' a covered contract are entitled to the Executive 
Order minimum wage for all hours worked on the covered contract. A few 
commenters agreed with the Department's proposed interpretation. Demos, 
for example, expressed support for the Department's proposed 
interpretation and urged the Department ``to adopt an expansive 
interpretation of the duties necessary to the performance of a contract 
so that this clause does not become an unwarranted loophole used to 
limit the coverage of the Executive Order.'' Some commenters, including 
Bond, Schoeneck, and King, PLLC, requested that the Department clarify 
whether a worker who performs work on a covered contract for only part 
of a workweek needs to be paid the Executive Order minimum wage for all 
hours worked or only for the hours spent performing on or in connection 
with the covered contract.
    Many other commenters, such as AGC, the PSC, the EEAC, the 
Association/IFA, and FortneyScott sought clarification of the meaning 
and scope of the ``performing on or in connection with'' standard for 
worker coverage. Several commenters asked the Department to provide 
more examples of FLSA-covered workers that the Department would 
consider to be performing ``in connection with'' a covered contract or 
to provide a list of the types of duties that the Department would 
regard as ``necessary'' to contractual performance. Several of these 
commenters also requested clarification regarding whether a worker 
would be covered by the Executive Order if he or she only spends an 
insubstantial amount of time performing on covered contract work. The 
Association/IFA asked, for example, whether an FLSA-covered accounting 
clerk who processes a single SCA-contract-related invoice out of 2,000 
invoices processed during her workweek would be covered by the 
Executive Order. AGC requested inclusion of a provision in the 
Department's final rule whereby a worker would only be entitled to the 
Executive Order minimum wage if the worker spends 20 percent or more of 
his or her hours worked in a given workweek performing ``in connection 
with'' covered contracts. Commenters raising this issue noted that it 
would be difficult for contractors to record and segregate the hours 
that their workers spend on covered and non-covered contracts, 
particularly with respect to FLSA-covered workers performing work in 
connection with SCA and DBA contracts who may not be located at the 
site of contractual work.
    As a threshold matter, the Department notes that the Executive 
Order minimum wage requirements only extend to the hours worked by 
covered workers performing on or in connection with covered contracts. 
The NPRM explained that 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 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. See 79 
34582. Accordingly, the regulatory text of Sec.  10.22(a) emphasizes 
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.
    In response to the large number of comments received on the 
Department's proposed interpretation that the Executive Order minimum 
wage applies to all hours in which a covered worker performs ``on or in 
connection with'' a covered contract, the Department notes that this 
standard was derived from the SCA's regulations at 29 CFR 4.150-.155, 
which provide that all service employees who are engaged in working on 
or in connection with an SCA-covered contract, either in performing the 
specific services called for by the contract's terms or in performing 
other duties necessary to contractual performance, are covered by the 
SCA unless a specific exemption is applicable. See 29 CFR 4.150. 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, 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-.155; WHD FOH ] 14b05(c). Thus, contrary 
to the assertion of the PSC and others that the Department should 
``delet[e] the undefinable phrase `in connection with''' and instead 
use the ``SCA formulation'' for worker coverage, the worker coverage 
standard applied in the NPRM and in this final rule is in fact adopted 
from the SCA's regulations.
    Because section 7(d) of the Executive Order expressly requires 
payment of the Executive Order minimum wage to FLSA-covered workers in 
the performance of a SCA- or DBA-covered contract as explained above, 
the Department believes that the narrow interpretation urged by some 
commenters under which the Executive Order minimum wage would apply 
only to workers performing the specific duties called for by the terms 
of a covered contract (e.g., a ``laborer'' on a DBA construction 
contract) would undermine the broad coverage directed by the plain 
language of the Order. The Department thus concludes that the economy 
and efficiency purposes of the Order are best effectuated by 
reaffirming

[[Page 60660]]

its interpretation that covered workers performing work ``on or in 
connection with'' a covered contract are entitled to the Executive 
Order's protections. The Executive Order evinces a clear intent that 
its minimum wage requirement extend to all DBA-, SCA-, and FLSA-covered 
workers ``in the performance of'' the covered contract, not merely 
those workers who are performing the specific duties called for by the 
contract's terms. See 79 FR 9851. Accordingly, the Department declines 
to implement the suggestion made by several commenters to narrow or 
limit the meaning of the ``in connection with'' standard.
    However, the Department recognizes the concerns expressed by many 
commenters that such an interpretation could place new burdens on 
contractors, particularly DBA-covered contractors that did not 
previously segregate hours worked by FLSA-covered workers, including 
those who were not present on the site of the construction work. The 
responsibility to pay such workers performing in connection with 
covered contracts the Executive Order minimum wage may be regarded as 
particularly burdensome for SCA- and DBA-covered prime contractors 
because, under this part, they may be held liable for violations 
committed by their subcontractors.
    The Department recognizes that it has utilized 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.
    The Department has thoroughly reviewed and considered the numerous 
comments received regarding the Department's proposed interpretation 
that the Executive Order applies to all covered workers performing on 
or in connection with covered contracts. Based on its careful review 
and in light of the administrative practice under the SCA and the DBA 
of applying a 20 percent threshold to certain coverage determinations, 
the Department has decided in this final rule to create an exclusion 
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 minimum 
wage for any hours worked. The Department expects that this exclusion 
will significantly mitigate the recordkeeping concerns identified by 
commenters without substantially affecting the Executive Order's 
economy and efficiency interests. The Department similarly does not 
believe that this exclusion undermines the Order's intent that the 
minimum wage protections extend broadly to protect FLSA-, SCA-, and 
DBA-covered workers directly performing the specific services (or 
construction) called for by the contract's terms as well as those 
workers performing other duties necessary to the performance of the 
contract. A detailed discussion of this new exclusion (which will be 
referred to as the ``20 percent of hours worked exclusion'') is set 
forth below, and the new exclusion itself appears in the regulatory 
text at Sec.  10.4(f).
    This new exclusion does 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 minimum wage for 
all hours worked performing on or in connection with covered contracts. 
This approach is consistent with the interpretation proposed in the 
NPRM. However, for a worker solely ``performing in connection with'' a 
covered contract, the Executive Order minimum wage requirements will 
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 does not apply to any 
worker who spends any hours performing ``on'' a covered contract; 
rather, it applies only to workers ``performing in connection with'' a 
covered contract who do not spend any hours worked ``performing on'' 
the contract.
    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 
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 he or she 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 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 will 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 will 
therefore be entitled to receive the Executive Order 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 will 
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 this part. In other 
words, such workers will not be entitled to be paid the Executive Order

[[Page 60661]]

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 exclusion, 
the Department regards 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, 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 in connection with covered contracts could include an 
FLSA-covered security guard patrolling or monitoring a construction 
worksite 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.
    The Department also reaffirms that the protections of the Order do 
not extend at all 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 the hiring of the workers performing on the 
SCA-covered contract in addition to the hiring of workers on other non-
covered projects. Neither the Executive Order nor the exclusion would 
apply, however, to an FLSA-covered landscaper at the home 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 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 he or she performed 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 child care 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 he or she performed 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 FLSA section 14(c) workers 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 exclusion, if a covered worker 
performs ``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 worker will not be entitled to 
the Executive Order minimum wage for any hours worked if the number of 
his or her 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.  10.22 and 
10.26, 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.
    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

[[Page 60662]]

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 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 notes 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 case, 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.
FLSA Section 14(c) Workers
    The Department received numerous 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. Executive Order 13658 expressly provides that its minimum wage 
protections extend to such workers. See 79 FR 9851. Many of the 
comments received by the Department, such as those submitted by the 
National Down Syndrome Congress, the American Association of People 
with Disabilities, the National Industries for the Blind, the National 
Federation of the Blind, and the State of Alaska's Governor's Council 
on Disabilities and Special Education, generally supported the 
inclusion of FLSA section 14(c) workers in the scope of the Order's 
coverage. A few commenters, including MVW Services, opposed the payment 
of the Executive Order minimum wage to workers paid pursuant to 14(c) 
certificates and requested that the Department exempt such workers from 
coverage of the Order. Comments questioning the coverage of such 
workers are not within the purview of this rulemaking action because 
the Executive Order explicitly provided that FLSA section 14(c) workers 
performing on or in connection with covered contracts are entitled to 
its protections. See 79 FR 9851.
    The Department received many comments, including those submitted by 
the National Down Syndrome Congress, the Association for People 
Supporting EmploymentFirst (APSE), the Autism Society of America, and 
the World Institute on Disability, requesting that it include 
additional 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 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. The Department 
agrees with this proposed addition to the contract clause because it 
helps to clarify the scope of the Executive Order's coverage and has 
thus made this change to the contract clause in Appendix A.
    The National Association of Councils on Developmental Disabilities 
also suggested that the Department create a specific section of the 
final rule that would address all of the relevant issues regarding the 
coverage of FLSA section 14(c) workers. This commenter also recommended 
that the Department clarify that all of the contractor requirements set 
forth in the final rule apply with equal force to Federal contractors 
employing workers performing on or in connection with covered contracts 
pursuant to FLSA section 14(c) certificates. As noted, the Department 
has adopted this commenter's suggestion by creating a separate section 
of the preamble in the final rule addressing specific issues that were 
raised in comments regarding the coverage of FLSA section 14(c) 
workers. However, because the Department has expressly included FLSA 
section 14(c) workers within its definition of the term worker and has 
specifically revised the contract clause to expressly state that such 
workers are entitled to the Executive Order minimum wage, the 
Department does not believe that it is necessary to create a specific 
subsection of the regulatory text devoted to FLSA section 14(c) workers 
or the contractors that employ them. 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 final rule apply with equal force to contractors 
employing FLSA section 14(c) workers performing on or in connection 
with covered contracts.
    Some commenters, such as SourceAmerica, stated that they supported 
the payment of the Executive Order minimum wage to FLSA section 14(c) 
workers performing on covered contracts but also expressed concerns 
that such inclusion could potentially lead to a loss of employment or 
public benefits for those workers. A few of these commenters, like 
Goodwill Industries International, Inc., ACCSES, PRIDE Industries, and 
SourceAmerica, suggested that, in order to mitigate these potential 
problems, the Department should direct Federal agencies to subsidize 
the wage differential between the Executive Order minimum wage rate and 
the wage rate currently paid under the workers' FLSA section 14(c) 
certificate and/or direct Federal agencies to increase the funding of 
government contracts covered by the Order to allow disability service 
providers and other employers to pay the wage differential. Other 
commenters, such as Easter Seals, The Arc, and Goodwill Industries 
International, Inc., suggested that the Department implement a variety 
of other initiatives to mitigate potential problems, such as ensuring 
that all Federal contracts are designed to promote the hiring and 
retention of individuals with significant disabilities; annually 
tracking and monitoring the number of individuals with significant 
disabilities that may be displaced or shifted to non-Federal contract 
work

[[Page 60663]]

after implementation of the Executive Order minimum wage; or dedicating 
funds for on-the-job coaches, accommodations, and training to help 
promote the retention of workers with disabilities performing on 
Federal contracts.
    The Department appreciates the concerns raised by these commenters 
regarding the potential loss of employment or reduction in public 
benefits that could result by requiring that the Executive Order 
minimum wage be paid to FLSA section 14(c) workers performing on or in 
connection with covered contracts, particularly with respect to workers 
with severe disabilities. The Department believes that many of these 
potential adverse employment effects will be mitigated by the economy 
and efficiency benefits that contractors will experience by paying 
their workforce, including workers with disabilities, the Executive 
Order minimum wage. The concerns raised by a few commenters that some 
workers with disabilities will lose their public benefits because, as a 
result of the Executive Order, they will now earn more than the 
statutory amount allowed (e.g., their earnings will exceed the 
Substantial Gainful Activity limit for purposes of Social Security 
benefits) reflects a recognition that many workers will not experience 
a loss of employment or reduction in their work hours. The Department 
recognizes the concerns raised by commenters regarding a potential loss 
of public benefits that could result from application of the Executive 
Order minimum wage to workers receiving disability benefits, but lacks 
the regulatory authority to alter the criteria used by other Federal, 
State, and local agencies in determining eligibility for public 
benefits.
    With respect to other commenters' suggestions that the Department 
could mitigate all of these potential adverse effects by engaging in a 
variety of different measures (e.g., ordering contracting agencies to 
pay the resulting wage differential; ensuring that all Federal 
contracts are designed to promote the hiring and retention of 
individuals with significant disabilities; annually tracking and 
monitoring the number of individuals with disabilities that may be 
displaced or shifted to non-Federal contract work after implementation 
of the Executive Order; or dedicating funds for on-the-job coaches, 
accommodations, and training), the Department has carefully considered 
all of these suggestions but ultimately concludes that they are beyond 
the scope of the Department's rulemaking authority to implement the 
Executive Order.
Apprentices, Students, Interns, and Seasonal Workers
    Several commenters, including AGC, Advocacy, the Chamber/NFIB, and 
ABC, expressed confusion regarding whether the Executive Order minimum 
wage requirements apply to apprentices. Several of these commenters 
opposed the payment of the Executive Order minimum wage to apprentices. 
The Chamber/NFIB, for example, argued that apprentices should not be 
covered because it would be ``inconsistent with the way apprentices 
have been treated and will reduce or eliminate the financial advantage 
of using them, thus damaging their ability to get the necessary 
experience to complete their training.''
    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 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 covered contracts. See 79 FR 34577. The 
NPRM further explained, however, that apprentices whose wages are 
calculated pursuant to special certificates issued under section 14(a) 
of the FLSA are not entitled to the Executive Order minimum wage. See 
79 FR 34579.
    After careful review of the comments received, the Department has 
decided to adopt its proposed interpretation 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. With respect to a 
few commenters' confusion regarding the coverage of apprentices, the 
Department notes 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. 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 believes that the Federal 
Government's interests in economy and efficiency are best promoted by 
extending coverage of the Order to apprentices covered by the DBA and 
the SCA.
    However, the Department interprets 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, 
including workers whose wages are calculated pursuant to special 
certificates issued under 29 U.S.C. 214(c).'' 79 FR 9851. The 
Department believes that the 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). Accordingly, the Department has adopted this 
proposed exclusion in the final rule.
    With respect to other comments received regarding particular 
categories of workers, Advocacy commented that its members in the 
recreation and hospitality industry need clarification as to whether 
seasonal workers and students are covered by the Executive Order and 
this part. It also stated that the Alliance for International 
Educational and Cultural Exchange seeks clarification as to whether the 
Executive Order minimum wage applies to exchange students performing 
seasonal work in camps and restaurants located in National Parks. 
Advocacy further noted that a small camp would like for the Department 
to clarify whether this rule applies to their summer employees who are 
college graduates and graduate students that provide educational 
programming for a set summer rate, particularly in light of the adverse 
economic effects that the camp anticipates if this rule applies to it. 
EAP Lifestyle Management, LLC similarly requested clarification as to 
whether the Executive Order applies to students and interns.
    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 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 
FLSA pursuant to 29 U.S.C. 213(a) and 214(a)-(b). Pursuant to this 
exclusion,

[[Page 60664]]

the Executive Order does 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).
    Because the Department does not know the specific details regarding 
the types of seasonal workers and students employed by the small 
businesses mentioned in the above comments, the Department cannot opine 
on whether such workers are covered. Such commenters are encouraged to 
contact the Wage and Hour Division as necessary for compliance 
assistance in determining their rights and obligations under the 
Executive Order. Insofar as these commenters are generally requesting 
that the Department exclude such workers because of the alleged 
financial hardships that will result, 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. Notably, such assertions fail to account for the 
economy and efficiency benefits that the Department anticipates 
contractors will realize by paying their workers, including students 
and seasonal workers, the Executive Order minimum wage rate.
Scope of Department's Rulemaking Authority Regarding Worker Coverage
    The ABC commented on the Department's proposed interpretation of 
workers covered by the Executive Order, stating that in order to 
``avoid . . . unnecessary confusion'' and to ``preserve comity with 
both the governing statutes and the Department's own DBA and SCA 
rules,'' the Department should preserve all current DBA and SCA wage 
determinations and limit coverage of this part solely to employees who 
are not performing work covered by the DBA or the SCA. ABC asserted 
that section 4 of the Order instructs the Department to incorporate 
existing definitions, procedures, and processes under the DBA, the SCA, 
and the FLSA and thus ``confer[s] upon the Department all the 
discretion necessary to decline to enforce the Executive Order 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).''
    The Department strongly disagrees with ABC's comment on the scope 
of its rulemaking authority and, in any event, declines to implement 
the truly sweeping limitation on worker coverage suggested by ABC. 
Section 4(a) of the Executive Order must be read in harmony with the 
entire Order, particularly with sections 1 and 7. When read as a whole, 
the Executive Order clearly does not confer authority on the Department 
to essentially nullify the policy, premise, and basic coverage 
protections of the Order, as suggested by ABC, by declining to extend 
the Executive Order minimum wage to any worker covered by the FLSA, 
SCA, or DBA that differs from the applicable minimum wages established 
under those statutes. As ABC recognizes, the FLSA, SCA and DBA set 
``minimum'' wages, and thus it is not inconsistent with these wage 
floors to establish a higher minimum wage rate. Moreover, ABC's 
proposal is inconsistent with nearly every other comment received on 
worker coverage under the Executive Order. The Department thus 
reaffirms its conclusion that the Executive Order minimum wage must be 
paid to all workers performing on or in connection with covered 
contracts whose wages are governed by the FLSA, the SCA, or the DBA, 
unless specifically exempted; as explained in the Executive Order and 
throughout this part, the Federal Government's interests in economy and 
efficiency are best promoted through the broad inclusion of all such 
workers.
Geographic Scope
    Finally, proposed Sec.  10.3(c) provided that the Executive Order 
and this part only apply to contracts with the Federal Government 
requiring performance in whole or in part within the United States. 
This interpretation was similarly reflected in the Department's 
proposed definition of the term United States, which provided that when 
used in a geographic sense, the United States means the 50 States and 
the District of Columbia. Under this approach, the minimum wage 
requirements of the Executive Order and this part 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 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 these 
geographical limits. This proposed approach was consistent with the 
SCA's regulations. See 29 CFR 4.112(b).
    The PSC commented that it supports proposed Sec.  10.3(c), but 
noted that the preamble discussion of the geographic scope of the rule 
was more clear than the regulatory text itself. Specifically, the PSC 
stated that the regulatory text should reflect the preamble's 
discussion that, 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 apply only with respect to that portion of the 
contract that is performed within the United States. The Department 
agrees with this proposed change because it improves clarity of the 
regulatory text and will assist the regulated community in obtaining 
and maintaining compliance with the final rule. Accordingly, the 
Department has amended Sec.  10.3(c) to reflect this change.
Section 10.4 Exclusions
    Proposed Sec.  10.4 addressed and implemented the exclusionary 
provisions expressly set forth in section 7(f) of Executive Order 13658 
and provided other limited exclusions to coverage as authorized by 
section 4(a) of the Executive Order. See 79 FR 9852-53. Specifically, 
proposed Sec. Sec.  10.4(a)-(d) set forth the limited categories of 
contractual arrangements for services or construction that are excluded 
from the minimum wage requirements of the Executive Order and this 
part, while proposed Sec.  10.4(e) established narrow categories of 
workers that are excluded from coverage of the Order and this part. 
Each of these proposed exclusions is discussed below.
    Proposed Sec.  10.4(a) implemented section 7(f) of Executive Order 
13658, which states that the Order does not apply to ``grants.'' 79 FR 
9853. The Department interpreted this provision to mean that the 
minimum wage requirements of the Executive Order and this part 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--(1) 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

[[Page 60665]]

Government; and (2) 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.'' 31 
U.S.C. 6304. 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 (3rd 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 or contract-like instrument 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 13658 and this 
part pursuant to the proposed rule. The Department did not receive any 
comments on this provision and thus implements it as proposed.
    Proposed Sec.  10.4(b) implemented the other exclusion set forth in 
section 7(f) of Executive Order 13658, which states that the Order does 
not apply to ``contracts and agreements with and grants to Indian 
Tribes under the Indian Self-Determination and Education Assistance Act 
(Pub. L. 93-638), as amended.'' 79 FR 9853. 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 proposed rule were 
derived from the authority granted to the Secretary pursuant to section 
4(a) of the Executive Order to ``provid[e] exclusions from the 
requirements set forth in this order where appropriate'' in 
implementing regulations. 79 FR 9852. In issuing such regulations, the 
Executive Order instructs the Secretary to ``incorporate existing 
definitions'' under the FLSA, SCA, and DBA ``to the extent 
practicable.'' Id. Accordingly, the proposed exclusions discussed below 
incorporated existing applicable statutory and regulatory exclusions 
and exemptions set forth in the FLSA, SCA, and DBA.
    As discussed in the coverage section above, the Department proposed 
to interpret section 7(d)(i)(A) of the Executive Order, which states 
that the Order applies to ``procurement contract[s] for . . . 
construction,'' 79 FR 9853, as referring to any contract covered by the 
DBA, as amended, and its implementing regulations. See proposed Sec.  
10.3(a)(1)(i). In order to provide further definitional clarity to the 
regulated community for purposes of proposed Sec.  10.3(a)(1)(i), the 
Department thus established in proposed Sec.  10.4(c) that any 
procurement contracts for construction that are not subject to the DBA 
are similarly excluded from coverage of the Executive Order and this 
part. To assist all interested parties in understanding their rights 
and obligations under Executive Order 13658, the Department proposed to 
make coverage of construction contracts under the Executive Order and 
this part consistent with coverage under the DBA to the greatest extent 
possible. No comments were submitted on proposed Sec.  10.4(c) and it 
is thus adopted as proposed.
    Similarly, the Department proposed to implement the coverage 
provisions set forth in sections 7(d)(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,'' 79 FR 
9853, by providing that the requirements of the Order apply to all 
service contracts covered by the SCA. See proposed Sec.  
10.3(a)(1)(ii). Proposed Sec.  10.4(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 excluded from coverage of the 
Executive Order and this part any contracts for services, except for 
those expressly covered by proposed Sec.  10.3(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 this 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 this 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 
13658, the Department proposed to make coverage of service contracts 
under the Executive Order and this part consistent with coverage under 
the SCA to the greatest extent possible.
    Therefore, the Department provided in proposed Sec.  10.4(d) that 
contracts for services that are exempt from SCA coverage pursuant to 
its statutory language or implementing regulations are not subject to 
this part unless expressly included by proposed Sec.  10.3(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 this part 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

[[Page 60666]]

pursuant to 29 CFR 4.133(b) but are explicitly covered by the Executive 
Order and this part under proposed Sec.  10.3(a)(1)(iii). 79 FR 9853. 
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 this part as a ``procurement 
contract for . . . construction.'' 79 FR 9853; proposed Sec.  
10.3(a)(1)(i).
    The Department received a few comments on its proposed exclusion 
set forth at Sec.  10.4(d). The Association/IFA criticized the language 
in proposed Sec.  10.4(d) as ``circular and unnecessarily confusing.'' 
It argued that, by referencing Sec.  10.3(a)(1)(ii), the Department's 
description of the exclusion in this provision actually reads: 
``Service contracts, except for those [contracts for services covered 
by the SCA], that are exempt from coverage of the Service Contract Act 
pursuant to its statutory language or implementing regulations are not 
subject to this part.'' The Association/IFA stated that this circular 
construction cannot be what was intended by the Department because, as 
drafted, it appears to state that all covered service contracts are 
excluded from the use of exemptions and thus that there are no 
exemptions. The Association/IFA thus suggested that the Department 
rewrite proposed Sec.  10.4(d) to clarify that, with the exception of 
concessions contracts, all of the SCA's exemptions are applicable to 
the Executive Order. It also requested that the Department include 
within the regulatory text a specific citation to those exemptions. 
Ogletree Deakins also requested that the Department insert specific 
citations to the SCA's statutory and regulatory text of the final rule.
    The Department agrees with the Association/IFA's comment regarding 
the need for clarification of the scope of Sec.  10.4(d) and clarifies 
that 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 this final rule (e.g., they qualify as concessions 
contracts or contracts in connection with Federal land and related to 
offering services). Accordingly, the Department has modified the 
regulatory text of Sec.  10.4(d) by deleting the reference to Sec.  
10.3(a)(1)(ii). The Department also agrees with the suggestion made by 
the Association/IFA and Ogletree Deakins and has added specific 
citations to the SCA exemptions to the regulatory text to better assist 
the regulated community in understanding its obligations and rights 
under the Executive Order. The Department notes that subregulatory and 
other coverage determinations made by the Department for purposes of 
the SCA will also govern whether a contract is covered by the SCA for 
purposes of the Executive Order.
    The Department proposed to provide in Sec.  10.4(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) are similarly not 
subject to the minimum wage protections of Executive Order 13658 and 
this part. Proposed Sec. Sec.  10.4(e)(1)-(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 
this part pursuant to this exclusion.
    Proposed Sec. Sec.  10.4(e)(1) and (2) specifically excluded from 
the requirements of Executive Order 13658 and this part workers whose 
wages are calculated pursuant to special certificates issued under 29 
U.S.C. 214(a) and (b). Specifically, proposed Sec.  10.4(e)(1) excluded 
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.  10.4(e)(2) also excluded 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.  10.4(e)(3) provided 
that the Executive Order and this part do 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. 
This proposed exclusion was consistent 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).
    Because the Department did not receive any comments requesting 
revisions to proposed Sec.  10.4(e), the Department adopts the 
provision as proposed.
    For reasons discussed earlier, Sec.  10.4 now includes 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 new exclusion at Sec.  10.4(f) is explained in 
greater detail in the preamble for Sec.  10.3 discussing this part's 
coverage of workers ``performing on or in connection with'' covered 
contracts.
Section 10.5 Executive Order 13658 Minimum Wage for Federal Contractors 
and Subcontractors
    Proposed Sec.  10.5 set forth the minimum wage rate requirement for 
Federal contractors and subcontractors established in Executive Order 
13658. See 79 FR 9851-52. This section generally discussed the minimum 
hourly wage protections provided by the Executive Order for workers 
performing on covered contracts with the Federal Government, as well as 
the methodology that the Secretary will utilize for determining the 
applicable minimum wage rate under the Executive Order on an annual 
basis beginning at least 90 days before January 1, 2016. The Executive 
Order provides that the minimum wage beginning January 1, 2016, 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. 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 emphasized that 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 the Executive Order and this part. See 79 FR 9851. This section 
has been retained in the final rule as proposed.
Section 10.6 Antiretaliation
    Proposed Sec.  10.6 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 13658 or this part, or 
has testified or is about to testify in any such proceeding. 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. As explained in the NPRM, the 
Department believes that such a provision will help

[[Page 60667]]

ensure effective enforcement of Executive Order 13658. Consistent with 
the Supreme Court's observation in interpreting the scope of the FLSA's 
antiretaliation provision, enforcement of Executive Order 13658 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., 131 S. Ct. 1325, 1333 (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, 131 S. 
Ct. at 1336.
    Moreover, as under the FLSA, the proposed antiretaliation provision 
under this part would protect workers who complain to the Department as 
well as those who complain internally to their employers about alleged 
violations of the Order or this part. See, e.g., Minor v. Bostwick 
Laboratories, 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 
Associates, 173 F.3d 35, 43 (1st Cir. 1999); EEOC v. Romeo Community 
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.
    Several commenters, including the Building Trades, Demos, the AFL-
CIO, the EEAC, and the PSC, expressed their general support for the 
Department's inclusion of an antiretaliation provision in the rule. The 
AFL-CIO particularly supported the Department's statement that the 
proposed antiretaliation provision would extend to protect workers who 
file oral as well as written complaints because such an interpretation 
is appropriate and consistent with Supreme Court precedent.
    The PSC and the EEAC commented, however, that the preamble 
discussion of the NPRM stated that this protection would apply where 
there is no current employment relationship (e.g., retaliation by ``a 
prospective or former employer''). The PSC, the Association/IFA, and 
the EEAC questioned whether current case law permits such coverage 
because some courts have determined that prospective employees cannot 
bring an antiretaliation claim under the FLSA. The EEAC further 
commented that the Supreme Court has never held that the FLSA's 
antiretaliation provision extends to internal complaints and urged the 
Department to interpret the antiretaliation provision in the final rule 
consistently with interpretations under the FLSA.
    The Department appreciates the general support for its inclusion of 
an antiretaliation provision reflected in the comments received on the 
proposed rule and continues to believe that the antiretaliation 
provision serves an important purpose in effectuating and enforcing the 
Executive Order. With respect to the comments received regarding the 
scope of this provision, the Executive Order's antiretaliation 
provision is intended to mirror the scope of the FLSA's antiretaliation 
provision, as interpreted by the Department. The Department regards the 
FLSA's antiretaliation provision as extending to job applicants and 
internal complaints, and the NPRM and this final rule reflect this 
interpretation as well. At the same time, the Department recognizes, 
for example, that the U.S. Court of Appeals for the Fourth Circuit has 
disagreed with its interpretation with respect to the coverage of job 
applicants, see Dellinger v. Science Applications Int'l Corp., 649 F.3d 
226 (4th Cir. 2011), and the Department therefore would not enforce its 
interpretation on this issue in that circuit. To the extent that 
application of the FLSA's antiretaliation provision to job applicants 
or internal complaints is definitively resolved through the judicial 
process by the Supreme Court or otherwise, the Department would 
interpret the antiretaliation provision under the Executive Order in 
accordance with such precedent. The Department adopts Sec.  10.6 as 
proposed without modification.
Section 10.7 Waiver of Rights
    Proposed Sec.  10.7 provided that workers cannot waive, nor may 
contractors induce workers to waive, their rights under Executive Order 
13658 or this part. 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 13658 or this part, proposed Sec.  
10.7 made clear that such waiver of rights is impermissible.
    The Department received a number of comments, including comments 
submitted by Demos and the AFL-CIO, expressing support for the 
Department's proposed prohibition on waiver of rights. The Department 
did not receive any comments opposing this provision. Section 10.7 of 
this part is adopted as proposed.
Subpart B--Federal Government Requirements
    In the NPRM, the Department proposed subpart B of part 10 to 
establish the requirements for the Federal Government to implement and 
comply with Executive Order 13658. The Department proposed Sec.  10.11 
to address contracting agency requirements and proposed Sec.  10.12 to

[[Page 60668]]

address the requirements placed upon the Department.
Section 10.11 Contracting Agency Requirements
    Proposed Sec.  10.11(a) implemented section 2 of Executive Order 
13658, 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. 79 FR 34580. 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 13658, 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 this part in all covered 
contracts and solicitations for such contracts, as described in Sec.  
10.3. 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 13658 and Sec.  
10.5. 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.
    Two commenters, the NILG and the EEAC, requested that the 
Department allow for incorporation of the contract clause by reference. 
The NILG suggested that the length of the clause rendered it burdensome 
and environmentally unfriendly to incorporate in its entirety, while 
the EEAC asserted that ``the utility of including such a detailed 
clause in each and every contract and contract-like instrument is 
questionable.''
    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 and this final 
rule, and the Department therefore prefers that covered contracts 
include the contract clause in full. At the same time, there will 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. It will 
be appropriate to find in such circumstances 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 the Matter of Progressive Design & Build, Inc., WAB Case No. 
87-31, 1990 WL 484308 (WAB Feb. 21, 1990). The Department notes, for 
example, 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 13658--Establishing a Minimum Wage for 
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 of this part, or to the provision of the FAR containing the 
contract clause promulgated by the FARC to implement this rule.
    The EEAC questioned how parties might include a contract clause in 
a verbal agreement. The Department anticipates that the vast majority 
of covered contracts will be written. However, the Department's 
decision to include verbal agreements as part of its definition of the 
term ``contract'' derives from the SCA's regulations. See 29 CFR 4.110. 
Under the SCA, a contract may be embodied in a verbal agreement, see 
id., notwithstanding the regulatory obligation to include the SCA 
contract clause found at 29 CFR 4.6 in the contract. The purpose of 
including verbal agreements in the definition of contract and contract-
like instrument is to ensure that the Executive Order's minimum wage 
protections apply in instances where the contracting parties, for 
whatever reason, rely on a verbal rather than written contract. As 
noted, such instances are likely to be exceedingly rare, but workers 
should not be deprived of the Executive Order's minimum wage because 
contracting parties neglected to memorialize their understanding in a 
written contract.
    The Department of Defense (DoD) commented that the proposed clause 
is ``inefficient as portions are duplicative with other NAF [non-
appropriated fund] clauses, and any modifications would require a 
change to the CFR.'' This commenter expressed their view that 
``[n]owhere else in the CFR are clauses mandated for use by NAFIs [non-
appropriated fund instrumentalities], and they should not be in this 
[part].'' The DoD requested that rather than requiring contracting 
agencies to incorporate the contract clause prescribed in the NPRM, the 
Department should permit contracting agencies to create and incorporate 
their own contract clause into covered contracts. As discussed more 
fully later in this preamble, the Department believes requiring non-
procurement contractors potentially to become familiar with distinct 
Executive Order contract clauses whenever they contract with more than 
one Federal agency, as opposed to the single, uniform clause attached 
as Appendix A, imposes on them an unnecessary inconvenience and burden. 
The Department additionally believes that requiring such contractors to 
use multiple contract clauses could result in confusion, potentially 
undercutting the Department's mandate under the Executive Order to 
adopt regulations that obtain compliance with the Order. Therefore, the 
Department is not adopting the DoD's request to allow contracting 
agencies that enter into non-procurement contracts subject to the 
Executive Order to create their own contract clauses.
    Upon careful review and consideration of the comments, the 
Department has accordingly decided to adopt Sec.  10.11(a) as proposed, 
except that the Department has made a technical modification to the 
section's first sentence. As discussed more fully later in this 
preamble with respect to the contract clause, the sentence retains the 
same meaning as in the NPRM by requiring the contracting agency to 
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.  10.3, except for procurement 
contracts subject to the FAR. For procurement contracts subject to the 
FAR, contracting agencies shall use the clause set forth in the FAR 
developed to implement this rule; that 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.
    Proposed Sec.  10.11(b) stated the consequences in the event that a 
contracting agency fails to include the contract clause in a covered 
contract. Proposed Sec.  10.11(b) provided that if a contracting agency 
made an erroneous determination that Executive Order 13658 or this part 
did not apply to a particular contract or failed to include the 
applicable contract clause in a contract to which the Executive Order

[[Page 60669]]

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 in the 
NPRM that the Administrator possesses analogous authority under the 
DBA, see 29 CFR 1.6(f), and it believed 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.
    Some commenters, including the Association/IFA, the EEAC, and the 
NILG, expressed concern that contractors might have to absorb costs 
associated with retroactive enforcement of a contract clause that 
should have been originally inserted by the contracting agency. The 
commenters expressed the view that it would be unfair to hold 
contractors financially responsible under such circumstances, and 
pointed to existing language under the regulations implementing the SCA 
and DBA that they asserted provide for reimbursement of contractors 
where the contracting agency fails to include an appropriate wage 
determination under those statutes. See 29 CFR 4.5 (SCA) (permitting 
contracting agencies to exercise their authority ``where necessary . . 
. to pay any necessary additional costs''); 29 CFR 1.6(f) (DBA) 
(authorizing retroactive incorporation of an omitted wage determination 
``provided that the contractor is compensated for any increases in 
wages resulting from such change''). Upon further consideration of this 
issue, the Department agrees that a contractor is entitled to an 
adjustment where necessary to pay any necessary additional costs when a 
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), 
is therefore reflected in revised Sec.  10.44(e). The Department 
recognizes 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 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 notes that such an adjustment is not 
warranted under the Executive Order or this part when a contracting 
agency includes the applicable Executive Order contract clause but 
fails to include an applicable SCA or DBA wage determination. This 
final rule requires 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 triggers the entitlement to an adjustment as 
described in this paragraph.
    Aside from the insertion of this language in the event that a 
contracting agency fails to include the applicable contract clause in a 
covered contract, Sec.  10.11(b) is adopted as originally proposed.
    Proposed Sec.  10.11(c) addressed the obligations of a contracting 
agency in the event that the contract clause has been included in a 
covered contract but the contractor may not have complied with its 
obligations under the Executive Order or this part. Specifically, 
proposed Sec.  10.11(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. 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). 
Withholding likewise is 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. 79 FR 9852. 
Consistent with withholding procedures under the SCA and DBA, proposed 
Sec.  10.11(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 NPRM noted that a withholding remedy is 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. 79 FR 9851. The Department received 
no substantive comments on proposed Sec.  10.11(c) and adopts the 
regulation as proposed.
    Proposed Sec.  10.11(d) described a contracting agency's 
responsibility to forward to the WHD any complaint alleging a 
contractor's non-compliance with Executive Order 13658, as well as any 
information related to the complaint. Although the Department proposed 
in Sec.  10.41 that complaints be filed with the WHD rather than with 
contracting agencies, the Department recognizes that some workers or 
other interested parties nonetheless may file formal or informal 
complaints concerning alleged violations of the Executive Order or this 
part with contracting agencies. Proposed Sec.  10.11(d) therefore 
specifically required the contracting agency to transmit the complaint-
related information identified in Sec.  10.11(d)(1)(ii)(A)-(E) to the 
WHD's Branch of Government Contracts Enforcement within 14 calendar 
days of receipt of a complaint alleging a violation of the Executive 
Order or this part, or within 14 calendar days of being contacted by 
the WHD regarding any such complaint. This language is substantially 
similar to an analogous provision in the Department's regulations 
implementing Executive Order 13495, Nondisplacement of Qualified 
Workers Under Service Contracts. See 29 CFR 9.11(d). The Department 
explained that it believes adoption of the language in proposed Sec.  
10.11(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. 79 FR 9852.
    NELP commended the Department for specifying that contracting 
agencies must report all complaint-related information to the WHD's 
Branch of Government Contract Enforcement within 14 days of receipt of 
a complaint. The FS sought confirmation that if it receives a complaint 
regarding payment of wages under the contract clause, it should refer 
that complaint to the Department. This confirms that

[[Page 60670]]

contracting agencies must refer all complaints lodged under the 
Executive Order to the Department in accordance with the procedures 
described in Sec.  10.11(d). This further confirms that the Department 
will process the complaint received and will notify the contractor and 
the contracting agency should it be necessary for either or both to 
take corrective action. No comments were received in opposition to 
proposed Sec.  10.11(d) and the Department therefore adopts Sec.  
10.11(d) as proposed.
Section 10.12 Department of Labor Requirements
    Proposed Sec.  10.12 addressed the Department's requirements under 
the Executive Order. The Order requires the Secretary to establish a 
minimum wage that contractors must pay to workers on covered contracts. 
79 FR 9851. Proposed Sec.  10.12(a) set forth the Secretary's 
obligation to establish the Executive Order minimum wage on an annual 
basis in accordance with the Order. No comments were received regarding 
proposed Sec.  10.12(a) and the Department thus adopts the regulation 
as proposed.
    Proposed Sec.  10.12(b) explained that the Secretary will determine 
the applicable minimum wages on an annual basis by utilizing the method 
set forth in proposed Sec.  10.5(b). The AOA commented on this 
provision, contending that ``[a]llowing the Secretary of Labor to set 
and raise the minimum wage annually for businesses included under the 
Proposed Rule (presumably raising it consistent with the CPI) will 
present significant complications for members of our industry.'' The 
commenter expressed concern about contractors' ability to forecast and 
adjust prices. The Department has carefully considered the comment and 
has decided to adopt Sec.  10.12(b) as proposed. As discussed in 
greater detail in the preamble section for Sec.  10.22, 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, 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 only for 
the increase in labor costs resulting from the annual inflation 
increases in the Executive Order minimum wage beginning on January 1, 
2016. This new provision in the contract clause should mitigate 
contractors' concerns about unanticipated financial burdens associated 
with annual increases in the Executive Order minimum wage.
    Section 10.12(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 would publish and maintain on Wage Determinations OnLine 
(WDOL), www.wdol.gov, or any successor Web site, the applicable minimum 
wage to be paid to workers on 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 on 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 media the 
Administrator deems appropriate.
    AGC expressed concern that few contractors have staff devoted to 
reading the Federal Register on a daily basis and contractor staff 
generally visit Wage Determinations Online only when they need specific 
information from the Web site. The organization expressed its view that 
such notification is inadequate. AGC recommended that the Department 
work with the FARC to direct contracting agencies to notify their 
current and recent contractors individually and in writing of any 
increase in the Executive Order minimum wage within a short span of 
time (e.g., 14 days from publication in the Federal Register). The 
NCLEJ and NELP also expressed their view that the notice provisions 
proposed in the NPRM were ``inadequate notice to affected workers in a 
system that depends upon their monitoring of their own pay.'' NELP and 
the NCLEJ added that ``[t]he Administrator of the WHD should be 
required to publish the annual applicable minimum wage in mainstream 
media outlets.'' A few commenters, including Women Construction Owners 
& Executives, USA, recommended that the Department include the 
Executive Order minimum wage on DBA and SCA wage determinations because 
DBA and SCA contractors go ``first and foremost to the published wage 
determination to determine'' the applicable wage rates on a project. 
The Building Trades also suggested that SCA and DBA wage determinations 
should include a short explanation of contractors' wage payment 
obligations under the Executive Order.
    After careful review of the comments received regarding proposed 
Sec.  10.12(c), the Department has decided to modify Sec.  10.12(c) of 
this final rule. The Department shares the concerns of commenters who 
raised the notice issue for both contractors and workers. Therefore, 
the Department intends to publish a prominent general notice on SCA and 
DBA wage determinations that will state the Executive Order minimum 
wage and that the Executive Order minimum wage applies to all DBA- and 
SCA-covered contracts. The Department also intends 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 will be discussed in more detail in the preamble section 
pertaining to Sec.  10.29 in subpart C, the Department has also decided 
to develop a poster regarding the Executive Order minimum wage for 
contractors with FLSA-covered workers performing on or in connection 
with a covered contract. The Department has added a provision to the 
final rule 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 new notice provision is discussed 
below in the preamble section pertaining to Sec.  10.29 of this final 
rule.
    Proposed Sec.  10.12(d) addressed the Department's obligation to 
notify a contractor in the event of a request for the withholding of 
funds. Under Sec.  10.11(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.  10.11(c) to request 
withholding, proposed Sec.  10.12(d) required the Administrator or the 
contracting agency to notify the affected prime contractor of the 
Administrator's withholding request to the contracting agency. No 
comments were received on proposed Sec.  10.12(d) and the Department 
has adopted the section as proposed with a slight modification. The 
modification in the final rule text clarifies 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. The proposed text merely required one or the other to notify 
the affected prime contractor of the

[[Page 60671]]

Administrator's withholding request to the contracting agency, without 
also noting that the other could choose in its discretion to provide 
notice as well.
Subpart C--Contractor Requirements
    Proposed subpart C articulated the requirements that contractors 
must comply with under Executive Order 13658 and this part. This 
section set 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. Proposed subpart C also set 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 10.21 Contract Clause
    Proposed Sec.  10.21(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.  10.11(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.  
10.21(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. 
This responsibility on the part of prime and upper-tier contractors for 
subcontractor compliance parallels that of the SCA and DBA. See 29 CFR 
4.114(b) (SCA); 29 CFR 5.5(a)(6) (DBA).
    The Department received several comments regarding the flow-down 
obligations of contractors under Sec.  10.21(a). AGC expressed its 
view, shared by other commenters, that it is ``unfair'' to hold the 
prime or any upper-tier subcontractor responsible for all tiers of 
subcontractor compliance with the Executive Order's requirement to 
flow-down the contract clause. It also expressed the view that it is 
unfair to hold such contractors responsible for all lower-tier 
subcontractors' compliance with the Executive Order's minimum wage 
requirements. While AGC acknowledged that construction contractors 
already may be held responsible for lower-tier subcontractor violations 
of the DBA, it expressed the view that holding contractors responsible 
for such violations of the Executive Order is a significant expansion 
of potential liability because coverage of the Executive Order on DBA-
covered projects extends to workers whose wages are governed by the 
FLSA. AGC accordingly requested that WHD include a ``safe harbor'' for 
prime contractors and upper-tier subcontractors with regard to lower-
tier subcontractors' violations.
    After careful consideration of the comments received, the 
Department has decided to adopt Sec.  10.21 as proposed. 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.  10.44, which discusses remedies and 
sanctions under this part, neither the SCA nor DBA, both of which have 
long permitted the Department to hold a contractor responsible for 
compliance by any lower-tier contractor and to which the Executive 
Order directs the Department to look in adopting remedies, contain a 
safe harbor. Such a safe 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 flow-down 
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 
would enhance the Department's ability to obtain compliance with the 
Executive Order. With respect to the concern AGC expressed regarding 
coverage of workers on DBA-covered contracts whose wages are governed 
solely by the FLSA, the Department expects the percentage of workers on 
SCA- and DBA-covered contracts who are covered by the SCA and/or DBA to 
greatly exceed those whose wages are solely governed by the FLSA. Thus, 
the vast majority of covered workers on SCA- and DBA-covered contracts 
will almost certainly be workers covered by the SCA and/or DBA to which 
the contractor already has a flow-down obligation. Moreover, as 
explained above in the preamble for subpart A, the Department has 
created an exclusion under which workers performing work in connection 
with covered contracts for less than 20 percent of their hours worked 
in a given workweek are not subject to the Executive Order. For these 
reasons, the Department declines to grant the request for a safe 
harbor.
    Finally, AGC sought clarification as to how ``far down the line'' a 
contractor's flow-down responsibility extends. The Department notes 
that, as under the SCA and DBA, a contractor under this part is 
responsible for compliance by all covered lower-tier subcontractors. 
This obligation applies 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.
Section 10.22 Rate of Pay
    Proposed Sec.  10.22 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 13658. 
Proposed Sec.  10.22(a) stated the general obligation that contractors 
must pay workers on a covered contract the applicable minimum wage 
under Executive Order 13658 for all hours spent performing work on 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 
$10.10 beginning January 1, 2015. Under the proposal, in order to 
comply with the Executive Order's minimum wage requirement, a 
contractor could 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, will 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 this part 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, on or

[[Page 60672]]

after the date of award, 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 subject to the Executive Order and 
this part unless a specific exemption is applicable. This standard was 
derived from the SCA's implementing regulations at 29 CFR 4.150.
    In the NPRM, the Department explained that, because workers covered 
by the Executive Order are entitled to its minimum wage protections for 
all hours worked in performance of a covered contract, a computation of 
their hours worked on the covered contract in each workweek is 
essential. See 29 CFR 4.178. The proposed rule provided that, 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. However, unless such 
hours are adequately segregated or there is affirmative proof to the 
contrary that such work did not continue throughout the workweek, as 
discussed below, compensation in accordance with the Executive Order 
will be required for all hours worked in any workweek in which the 
worker performs any work on or in connection with a contract covered by 
the Executive Order. Id.
    In the NPRM, the Department further stated that, 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 contracts 
subject to the Order from periods in which other work was performed, 
the minimum wage requirement of the Executive Order need not be paid 
for hours spent on work not covered by the Order. See 29 CFR 4.169, 
4.178-.179. However, in the absence of records adequately segregating 
non-covered work from the work performed on or in connection with the 
covered contract, all 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's proposed rule noted 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. As explained in the NPRM, the Department 
believes that the principles, processes, and practices that it utilizes 
in its implementing regulations under the SCA, which incorporate by 
reference 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-.179; WHD FOH ]] 14c07, 14g00-
01.\8\ 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, records can 
be segregated 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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    \8\ In the NPRM, 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. 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.
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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.
    In response to these rate of pay issues discussed in the preamble, 
the NCLEJ commented that workers should be provided with clear 
information about which of their work hours were performed on or in 
connection with a contract subject to the Executive Order if the 
contractor intends to assign them both covered and uncovered job 
duties. The Department notes that contractors are required under this 
rule to notify workers of the Executive Order minimum wage and to 
maintain records for each worker stating, inter alia, the number of 
hours worked and rate of pay for all hours worked. Because the 
Department anticipates that such notice will be sufficient to inform 
workers of their rights under the Order, the Department declines this 
request.
    The Department did not receive any comments opposing its proposed 
interpretation of the rate of pay and hours worked principles set forth 
above and reaffirms all of its discussion and guidance set forth in the 
NPRM regarding determining and segregating hours worked and calculating 
the rate of pay.
    AGC and ABC suggested that the applicable minimum wage rate under 
the Executive Order should remain frozen for the duration of covered 
multi-year contracts. Both commenters asserted that wage determinations 
applicable at the beginning of a multi-year contract covered by the DBA 
remain unchanged for the life of the contract, and AGC argued that 
allowing ``mid-performance'' changes in the applicable minimum wage 
rate could lead to ``claims and change orders that could cause project 
delays or cost overruns.'' As a ``less ideal alternative,''

[[Page 60673]]

AGC requested the insertion of a mandatory clause that would allow for 
contract adjustments based on increases in the applicable minimum wage 
rate.
    The Department declines to adopt the proposal to freeze the 
applicable minimum wage rate for the duration of multi-year contracts. 
Nothing in the Executive Order suggests that the minimum wage 
requirement can remain stagnant during the span of a covered multi-year 
contract. 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. For 
these reasons, the Department has declined to include any new language 
in Sec.  10.22(a) ``freezing'' the applicable minimum wage rate for the 
duration of multi-year contracts. With respect to AGC's alternative 
suggestion on this issue, as mentioned in the preamble to Sec.  
10.11(b) and discussed in further detail in relation to Sec.  10.44(e), 
the Department has revised the language of the contract clause 
contained in Appendix A to require contracting agencies, if 
appropriate, to ensure the contractor is compensated only for the 
increase in labor costs resulting from the annual inflation increases 
in the Executive Order 13658 minimum wage beginning on January 1, 2016.
    Proposed Sec.  10.22(a) explained that the contractor's obligation 
to pay the applicable minimum wage to workers on 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 13658. This provision implemented section 2(c) of 
the Executive Order. 79 FR 9851.
    The Department noted that the minimum wage requirements of 
Executive Order 13658 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 this part. 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 worker in order to be in compliance with the SCA or DBA.\9\
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    \9\ The Department further notes 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.
---------------------------------------------------------------------------

    In the NPRM, the Department indicated that the minimum wage 
requirements of Executive Order 13658 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 on 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. The Department noted in 
the NPRM that if the commensurate wage due under the certificate is 
greater than the Executive Order minimum wage, the contractor must pay 
the 14(c) worker the greater commensurate wage. In response to a 
suggestion submitted by many commenters, the Department has decided to 
add a provision to paragraph (b)(5) of the contract clause that states 
this point explicitly. A more detailed discussion of that provision is 
included in the preamble section for Appendix A.
    The Chamber/NFIB requested suspension of application of the 
Executive Order minimum wage to contractors that have negotiated a wage 
below the Order's minimum wage in collective bargaining agreements 
(CBAs) until the contractors' current CBAs expire. The Chamber/NFIB 
submit that suspending application of the Executive Order in this 
manner will preserve the terms bargained by the contractor with its 
workers' union and provide contractors with the wage certainty 
associated with a CBA. Another commenter, SourceAmerica, similarly 
sought guidance regarding the relationship between CBA rates and the 
Order's minimum wage requirement.
    In response to these comments, the Department notes 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. Although a successor 
contractor on an SCA-covered contract is required 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 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 concludes that 
permitting payment of CBA wage rates below the Executive Order minimum 
wage is inconsistent with the Executive Order and 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.
    After careful review of the comments, the Department has decided to 
adopt Sec.  10.22(a) as proposed, except that the Department has 
revised the regulatory text to correct a typographical error (the word 
``this'' instead of ``thus'') that was identified by a number of 
commenters.
    Proposed Sec.  10.22(b) explained how a contractor's obligation to 
pay the applicable Executive Order minimum wage applies 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.
    Two commenters, ABC and the Association/IFA, requested that the 
Department permit construction contractors performing on an Executive 
Order covered contract to satisfy the minimum wage obligation by paying 
any combination of wages and bona fide fringe benefits. The 
Association/IFA commented that the Department should expressly state, 
as it does for the SCA, how fringe benefits should be handled under the 
DBA. Additionally, the Association/IFA asked that the Department 
reconsider its position with respect to the SCA fringe benefits and 
allow cash equivalent payments related to such benefits to satisfy the 
Executive Order minimum wage.
    As the Department noted in the NPRM, Executive Order 13658

[[Page 60674]]

increases, initially to $10.10, ``the hourly minimum wage'' paid by 
contractors with the Federal Government. 79 FR 9851. 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. 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 13658 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, Sec.  10.22(b) of the final rule 
precludes a contractor from discharging its minimum wage obligation by 
furnishing fringe benefits.
    Proposed Sec.  10.22(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, Sec.  10.22(b) of the final rule 
does 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.
    After careful consideration of the views submitted, the Department 
has decided to adopt Sec.  10.22(b) as proposed. Consistent with the 
Executive Order, and for the reasons discussed in the proposed rule and 
above, the Department declines to adopt the suggestion of the 
Association/IFA with respect to SCA fringe benefits and cash equivalent 
payments.
    Proposed Sec.  10.22(c) stated that a 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 proposed Sec.  
10.28. The Department received no comments on this provision and 
implements Sec.  10.22(c) as proposed. Comments received concerning the 
implementation of the Executive Order minimum wage with respect to 
tipped employees are addressed in Sec.  10.28.
    As mentioned above, NELP and the NCLEJ requested that the 
Department require the Administrator of WHD to ``publish the annual 
applicable minimum wage in mainstream media outlets.'' They further 
requested that the Department require contractors to provide the 
applicable wage rate to workers on a regular basis. The Department has 
concluded that additional notice to workers will promote compliance 
with the Order and has accordingly adopted, in part, the commenters' 
request by adding Sec.  10.29 to this final rule, as discussed later in 
this preamble.
Section 10.23 Deductions
    Proposed Sec.  10.23 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.  10.23(a) permitted deductions required by Federal, 
State, or local law, including Federal or State withholding of income 
taxes. See 29 CFR 531.38 (FLSA); 29 CFR 4.168(a) (SCA); 29 CFR 3.5(a) 
(DBA). Proposed Sec.  10.23(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). The EEAC asked whether the phrase ``court order'' in 
proposed Sec.  10.23(b) precludes deductions made pursuant to 
garnishment orders ``issued by an administrative tribunal and not 
necessarily a court of law.'' Proposed Sec.  10.23(b) echoes 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 13658, the phrase ``court order'' 
includes orders issued by Federal, state, local, and administrative 
courts.
    The EEAC further asked whether the Executive Order minimum wage 
will affect the formula establishing the maximum level of garnishment 
under the Consumer Credit Protection Act (CCPA). The Executive Order 
minimum wage will not affect the formula for establishing the maximum 
amount of wage garnishment permitted under the CCPA, which, as the 
commenter noted, is derived in part from the FLSA minimum wage. See 15 
U.S.C. 1673(a)(2).
    Proposed Sec.  10.23(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).
    In commenting on this subsection, the Association/IFA asked the 
Department to clarify whether deductions for health insurance premiums 
that reduce a worker's wages below the Executive Order minimum wage are 
permissible. Deductions for health insurance premiums that reduce a 
worker's wages below the minimum wage required by the Executive Order 
are generally impermissible under Sec.  10.22(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

[[Page 60675]]

indirectly, no benefit or profit from it. The Department reiterates, 
however, that in accordance with Sec.  10.22(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 does 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.  10.23(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 
about proposed Sec.  10.23(d).
    After carefully considering all of the comments received regarding 
the categories of deductions permitted under this section, the 
Department has decided to implement Sec.  10.23 as it was originally 
proposed.
Section 10.24 Overtime Payments
    Proposed Sec.  10.24(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-.7, 
.105, .107, .109, .115 (FLSA); 29 CFR 4.166, 4.180-.182 (SCA); 29 CFR 
5.32(a) (DBA).
    Proposed Sec.  10.24(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 consists of both the cash wages paid and the amount of the tip 
credit taken by the contractor. Overtime payments are not computed 
based solely on the cash wage paid; for example, if after January 1, 
2015, a contractor pays a tipped employee performing on a covered 
contract a cash wage of $4.90 and claims a tip credit of $5.20, the 
worker is entitled to $15.15 per hour for each overtime hour ($10.10 x 
1.5), not $7.35 ($4.90 x 1.5). A contractor may not claim a higher tip 
credit in an overtime hour than in a straight time hour. Accordingly, 
as of January 1, 2015, for contracts covered by the Executive Order, if 
a contractor pays the minimum cash wage of $4.90 per hour and claims a 
tip credit of $5.20 per hour, then the cash wage due for each overtime 
hour would be $9.95 ($15.15 - $5.20). 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 Department did not receive any comments addressing the payment 
of overtime under the Executive Order provided in proposed Sec.  10.24. 
As such, the language in proposed Sec.  10.24 has been adopted without 
change, except that the Department has, as a technical edit, added a 
reference to the FLSA in the second sentence of Sec.  10.24(a).
Section 10.25 Frequency of Pay
    Proposed Sec.  10.25 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.  10.25 also 
provided that a pay period under the Executive Order may not be of any 
duration longer than semi-monthly. (The Department notes that workers 
whose wages are governed by the DBA must be paid no less often than 
once a week and reiterates that compliance with the Executive Order 
does not excuse noncompliance with applicable FLSA, SCA, or DBA 
requirements.) The Department derived Sec.  10.25 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 suggests that most covered contractors pay no 
less frequently than semi-monthly, the Department believes Sec.  10.25 
as proposed will not be a burden to FLSA-covered contractors.
    The Department received one comment addressing the frequency of pay 
requirements provided in proposed Sec.  10.25. That commenter, the AFL-
CIO, voiced support for the proposed language. The language in proposed 
Sec.  10.25 has been adopted without change.
Section 10.26 Records To Be Kept by Contractors
    Proposed Sec.  10.26 explained the recordkeeping and related 
requirements for contractors. The obligations set forth in proposed 
Sec.  10.26 are derived from and consistent across the FLSA, SCA, and 
DBA. See 29 CFR 516.2(a) (FLSA); 29 CFR 4.6(g)(1) (SCA); 29 CFR 
5.5(a)(3)(i) (DBA). Proposed Sec.  10.26(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 Department received comments from Advocacy, the Chamber/NFIB, 
and others, which expressed concern that recordkeeping obligations of 
this rule are ``burdensome'' for contractors with workers performing 
both covered and non-covered work. As discussed earlier in this 
preamble, the records required to be kept by contractors pursuant to 
this part are coextensive with recordkeeping requirements that already 
exist under the FLSA, SCA, and DBA. Therefore, compliance with these 
obligations by a covered contractor will not impose any obligations to 
which the contractor is not already subject under the FLSA, SCA, or 
DBA. With respect to contractors' concerns regarding the burden 
associated with segregating hours worked on covered and non-

[[Page 60676]]

covered work, the Department has already responded to this concern in 
subpart A of this part, in which it explained that it has created a new 
exclusion for workers who perform in connection with covered contracts 
for less than 20% of their hours worked in a given workweek.
    As the Department received no other substantive comments on this 
section, the final rule implements Sec.  10.26(a) as proposed, with two 
modifications. In addition to the four recordkeeping requirements 
enumerated in proposed Sec.  10.26(a)(1)-(4) of the NPRM, two 
additional recordkeeping requirements have been included in the final 
rule publication: The requirement to maintain records reflecting each 
worker's occupation or classification (or occupations/classifications), 
and the requirement to maintain records reflecting total wages paid. 
Contractor obligations to maintain these records derive from and are 
consistent across the FLSA, SCA, and DBA, just as with those records 
enumerated in the NPRM. The addition of these two new recordkeeping 
requirements thus imposes no new burdens on contractors.\10\ The 
Department notes 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 
has opted to use the language ``total wages paid'' in this rule for 
simplicity; however, compliance with this recordkeeping requirement 
will be determined in relation to the applicable statute (FLSA, SCA, 
and/or DBA).
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    \10\ To alleviate concerns that Sec.  10.26 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 final 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.  10.26(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.  10.26(c) 
provided that nothing in this part limits or otherwise modifies a 
contractor's payroll and recordkeeping obligations, if any, under the 
FLSA, SCA, or DBA, or their implementing regulations, respectively. The 
Department received no comments related to proposed Sec.  10.26(b) or 
Sec.  10.26(c) and the final rule adopts those provisions as proposed, 
except that it has changed the word ``employees'' to ``workers'' in 
Sec.  10.26(b) to be consistent with the terminology used in the 
Executive Order and this part.
Section 10.27 Anti-Kickback
    Proposed Sec.  10.27 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.  10.23), 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 are also 
prohibited. This provision was intended to ensure full payment of the 
applicable Executive Order minimum wage to covered workers. The 
Department also notes that kickbacks may be subject to civil penalties 
pursuant to the Anti-Kickback Act, 41 U.S.C. 8701-07. The Department 
received no comments related to proposed Sec.  10.27 and has 
accordingly retained the section in its proposed form.
Section 10.28 Tipped Employees
    Proposed Sec.  10.28 explained how tipped workers must be 
compensated under the Executive Order on covered contracts. Section 3 
of the Executive Order governs how the minimum wage for Federal 
contractors and subcontractors applies to tipped employees. Section 3 
of the Order provides: (a) For workers covered by section 2 of the 
Order who are tipped employees pursuant to 29 U.S.C. 203(t), the hourly 
cash wage that must be paid by an employer to such workers shall be at 
least: (i) $4.90 an hour, beginning on January 1, 2015; (ii) for each 
succeeding 1-year period [beginning on January 1, 2016] until the 
hourly cash wage under this section equals 70 percent of the wage in 
effect under section 2 of the Order for such period, an hourly cash 
wage equal to the amount determined under this section for the 
preceding year, increased by the lesser of: (A) $0.95; or (B) the 
amount necessary for the hourly cash wage under this section to equal 
70 percent of the wage under section 2 of the Order; and (iii) for each 
subsequent year, 70 percent of the wage in effect under section 2 for 
such year rounded to the nearest multiple of $0.05; (b) Where workers 
do not receive a sufficient additional amount on account of tips, when 
combined with the hourly cash wage paid by the employer, such that 
their wages are equal to the minimum wage under section 2 of the Order, 
the cash wage paid by the employer, as set forth in this section for 
those workers, shall be increased such that their wages equal the 
minimum wage under section 2 of the Order. Consistent with applicable 
law, if the 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, the employer shall pay 
additional cash wages sufficient to meet the highest wage required to 
be paid.
    Accordingly, as of January 1, 2015, section 3 of the Executive 
Order requires contractors to pay tipped employees covered by the 
Executive Order performing on covered contracts a cash wage of at least 
$4.90, provided the employees receive sufficient tips to equal the 
minimum wage under section 2 when combined with the cash wage. In each 
succeeding year, beginning January 1, 2016, the required cash wage 
increases by $0.95 (or a lesser amount if necessary) until it reaches 
70 percent of the minimum wage under section 2 of the Executive Order. 
For subsequent years, the cash wage for tipped employees is 70 percent 
of the Executive Order minimum wage rounded to the nearest $0.05. At 
all times, the amount of tips received by the employee must equal at 
least the difference between the 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. If the contractor is required to pay a wage higher than the 
Executive Order minimum wage by the Service Contract Act or other 
applicable law or regulation, the contractor must pay additional cash 
wages equal to the difference between the higher required wage and the 
Executive Order minimum wage.
    The Department received a number of comments addressing the pace of 
future increases in the minimum cash wage due to tipped employees 
covered by section 3 of the Executive Order. The Association/IFA 
expressed concern that such increases are ``unsustainable,'' warning 
that ``such a rapid increase in the labor costs . . . will be crippling 
to the restaurants that employee (sic) tipped employees.'' NELP and the

[[Page 60677]]

NCLEJ, however, argued that increases in the minimum cash wages 
provided under section 3 of the Executive Order ``could prove slow for 
workers who are struggling to make ends meet.'' Similarly, National 
Consumers League argued that ``in light of the extraordinarily low base 
pay earned by many tipped workers today, the Executive Order could--and 
should--have accelerated the increase of the tipped minimum wage.'' 
While the Department takes note of these comments, the pace of future 
increases in the minimum cash wage for tipped employees is a factor 
outside the scope of the Department's rulemaking authority, as the 
formula for determining the minimum cash wage for tipped employees is 
clearly provided in section 3 of the Executive Order itself.
    For purposes of the Executive Order and this part, tipped workers 
(or tipped employees) are defined by section 3(t) of the FLSA. 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). As 
with the FLSA ``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. The wage paid to the tipped employee 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 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.
    In the proposed regulations implementing section 3 of the Executive 
Order, the Department set forth 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 
procedures from the FLSA, SCA and DBA. 79 FR 9852. In an effort to 
assist contractors who employ tipped workers and avoid the need for 
extensive cross references to the FLSA tip credit regulations, the 
requirements for paying tipped employees under the Executive Order were 
fully set forth in proposed Sec.  10.28. The Department also sought to 
use plain language in the proposed tipped employee regulations to make 
clear contractors' wage payment obligations to tipped employees under 
the Executive Order. Because the Department did not receive any 
substantive comments addressing the text of proposed Sec.  10.28, the 
Department has adopted the section as proposed with only one minor 
modification.
    Section 10.28(a) of the final rule sets forth the provisions of 
section 3 of the Executive Order explaining contractors' wage payment 
obligation under section 2 to tipped employees. Section 10.28(a)(1) and 
(2) makes clear that the wage paid to a tipped employee under section 2 
of the Executive Order consists of two components: A cash wage payment 
(which must be at least $4.90 as of January 1, 2015, and rises yearly 
thereafter) and a credit based on tips (tip credit) received by the 
worker equal to the difference between the cash wage paid and the 
Executive Order minimum wage. Accordingly, on January 1, 2015, if a 
contractor pays a tipped employee performing on a covered contract a 
cash wage of $4.90 per hour, the contractor may claim a tip credit of 
$5.20 per hour (assuming the worker receives at least $5.20 per hour in 
tips). 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; 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.  
10.28(a)(4). For example, if on January 1, 2015, a contractor on a 
contract subject to the Executive Order paid a tipped worker a cash 
wage of $5.50 per hour instead of the minimum requirement of $4.90, the 
contractor would only be able to claim a tip credit of $4.60 per hour 
to reach the $10.10 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.
    Section 10.28(a)(3) of the final rule makes 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.
    Section 10.28(a)(4) sets forth the contractors' wage payment 
obligation when the 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 Sec.  10.28(a)(1) and 
any tip credit claimed. Unlike raising the cash wage paid under Sec.  
10.28(a)(1), additional cash wages paid under Sec.  10.28(a)(4) do not 
impact the calculation of the amount of tip credit the employer may 
claim.
    Section 10.28(b) follows section 3(t) of the FLSA, 29 U.S.C. 
203(t), in defining a tipped employee as one who customarily and 
regularly receives more than $30 a month in tips. If an employee 
receives less than that amount, he or she is not considered a tipped 
employee and is entitled to not less than the full Executive Order 
minimum wage in cash. Workers may be considered tipped employees 
regardless of whether they work full time or part time, but the amount 
of tips required per month to be considered a tipped employee is not 
prorated for part time workers. Only the tips actually retained by the 
employee may be considered in determining if he or she is a tipped 
employee (i.e., only tips retained after any redistribution of tips 
through a valid tip pool). As explained in proposed Sec.  10.28(b), the 
tip credit may only be taken for hours an

[[Page 60678]]

employee works in a tipped occupation. Accordingly, where a worker 
works in both a tipped and a non-tipped occupation for the contractor 
(dual jobs), the tip credit may only be used for the hours worked in 
the tipped occupation and no tip credit may be taken for the hours 
worked in the non-tipped occupation. As further explained in Sec.  
10.28(b), the tip credit may be used for some time spent performing 
incidental activities related to the tipped occupation that do not 
directly produce tips, such as cleaning tables and filling salt 
shakers, etc. In response to a comment from the CPL, the phrase, ``In 
general'' was deleted from the beginning of proposed Sec.  10.28(b) and 
replaced with the phrase, ``As provided in Sec.  10.2,''.
    Section 10.28(c) of the final rule defines what constitutes a tip. 
Consistent with common understanding, a tip is defined as a sum 
presented by a customer in recognition of a service performed for the 
customer. Whether a tip is to be given and its amount are determined 
solely by the customer. Thus, a tip is different from a fixed charge 
assessed by a business for service. Tips may be made in cash presented 
to, or left for, the worker, or may be designated on a credit card bill 
or other electronic payment. Gifts that are not cash equivalents are 
not considered to be tips for purposes of wage payments under the 
Executive Order. A contractor with a contract subject to the Executive 
Order is prohibited from using an employee's tips, whether it has 
claimed a tip credit or not, for any reason other than as a credit 
against the contractor's wage payment obligations under section 3 of 
the Executive Order, or in furtherance of a valid tip pool. Employees 
and contractors may not agree to waive the employee's right to retain 
his or her tips.
    Section 10.28(d) addresses payments that are not considered to be 
tips. Paragraph (d)(1) addresses compulsory service charges added to a 
bill by the business, which are not considered tips. Compulsory service 
charges are considered to be part of the business' gross receipts and, 
even if distributed to the worker, cannot be counted as tips for 
purposes of determining if a worker is a tipped employee. Paragraph 
(d)(2) of this section addresses a contractor's use of service charges 
to pay wages to tipped employees. Where the contractor distributes 
compulsory service charges to workers the money will be considered 
wages paid to the worker and may be used in their entirety to satisfy 
the minimum wage payment obligation under the Executive Order.
    Section 10.28(e) addresses a common practice at many tipped 
workplaces of pooling all or a portion of employees' tips and 
redistributing them to other employees. Contractors may not use 
employees' tips to supplement the wages paid to non-tipped employees. 
Accordingly, a valid tip pool may only include workers who customarily 
and regularly receive tips; inclusion of employees who do not receive 
tips such as ``back of the house'' workers (dishwashers, cooks, etc.), 
will invalidate the tip pool and result in denial of the tip credit for 
any tipped employees who contributed to the invalid tip pool. A 
contractor that requires tipped employees to participate in a tip pool 
must notify workers of any required contribution to the tip pool, may 
only take a credit for the amount of tips ultimately received by a 
tipped employee, and may not retain any portion of the employee's tips 
for any other purpose.
    Section 10.28(f) addresses the requirements for a contractor with a 
contract subject to the Executive Order to avail itself of a tip credit 
in paying wages to a tipped employee under the Executive Order. These 
requirements follow the requirements for taking a tip credit under the 
FLSA and are familiar to employers of tipped employees. Before a 
contractor may claim a tip credit it must inform the tipped employee of 
the amount of the cash wage that will be paid; the additional amount of 
tip credit that will be claimed in determining the wages paid to the 
employee; that the amount of tip credit claimed may not be greater than 
the amount of tips received by the employee in the workweek and that 
the contractor has the obligation to increase the cash wage paid in any 
workweek in which the employee does not receive sufficient tips; that 
all tips received by the worker must be retained by the employee except 
for tips that are redistributed through a valid tip pool and the amount 
required to be contributed to any such pool; and that the contractor 
may not claim a tip credit for any employee who has not been informed 
of its use of the tip credit.
Section 10.29 Notice
    As discussed earlier in the preamble for Sec.  10.12(c) in subpart 
B, the Department has established a new notice requirement for 
contractors in Sec.  10.29. Specifically, contractors must notify all 
workers performing on or in connection with a covered contract of the 
applicable minimum wage rate under the Executive Order. This notice 
requirement was created in response to comments submitted by NELP and 
the NCLEJ expressing concern that the proposed rule did not contain a 
mechanism for adequately informing workers of their rights under the 
Executive Order. Given that the regulations implementing the FLSA, SCA 
and DBA each contain separate notice requirements for the employers 
covered by those statutes, the Department agrees with the commenters 
who raised this issue 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).
    Contractors may satisfy this 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, Sec.  10.29(a) clarifies that contractors may meet the notice 
requirement by posting, in a prominent and accessible place at the 
worksite, the applicable wage determination.\11\ 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.  
10.5(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 notice requirement in 
Sec.  10.29 will not impose any additional burden on contractors with 
respect to those workers already covered by the SCA or DBA.
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    \11\ 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. SCA and DBA contractors may use these 
same methods to notify workers of the Executive Order minimum wage 
under section 10.29 of this rule.
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    Section 10.29(b) provides that contractors with FLSA-covered 
workers performing on or in connection with a covered contract may 
satisfy the notice requirement by displaying a poster provided by the 
Department of Labor in a prominent or accessible place at the worksite. 
This poster is 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

[[Page 60679]]

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 will make the poster available on the 
WHD Web site and will provide the poster in a variety of languages.
    Finally, Sec.  10.29(c) provides 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 Web site that is maintained by the 
contractor, whether external or internal, and is customarily used for 
notices to workers about terms and conditions of employment. This kind 
of an electronic notice may 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 for Sec.  10.3, some FLSA-
covered workers performing ``in connection with'' a covered contract 
may not work at the main worksite with other covered workers. These 
covered off-site workers nonetheless are entitled to adequate notice of 
the Executive Order minimum wage rate under Sec.  10.29. For example, 
an off-site administrative assistant spending more than 20% 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. 
Contractors may notify these off-site workers of the Executive Order 
minimum wage rate by displaying the poster for FLSA-covered workers 
described in Sec.  10.29(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 Sec.  
10.29(c).
    The Department does not anticipate that this new notice requirement 
will impose a significant burden on contractors. As mentioned earlier, 
contractors are already required to notify workers of the required wage 
and/or to display the applicable wage determination for workers covered 
by the SCA or DBA in a prominent and accessible place at the worksite, 
which will satisfy this section's notice requirement with respect to 
those workers. To the extent that Sec.  10.29 imposes a new notice 
requirement with respect to workers whose wages are governed by the 
FLSA, 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 will develop and provide the 
Executive Order minimum wage poster. 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 may be obtained without cost from the 
Department. Moreover, as discussed above, the Department will also 
permit contractors that customarily post notices electronically to 
utilize electronic posting of the notice. The Department's experience 
enforcing the FLSA, SCA and DBA reflect that this notice provision will 
serve an important role in obtaining and maintaining contractor 
compliance with the Executive Order.
Subpart D--Enforcement
    Section 5 of Executive Order 13658, titled ``Enforcement,'' grants 
the Secretary ``authority for investigating potential violations of and 
obtaining compliance with th[e] order.'' 79 FR 9852. Section 4(c) of 
the Order directs that the regulations the Secretary issues should, to 
the extent practicable, incorporate existing procedures, remedies, and 
enforcement processes under the FLSA, SCA and DBA. Id. The Department 
has adhered to these requirements in drafting subpart D.
    Specifically, consistent with these requirements, subpart D of this 
part 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 this part 
accordingly are based on the statutory text or implementing regulations 
of the FLSA, SCA, and DBA. The Department also adopts, in instances 
where it is appropriate, enforcement procedures set forth in the 
Department's regulations implementing Executive Order 13495, 
Nondisplacement of Qualified Workers Under Service Contracts. See 29 
CFR part 9.
Section 10.41 Complaints
    The Department proposed a procedure for filing complaints in Sec.  
10.41. Proposed Sec.  10.41(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 would 
accept a complaint in any language if the complainant was unable to 
file in English. Proposed Sec.  10.41(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). As the Department received no 
substantive comments on this section, the final rule implements Sec.  
10.41 as proposed.
    NELP suggested the Department ensure the integration of complaints 
under the Executive Order into the Federal Awardee Performance 
Integrity Information System (FAPIIS) database. The Department 
understands that the purpose of the FAPIIS database is to collect data 
related to certain ``dispositions'' in civil, criminal or 
administrative proceedings, rather than to gather documents evincing 
the filing of a complaint. See Duncan Hunter National Defense 
Authorization Act of 2009, Public Law 110-417, Section 872(c). It is 
the Department's further understanding that, consistent with the 
statutory mandate, the database is not used to collect data related to 
complaints. Thus, while the Department appreciates the commenter's 
recommendation, it declines to ensure integration of complaint data 
into the FAPIIS database.
Section 10.42 Wage and Hour Division Conciliation
    Proposed Sec.  10.42 would establish an informal complaint 
resolution process for complaints filed with the WHD. The provision 
would allow 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.  10.42 and has adopted the section as proposed.
Section 10.43 Wage and Hour Division Investigation
    The Department derived proposed Sec.  10.43, which outlined WHD's 
investigative authority, primarily from regulations implementing the 
SCA and the DBA, see 29 CFR 4.6(g)(4) and 29 CFR 5.6(b). Proposed Sec.  
10.43 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

[[Page 60680]]

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 to determine whether a violation of 
this part (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. The Department received no 
comments on proposed Sec.  10.43, and the final rule thus implements 
the provision as proposed.
Section 10.44 Remedies and Sanctions
    The Department proposed remedies and sanctions to assist in 
enforcement of the Executive Order in Sec.  10.44. Proposed Sec.  
10.44(a), which the Department derived from the back wage and 
withholding provisions of the SCA and the DBA, provided that when the 
Administrator determined a contractor had failed to pay the Executive 
Order's minimum wage to workers, the Administrator would notify the 
contractor and the contracting agency of the violation and request the 
contractor to remedy the violation. It additionally stated that if the 
contractor did not remedy the violation, the Administrator would direct 
the contractor to pay all unpaid wages in the Administrator's 
investigation findings letter issued pursuant to proposed Sec.  10.51. 
Proposed Sec.  10.44(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 were due, the Administrator could direct 
the relevant contracting agency to transfer the withheld funds to the 
Department for disbursement.
    NELP specifically endorsed the Department's proposal to permit 
withholding as necessary to pay unpaid wages. Because the Department 
received no additional comments related to Sec.  10.44(a), the final 
rule adopts the section as proposed.
    Proposed Sec.  10.44(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 unpaid 
wages, when the Administrator determined that any person had discharged 
or in any other manner retaliated 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 13658 or this part, or 
had testified or was about to testify in any such proceeding. See 29 
U.S.C. 215(a)(3), 216(b)(2). For the reasons described in the preamble 
to subpart A, the Department believes that such a provision will 
promote compliance with the Executive Order, and has accordingly 
retained the provision as proposed.
    In the NPRM, Sec.  10.44(c) provided that if the Administrator 
determined a contractor had disregarded its obligations to workers 
under the Executive Order or this part, 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, would 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 person(s) on the 
ineligible list. Proposed Sec.  10.44(c) further provided that neither 
an order for debarment of any contractor or responsible officer from 
further Government contracts under this section nor the inclusion of a 
contractor or its responsible officers on a published list of 
noncomplying contractors would be carried out without affording the 
contractor or responsible officers an opportunity for a hearing.
    As the SCA and DBA contain debarment provisions, inclusion of a 
debarment provision reflects both the Executive Order's instruction 
that the Department incorporate remedies from the FLSA, SCA, and DBA 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 SCA and the DBA. 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 SCA and DBA. Since the Government 
contract statutes whose remedies the Executive Order instructs the 
Department to incorporate include a debarment remedy to promote 
contractor compliance, the Department has also included debarment as a 
remedy for certain violations of the Executive Order by covered 
contractors.
    NELP explicitly supported the NPRM's debarment provision. AGC 
recommended that the final rule include ``knowingly or recklessly'' in 
front of the term ``disregard'' throughout the section on debarment. 
The commenter expressed concern that otherwise the term ``disregarded'' 
could mandate a strict liability standard for violation of the 
Executive Order.
    As the NPRM stated, the Department derived the disregard of 
obligations standard from the DBA's implementing regulations. 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 Contractors, Inc., ARB Case No. 96-116, 
1996 WL 697838, at *4 (ARB Oct. 25, 1996) (noting ``[v]iolations of the 
DBA do not per se constitute a disregard of obligations''). The 
Department intends for the same standard to apply under the Executive 
Order. The requirement to show some form of culpability beyond mere 
negligence confirms the Executive Order debarment standard is not one 
involving strict liability. However, 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 
and would therefore be inconsistent with the Executive Order's 
directive to adopt FLSA, SCA, and DBA remedies and enforcement 
processes 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 the Executive Order. 
The Department adopts proposed Sec.  10.44(c) in this final rule 
without change.
    ABC sought a ``safe harbor'' from debarment for contractors that 
comply with the DBA, SCA, and FLSA. Debarment, as discussed above, is 
an important remedy to obtain compliance with the Executive Order. The 
Department is accordingly unwilling to provide a waiver from a possible 
debarment remedy for violations of the Executive Order.
    Proposed Sec.  10.44(d), which the Department derived from the SCA, 
41 U.S.C. Sec.  6705(b)(2), would 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

[[Page 60681]]

when the amounts withheld under Sec.  10.11(c) are insufficient to 
reimburse workers' lost wages. Proposed Sec.  10.44(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. As the Department explained in the 
NPRM, the Executive Order covers concessions and other contracts under 
which the contractor may not receive payments from the Federal 
Government. As the proposed rule additionally noted, in some instances 
the Administrator may be unable to direct withholding of funds because 
at the time it discovers a contractor owes wages to workers 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 section Sec.  
10.44(d) accordingly provided that the Department may pursue an action 
in any court of competent jurisdiction to collect underpayments against 
such contractors. Proposed Sec.  10.44(d) additionally provided that 
any sums the Department recovered 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 
this section and it has therefore adopted the language as proposed.
    In proposed Sec.  10.44(e), the Department addressed what remedy 
would be available when a contracting agency failed to include the 
contract clause in a contract subject to the Executive Order. The 
section provided that the contracting agency would, 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 stated, 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 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 EEAC and NILG generally requested that the Department provide 
that if a contracting agency's failure to include the contract clause 
in a covered contract resulted in any changed cost of performance of 
the contract due to the Executive Order, then the contracting agency 
should bear the expense of the changed cost of performance. NILG 
specifically stated that the Department adopt the language from the SCA 
regulations, see 29 CFR 4.5(c), or the DBA regulations, see 29 CFR 
1.6(f), to address this situation. Upon further consideration of this 
issue, the Department agrees that a contractor is entitled to an 
adjustment or to pay any necessary additional costs when a 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), is therefore 
reflected in revised Sec.  10.44(e). 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.
    Several commenters, including Demos, NELP, and the NCLEJ, 
recommended that the Department include liquidated damages as a remedy 
for workers to whom a contractor failed to pay wages required by the 
Executive Order. Those commenters specifically directed the Department 
to section 216(b) of the FLSA, which makes employers who fail to pay 
the minimum wage or overtime to employees liable for not only the 
minimum wage and/or overtime amounts owed but also an additional, equal 
amount as liquidated damages. Writing in response to such comments, the 
EEAC urged the Department to refrain from including liquidated damages 
as a remedy under the final rule. Because the Department believes that 
the remedies it proposed in the NPRM and adopts here will be sufficient 
to obtain compliance with the Executive Order, and because the type of 
liquidated damages available under the FLSA is not available under the 
SCA or DBA, the Department has decided not to include a liquidated 
damages remedy in the final rule.
    The AOA asked to what extent contractors covered by the Executive 
Order must enforce the Order's requirements on their subcontractors. 
Contractors are 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. The 
Department notes that its general practice under the SCA and DBA 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 
intends to follow this general practice under the Executive Order.
    The Department is not adopting the request from AGC to provide a 
``safe harbor'' from flow-down liability to a contractor that includes 
the contract clause in its contracts with subcontractors. Neither the 
SCA nor DBA, both of which have long permitted the Department to hold a 
contractor responsible for compliance by any lower-tier contractor and 
to which the Executive Order directs the Department to look in adopting 
remedies, contains a safe harbor. In addition, a contractor's 
responsibility for the compliance of its lower-tier subcontractors 
enhances the Department's ability to obtain compliance with the 
Executive Order. Thus, the Department is not granting the commenter's 
request for a safe harbor.
    AGC also sought clarification as to how ``far down the line'' a 
contractor's flow-down responsibility extends. As under the SCA and 
DBA, a contractor is responsible for compliance by all covered lower-
tier subcontractors. This obligation applies regardless of the number 
of covered lower-tier subcontractors and regardless of how many levels 
of subcontractors separate the contractor from the subcontractor that 
failed to comply with the Executive Order.
    The Department understands, as FortneyScott observed in its 
comment, that contractors would prefer not to be responsible for lower-
tier subcontractors' compliance with the Executive Order. The 
Department's experience under the DBA and SCA,

[[Page 60682]]

however, 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 SCA and DBA (and/or FLSA) 
remedies and enforcement processes to obtain compliance with the Order, 
the final rule reflects the flow-down approach to compliance 
responsibility contained in the SCA and DBA.
    The NDRN suggested the Department take advantage of the nationwide 
network of Protection and Advocacy (P&A) and Client Assistance Program 
(CAP) systems to help enforce the Executive Order's provisions. The 
commenter submits the P&A and CAP network is the largest provider of 
legally-based advocacy services for people with disabilities in the 
United States and requests that the Department contract with these 
entities to help investigate and monitor compliance with the Executive 
Order. While the Department appreciates the recommendation and welcomes 
input from the public on how to promote enforcement of the Executive 
Order and its implementing regulations, the Order authorizes the 
Department to enforce its provisions. Thus, the Department will be the 
entity enforcing the Executive Order and its implementing regulations.
    The NDRN also suggested that the Department coordinate the 
enforcement and compliance assistance efforts of WHD, the Office of 
Disability Employment Policy (ODEP), and the Office of Federal Contract 
Compliance Programs (OFCCP). The Department appreciates this comment 
and notes that, when coordination advances the Department's enforcement 
efforts and is otherwise feasible, its agencies collaborate to ensure 
effective enforcement of and compliance with the law. The Department 
expects there may be instances where collaboration between the WHD, 
ODEP, and/or OFCCP will promote compliance with the Executive Order. 
Assuming collaboration in such instances is otherwise feasible, the 
Department anticipates the agencies will work together to ensure 
enforcement of and compliance with the Executive Order.
    As previously mentioned with respect to contracting agency 
responsibilities, the FS sought confirmation that if it receives a 
complaint regarding payment of wages under the contract clause, it 
should refer that complaint to the Department. The Department confirms 
that contracting agencies must refer all complaints under the Executive 
Order to the Department in accordance with the procedures described in 
Sec.  10.11(d). The Department will process the complaint received and 
will notify the contractor and the contracting agency should it be 
necessary for either or both to take corrective action.
    Finally, as noted in the preamble to subpart A, the Executive Order 
covers certain non-procurement contracts. Because the FAR does not 
apply to all contracts covered by the Executive Order, there will be 
instances where, pursuant to section 4(b) of the Executive Order, a 
contracting agency takes 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 section 7(d)(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 this part) 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 13658, titled ``Enforcement,'' grants 
the Secretary ``authority for investigating potential violations of and 
obtaining compliance with th[e] order.'' 79 FR 9852. Section 4(c) of 
the Order directs that the regulations the Secretary issues should, to 
the extent practicable, incorporate existing procedures, remedies, and 
enforcement processes under the FLSA, SCA and DBA. Id.
    Accordingly, subpart E of this part incorporates, to the extent 
practicable, the DBA and SCA administrative procedures necessary to 
remedy potential violations and ensure compliance with the Executive 
Order. 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 10.51 Disputes Concerning Contractor Compliance
    Proposed Sec.  10.51, which the Department derived primarily from 
29 CFR 5.11, addressed how the Administrator would process disputes 
regarding a contractor's compliance with this part. Proposed Sec.  
10.51(a) provided that the Administrator or a contractor may initiate a 
proceeding covered by Sec.  10.51. Proposed Sec.  10.51(b)(1) provided 
that when it appears that relevant facts are at issue in a dispute 
covered by Sec.  10.51(a), the Administrator would 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 these proposed provisions. 
The final rule therefore adopts the provisions as proposed.
    Proposed Sec.  10.51(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 to 
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.  10.51(b)(2) and has adopted the language as proposed.
    Proposed Sec.  10.51(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. No party 
submitted a comment related to proposed Sec.  10.51(b)(3). The 
Department has adopted the language as proposed.
    Proposed Sec.  10.51(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.  10.51(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

[[Page 60683]]

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.
    Section 10.51(c)(2)(ii) of the NPRM required the Administrator to 
examine the information 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.  10.51(b)(3). If the Administrator 
determines there was 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 
adopts the provision as proposed, except that it clarifies that the 
information submitted in the response alleging the existence of a 
factual dispute must be timely submitted in order for the Administrator 
to examine such information.
    Proposed Sec.  10.51(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 10.52 Debarment Proceedings
    Proposed Sec.  10.52, which the Department primarily derived from 
29 CFR 5.12, addressed debarment proceedings. Proposed Sec.  
10.52(a)(1) provided that whenever any contractor was found by the 
Administrator to have disregarded its obligations to workers or 
subcontractors under Executive Order 13658 or this part, such 
contractor and its responsible officers, and/or any firm, corporation, 
partnership, or association in which such contractor or responsible 
officers have an interest, would 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.  10.52(b)(1) provided that where the Administrator 
found reasonable cause to believe a contractor had committed a 
violation of the Executive Order or this part that constituted a 
disregard of its obligations to its workers or subcontractors, the 
Administrator would 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.  10.52(b)(1), the Administrator would 
additionally furnish those notified a summary of the investigative 
findings and afford them an opportunity for a hearing regarding the 
debarment issue. Those notified would have to 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 would need to set forth 
any findings which were in dispute and the reasons therefore, including 
any affirmative defenses to be raised. Proposed Sec.  10.52(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 to an ALJ to 
conduct such hearings as may be necessary to determine the matters in 
dispute. Proposed Sec.  10.52(b)(2) provided that hearings under Sec.  
10.52 would be conducted in accordance with 29 CFR part 6. If no timely 
request for 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 10.53 Referral to Chief Administrative Law Judge; Amendment of 
Pleadings
    The Department derived proposed Sec.  10.53 from the SCA and DBA 
rules of practice for administrative proceedings in 29 CFR part 6. 
Proposed Sec.  10.53(a) provided that upon receipt of a timely request 
for a hearing under Sec.  10.51 (where the Administrator has determined 
that relevant facts are in dispute) or Sec.  10.52 (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 that 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.
    Section 10.53(b) of the NPRM 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 he/she shall approve, and 
that for proceedings initiated pursuant to Sec.  10.51, such an 
amendment could include a statement that debarment action was warranted 
under Sec.  10.52. 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.  10.53(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.  10.53 and the 
final rule adopts the provision as proposed.
Section 10.54 Consent Findings and Order
    Proposed Sec.  10.54, 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.  10.54(b) identified four requirements of any agreement containing 
consent findings and an order. Proposed Sec.  10.54(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 was satisfied with 
the proposed agreement's form and

[[Page 60684]]

substance. As the Department received no comments related to proposed 
Sec.  10.54, the final rule adopts the provision as proposed.
Section 10.55 Proceedings of the Administrative Law Judge
    Proposed Sec.  10.55, which the Department primarily derived from 
29 CFR 6.19 and 6.33, addressed the ALJ's proceedings and decision. 
Proposed Sec.  10.55(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.  10.51 or Sec.  10.52. It further provided that any party could, 
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 SCA or DBA. 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.  10.55(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 permitted). It also provided 
that each party would serve such proposals and brief on all other 
parties.
    Proposed Sec.  10.55(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 would contain appropriate findings, conclusions of law, and an 
order and be served upon all parties to the proceeding. Proposed Sec.  
10.55(c)(2) provided that if the Administrator requested debarment, and 
the ALJ concluded the contractor has violated the Executive Order or 
this part, 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 this part.
    Proposed Sec.  10.55(d) provided that the Equal Access to Justice 
Act (EAJA), as amended, 5 U.S.C. 504, does not apply to proceedings 
under this part. In the NPRM, the Department explained that the 
proceedings proposed 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 this part.
    Proposed Sec.  10.55(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 had sought debarment. 
Proposed Sec.  10.55(f) provided that the ALJ's decision would become 
the final order of the Secretary, provided a party did not timely 
appeal the matter to the ARB.
    The Department received no comments related to proposed Sec.  
10.55. The final rule accordingly adopts the provision as proposed.
Section 10.56 Petition for Review
    In the NPRM, the Department proposed Sec.  10.56, which it derived 
from 29 CFR 6.20 and 6.34, as the process to apply to petitions for 
review to the ARB from ALJ decisions. Proposed Sec.  10.56(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 have to file a petition for review with 
supporting reasons in writing to the ARB with a copy thereof to the 
Chief ALJ. It further required the petition to 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.  10.56(b) provided that if a party files a timely 
petition for review, the ALJ's decision would be inoperative unless and 
until the ARB issued an order affirming the letter or decision, or the 
letter or decision otherwise became a final order of the Secretary. It 
further provided that if a petition for review concerned only the 
imposition of debarment, the remainder of the decision would be 
effective immediately. Proposed Sec.  10.56(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. The Department received no comments related to 
proposed Sec.  10.56, the final rule adopts the provision as proposed.
Section 10.57 Administrative Review Board Proceedings
    Proposed Sec.  10.57, which the Department derived primarily from 
29 CFR 9.35, outlined the ARB proceedings under the Executive Order. 
Proposed Sec.  10.57(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.  10.51(c)(1) or Sec.  10.51(c)(2), 
Administrator's rulings issued under Sec.  10.58, and from ALJ 
decisions issued under Sec.  10.55. It further provided that in 
considering the matters within its jurisdiction, the Board would be the 
Secretary's authorized representative and would act fully and finally 
on behalf of the Secretary. Proposed Sec.  10.57(a)(2) identified the 
limitations on the ARB's scope of review, including a restriction on 
passing on the validity of any provision of this part, 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.  10.57(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.  10.57(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. Finally, proposed Sec.  10.57(d) provided the ARB's 
decision would become the Secretary's final order in the matter.
    The Department received no comments related to proposed Sec.  
10.57. The final rule adopts the provision as proposed.

[[Page 60685]]

Section 10.58 Administrator Ruling
    Proposed Sec.  10.58 set forth a procedure for addressing questions 
regarding the application and interpretation of the rules contained in 
this part. Proposed Sec.  10.58(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 would 
need to be addressed to the Administrator, Wage and Hour Division, U.S. 
Department of Labor, Washington, DC 20210. Any interested party could, 
pursuant to Sec.  10.58(b), appeal a final ruling of the Administrator 
issued pursuant to Sec.  10.58(a) to the ARB. The Department received 
no comments on proposed Sec.  10.58 and the final rule retains the 
proposed language.
Appendix A to Part 10 (Contract Clause)
    This section discusses the comments received in response to the 
Department's proposed contract clause. Many of the issues raised here 
are discussed elsewhere in this preamble. The Department believes 
having the information in multiple places in this preamble aids 
stakeholders who may refer to this preamble in the future when seeking 
guidance. Such repetition allows stakeholders to more expeditiously 
find the information they seek.
    Section 2 of Executive Order 13658 provides that executive 
departments and agencies must, to the extent permitted by law, ensure 
that new contracts, contract-like instruments, and solicitations 
include a clause, which the contractor and any subcontractors must 
incorporate into lower-tier subcontracts, specifying, as a condition of 
payment, the minimum wage to be paid to workers under the Order. 79 FR 
9851. Section 4 of the Executive Order provides that the Secretary 
shall issue regulations by October 1, 2014, to the extent permitted by 
law and consistent with the requirements of the Federal Property and 
Administrative Services Act, to implement the requirements of the 
Order. Id. at 9852. 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 issue 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 and consistent with section 8 
of the Order, incorporate existing definitions, procedures, remedies, 
and enforcement processes under the FLSA, SCA, and DBA. 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 proposed contract clause as Appendix A to the proposed 
rule. As required by the Order, the proposed contract clause specified 
the minimum wage to be paid to workers under the Order. Consistent with 
the Secretary's authority to obtain compliance with the Order, as well 
as the Secretary's responsibility to issue regulations implementing the 
requirements of the Order that incorporate, to the extent practicable, 
existing procedures, remedies, and enforcement processes under the 
FLSA, SCA, and DBA, the provisions of the contract clause were based on 
the statutory text or implementing regulations of the FLSA, SCA, and 
DBA.
    The Department has made a technical change to the first sentence of 
the contract clause. The sentence, however, maintains the meaning of 
the first sentence as written in the NPRM. The sentence still requires 
that the contracting agency must 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.  10.3, 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 13658 and Sec.  10.5. 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.
    The DoD requested that with respect to covered contracts not 
subject to the FAR the Department authorize the applicable contracting 
``entity'' to adopt a contract clause that ``accomplishes the same 
purposes as the clause set forth in Appendix A'' and that ``shall be 
consistent with the requirements set forth'' in the Department's final 
rule. The Department anticipates that various Federal agencies will 
enter into non-procurement contracts that are covered by the Executive 
Order. Some commenters' submissions (e.g., those from the AOA and 
O.A.R.S.) indicate that there will be contractors that enter into non-
procurement contracts subject to the Executive Order with multiple 
Federal agencies. The Department believes requiring such contractors to 
become familiar with distinct Executive Order contract clauses, as 
opposed to the single, uniform clause proposed by the Department, 
imposes on them an unnecessary inconvenience and burden. The Department 
additionally believes that requiring such contractors to understand 
multiple contract clauses could result in confusion, potentially 
undercutting the Department's mandate under the Executive Order to 
adopt regulations that obtain compliance with the Order. The Department 
is accordingly declining the DoD's request to allow contracting 
agencies that enter into non-procurement contracts subject to the 
Executive Order to create their own contract clauses. Rather, it will 
be incumbent upon such contracting agencies to use the contract clause 
contained in Appendix A.
    The DoD additionally suggested that it is often not clear whether 
there is an intent to include nonappropriated fund instrumentalities in 
laws or regulations. It accordingly requested that the Department use 
the term ``entity'' in lieu of ``agency'' throughout the final rule. 
The Department noted in the NPRM that, consistent with the SCA, the 
proposed definition of the term Federal Government includes 
nonappropriated fund instrumentalities under the jurisdiction of the 
Armed Forces or of other Federal agencies. See 29 CFR 4.107(a). Thus, 
the Executive Order covers contracts entered into with nonappropriated 
fund instrumentalities, provided the contract falls within one of the 
four specifically enumerated categories of contracts covered by the 
Order. Because the Department believes that this part clearly states 
the application of the Executive Order to nonappropriated fund 
instrumentalities, it is declining to adopt the commenter's request to 
substitute ``entity'' for ``agency'' throughout the final 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 13658, the regulations issued by the Secretary of 
Labor at 29 CFR part 10 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.

[[Page 60686]]

    Paragraph (b) specified the contractor's minimum wage obligations 
to workers pursuant to the Executive Order. Paragraph (b)(1) stipulated 
that each worker 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. In both the NPRM and the final rule, the 
Department has been clear that 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. The Department has accordingly substituted as a technical 
correction ``engaged'' for ``employed'' in contract clause paragraph 
(b)(1) of the final rule in order to be consistent with the terminology 
used throughout the rule.
    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 1, 2015, and December 31, 2015, is $10.10 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 would be effective 
January 1st of the following year, and would be published in the 
Federal Register no later than 90 days before such wage is to take 
effect. It also provided the applicable minimum wage would be published 
on www.wdol.gov (or any successor Web site) and was incorporated by 
reference into the contract.
    The effect of paragraphs (b)(1) and (b)(2) would 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) would require a contractor on a contract subject to the 
Executive Order in 2015 to pay covered workers at least $10.10 per hour 
for work performed on or in connection with the contract. If workers 
continued to perform work on or in connection with the covered contract 
in 2016 and the Secretary determined the applicable minimum wage to be 
effective January 1, 2016 was $10.20 per hour, sections (b)(1) and 
(b)(2) would require the contractor to pay covered workers $10.20 for 
work performed on or in connection with the contract beginning January 
1, 2016, thereby raising the wages of any workers paid $10.10 per hour 
prior to January 1, 2016.
    AGC and ABC requested that the final rule ``freeze'' Executive 
Order wage rates for the duration of covered contracts, as is done 
under contracts covered by the DBA. For example, if a contractor 
entered into a covered contract in 2015 scheduled to last five years, 
the commenters requested that $10.10 remain the minimum wage for the 
entire duration of the contract. ABC additionally sought a ``multi-year 
grace period'' prior to implementation of the final rule. The AOA 
identified a list of difficulties it claimed its members will 
experience based on annual adjustments in the Executive Order minimum 
wage. Similarly, CSCUSA and NSAA requested that the Department 
gradually increase the required minimum wage to covered workers over a 
three- or four-year period. Section 2 of the Executive Order, however, 
requires that covered contracts include a clause, which covered 
contractors must incorporate into contracts with lower-tier 
subcontractors, specifying that the minimum wage paid to workers on or 
in connection with the contract must be at least $10.10 per hour 
beginning on January 1, 2015, and a higher amount each January 1 
thereafter to the extent the CPI-W increases. Since Section 2 of the 
Executive Order requires payment of the applicable minimum wage and 
there is no indication in the Order that the Department may provide 
relief from the operation of the minimum wage mandate in Section 2, the 
Department is not adopting the request to freeze rates for the duration 
of a contract, or to gradually increase the required minimum wage to 
covered workers over a three- or four-year period.
    AGC suggested that a change in the applicable minimum wage ``late 
in the pre-award contracting process'' will present problems in the 
procurement process. The Department does not anticipate such a scenario 
will impose an unreasonable challenge to contracting agencies or 
contractors. All contractors bidding on a covered contract will be 
subject to the change in the minimum wage, ensuring equal treatment of 
competitive bidders. The Department further notes that both the DBA's 
and SCA's implementing regulations require incorporation of updated 
wage determinations into contracts covered by those statutes under 
shorter notice periods than provided for in the Executive Order. See 29 
CFR 1.6(c)(3); 29 CFR 4.5. Moreover, both the contractors and 
contracting agencies should be aware of the timing of the Secretary's 
(possible) annual increase in the minimum wage, meaning that no unfair 
surprise should befall a contractor or contracting agency if a change 
in the minimum wage occurs late in the pre-award contracting process.
    As discussed earlier in the preamble for Sec.  10.22, the 
Department is adopting AGC's recommendation to include a provision in 
the contract clause 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 
13658 minimum wage beginning on January 1, 2016. The Department agrees 
that an adjustment of this type is warranted in this circumstance and 
has revised the contract clause accordingly. The Department notes, 
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 notes 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 operation of the annual inflation increase. 
(For example, contractors are not entitled to be compensated for labor 
costs they allege they incurred related to non-covered workers due to 
operation of the annual inflation increase). Such compensation 
adjustments will 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 notes that this approach and the language it has 
added to the contract clause generally are consistent with the Class 
Deviation issued by the FARC in June, 2014. That Class Deviation 
requires contracting

[[Page 60687]]

officers on procurement contracts to ``adjust the contract price or 
contract unit price under this clause only for the increase in labor 
costs resulting from the annual inflation increases in the Executive 
Order 13658 minimum wage beginning on January 1, 2016.'' The Department 
recognizes 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 contract clause, 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 the type of adjustment contained in the 
Department's contract clause.
    FortneyScott requested that the Department's final rule require 
publication of any annual increase in the minimum wage at least 180 
days before the wage is to take effect. FortneyScott submits it will be 
difficult for contractors to modify wage rates in 90 days. The 
Department believes that a 90-day notice period, however, which is 
approximately three months, is sufficient time for a contractor to 
adjust its workers' wages and is consistent with the Executive Order, 
particularly since it will ensure that any adjustments to the Executive 
Order minimum wage are based on more current data. Thus, the Department 
is not adopting the commenter's request.
    As discussed elsewhere in this preamble, the Department has decided 
to provide notice of the Executive Order minimum wage on SCA and DBA 
wage determinations to help inform contractors and workers of their 
rights and obligations under the Order. As discussed in more detail in 
the preamble to subpart C, the Department has also decided to develop a 
poster for contractors with FLSA-covered workers performing work on or 
in connection with a contract covered by the Executive Order.
    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, 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.  10.23), 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 could 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 paragraph (b)(3) 
of the required contract clause, and it has been adopted as originally 
proposed.
    Paragraph (b)(4) of the proposed contract clause provided that the 
contractor and any subcontractor(s) responsible would be liable for 
unpaid wages in the event of any violation of the minimum wage 
obligation of these clauses. The Department has added language to 
paragraph (b)(4) in the final rule clarifying, as the NPRM had already 
specified at Sec.  10.21, that the prime contractor and any upper-tier 
contractor will be responsible for the compliance by any subcontractor 
or lower-tier subcontractors with the Executive Order minimum wage 
requirements. AGC and FortneyScott suggested it is unreasonable to 
place on contractors the responsibility for lower-tier subcontractors' 
compliance, including liability for unpaid wages. AGC further sought a 
``safe harbor'' from the compliance failures of lower-tier 
subcontractors for contractors that fulfill their duty to flow-down the 
contract clause into their own contracts with subcontractors. As the 
commenter itself noted, however, contractors on DBA-covered contracts 
are already responsible for lower-tier subcontractors' violations of 
the DBA contract clause. As discussed earlier, the Department has found 
this flow-down model of responsibility, which also applies in the SCA 
context, to be an effective method to obtain compliance with the DBA 
and SCA, 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 believes 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, and it has accordingly retained the approach in the 
final rule.
    In support of its request for a safe harbor from flow-down 
responsibility, AGC contends that contractors will be unable to 
identify the workers on covered construction (and service) contracts 
who are engaged in the performance of the applicable contract and whose 
wages are governed by the FLSA, not the SCA or DBA; such a concern, 
however, is not a reason to abandon the flow-down model. The Department 
expects the percentage of workers on SCA- and DBA-covered contracts who 
are covered by the SCA and/or DBA to greatly exceed those workers 
engaged in the performance of the contract whose wages are solely 
governed by the FLSA. Thus, the vast majority of covered workers on 
SCA- and DBA-covered contracts will almost certainly be workers covered 
by the DBA and/or SCA to which the contractor already has a flow-down 
obligation. To discard the flow-down model of liability because of 
perceived difficulties relating to the application of flow-down 
principles to a relatively small number of additional workers would 
unduly undercut the Department's ability to obtain compliance with the 
Order. The Department is accordingly retaining the flow-down model of 
contractor responsibility for compliance. The Department notes, 
however, that it has created a new exclusion in the final rule for 
workers performing in connection with covered contracts for less than 
20 percent of their work hours in a given workweek. As explained in 
greater detail in subpart A, the Department expects that this exclusion 
will help to alleviate some of the concerns raised by contractors.
    The Department received many comments, including those submitted by 
the National Down Syndrome Congress, the APSE, the Autism Society of 
America, and the World Institute on Disability, requesting that it 
include additional 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 
minimum wage (or the 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 agrees with this proposed addition to the 
contract clause because it helps to clarify the scope of the Executive 
Order's coverage and has added paragraph (b)(5) to the contract clause 
in Appendix A.
    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 13658 or this part, 
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).

[[Page 60688]]

Paragraph (c) provided that the contracting officer 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 contract. 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 10, 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 could 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 
could be grounds to debar the contractor as provided in 29 CFR part 10. 
The Department received no comments specifically related to operation 
of paragraphs (c) and (d) and accordingly retained the paragraphs in 
the final rule as proposed.
    Proposed paragraph (e) provided that contractors could not 
discharge any portion of their minimum wage obligation under the 
contract 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 13658 increases ``the hourly minimum 
wage'' paid by contractors with the Federal Government. 79 FR 9851. 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. 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). 
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 13658 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.
    ABC and the Association/IFA requested that the Department permit 
construction contractors to satisfy the Executive Order minimum wage 
obligation by paying any combination of wages and bona fide fringe 
benefits. As the Department stated in the NPRM, the DBA allows 
contractors to fulfill the statutory minimum wage obligation through 
such a combination. There is, however, a specific statutory allowance 
for meeting the DBA minimum wage obligation through a combination of 
wages and fringe benefits. 40 U.S.C. 3141(2). In contrast, there is no 
language in the Executive Order suggesting such a combination is a 
permissible method to satisfy the Order's minimum wage obligation. 
Absent such language, and given the FLSA and SCA's prohibition on 
satisfying their minimum wage obligation through the furnishing of 
fringe benefits, the Department has concluded that prohibiting all 
Executive Order covered contractors, including construction 
contractors, from satisfying the minimum wage obligation through the 
provision of fringe benefits most faithfully implements the Executive 
Order. Accordingly, the Department adopts paragraph (e) of the contract 
clause as proposed.
    Paragraph (f), as proposed, 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. 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. 79 FR 
9851. For example, if a municipal law required a contractor to pay a 
worker $10.75 per hour on January 1, 2015, a contractor could not rely 
on the $10.10 Executive Order minimum wage to pay the worker less than 
$10.75 per hour.
    The Building Trades requested inclusion of additional language in 
paragraph (f) specifying that an employer cannot rely on a published 
wage rate that is lower than the Executive Order minimum wage to pay 
less than $10.10 per hour (or the minimum wage as established annually 
beginning January 1, 2016). The language proposed by the commenter is 
consistent with the purpose of the Executive Order and with examples 
the Department included in the preamble to the NPRM and this final 
rule. The Department is adopting the commenter's suggested language and 
has amended the final rule accordingly. The Department otherwise adopts 
paragraph (f) of the contract clause as proposed in the NPRM.
    As previously discussed, the Chamber/NFIB requested suspension of 
application of the Executive Order minimum wage to contractors that 
have negotiated a wage below the Order's

[[Page 60689]]

minimum wage in CBAs until the contractors' current collective 
bargaining agreement expires. SourceAmerica similarly sought guidance 
regarding the relationship between CBA rates and the Order's minimum 
wage requirement. The Chamber/NFIB submit that suspending application 
of the Executive Order in the manner they propose will preserve the 
terms bargained by the contractor with its workers' union and provide 
contractors with the wage certainty associated with a CBA.
    In response to these comments, the Department notes 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. While a predecessor CBA 
rate lower than the otherwise prevailing SCA rate can become the 
applicable SCA rate, the SCA itself contains a provision specifying the 
CBA rate becomes the applicable SCA rate. See 41 U.S.C. 6707(c); 29 CFR 
4.1(b), 4.152. There is no indication in the Executive Order of an 
intent to permit a CBA rate lower than the minimum wage rate to govern 
the wages of workers covered by the Order. The Department accordingly 
concludes that permitting payment of CBA wage rates below the Executive 
Order minimum wage is inconsistent with the Executive Order and 
therefore declines to suspend application of the Executive Order 
minimum wage to contractors that have negotiated a CBA wage rate lower 
than the Order's minimum wage. The Department therefore adopts 
paragraph (f) of the contract clause as proposed in the NPRM.
    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 had paid the Executive Order minimum wage to covered 
workers. The Department derived the obligations set forth in paragraph 
(g) from the FLSA, SCA, and DBA. Paragraph (g)(1) listed specific 
payroll records obligations of contractors performing work subject to 
the Executive Order, providing in particular that such contractors had 
to make and maintain for three years, work records containing the 
following information for each covered worker: Name, address, and 
social security number; the rate or rates paid to the worker; the 
number of daily and weekly hours worked by each worker; and any 
deductions made. The records required to be kept by contractors 
pursuant to proposed paragraph (g)(1) were coextensive with 
recordkeeping requirements that already exist under, and were 
consistent across, the FLSA, SCA, and DBA; 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, SCA, or DBA. As discussed earlier in the 
preamble in relation to Sec.  10.26(a), two additional recordkeeping 
requirements have been included in the final rule publication: The 
requirement to maintain records reflecting each worker's occupation(s) 
or classification(s) and the requirement to maintain records reflecting 
total wages paid. These two recordkeeping requirements derive from and 
are consistent across the FLSA, SCA, and DBA, just as with those 
records enumerated in the NPRM.
    Paragraph (g)(1) further provided that the contractor performing 
work subject to the Executive Order would 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. Paragraph (g)(3), as proposed, provided 
that failure to make and maintain, or to make available to the WHD for 
transcription and copying, the records identified in section (g)(1) 
would be a violation of the regulations implementing Executive Order 
13658 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 and notification of the contractor, 
would take action to cause suspension of any further payment or advance 
of funds until such violation had 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. Paragraph (g)(5), as proposed, 
provided that nothing in the contract clause would limit or otherwise 
modify a contractor's recordkeeping obligations, if any, under the 
FLSA, SCA, and DBA, and their implementing regulations, respectively. 
Thus, for example, a contractor subject to both Executive Order 13658 
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 has adopted the paragraph as proposed, except for 
adding the requirements discussed above.
    Paragraph (h), as proposed, required the contractor to both insert 
the contract clause in all its subcontracts and to require its 
subcontractors to include the clause in any lower-tiered subcontracts. 
Paragraph (h) further made the prime contractor or upper-tier 
contractor responsible for the compliance by any subcontractor or lower 
tier subcontractor with the contract clause.
    The EEAC requested the Department modify paragraph (h) to clarify 
that a contractor's obligation to insert the contract clause in 
subcontracts only applies to subcontracts covered by the Executive 
Order. The commenter's suggestion is consistent with the Department's 
interpretation of subcontract coverage as explained in subpart A and 
the Department has accordingly modified paragraph (h) in the final rule 
to clarify that a contractor's obligation to insert the contract clause 
in subcontracts only applies to subcontracts covered by the Executive 
Order. The Department has also added language to clarify, consistent 
with the approach contained in Sec.  10.21 of the NPRM and the flow-
down obligations described in the NPRM and the final rule, that ``any 
upper-tier contractor'' is responsible for the compliance by any 
subcontractor or lower-tier subcontractor with the contract clause. 
Except for these modifications, the Department implements paragraph (h) 
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 would be certifying that neither the 
contractor, the certifying officials, nor any person or firm with an 
interest in the contractor's firm was 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 would 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 has adopted the provision's language as proposed.

[[Page 60690]]

    The Department based 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. 
To the extent the Department received comments related to tipped 
employees, it has discussed them elsewhere in this preamble. The 
Department has retained paragraph (j) as proposed.
    Paragraph (k), as proposed, established a prohibition on 
retaliation that the Department derived from the FLSA's antiretaliation 
provision that was 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 had filed any complaint or instituted or 
caused to be instituted any proceeding under or related to Executive 
Order 13658 or this part, or had testified or was 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. Paragraph (k) of the 
final rule adopts the language of the proposed rule.
    The Department based proposed paragraph (l) on section 5(b) of the 
Executive Order. It accordingly provided that disputes related to the 
application of the Executive Order to the contract would not be subject 
to the contract's general disputes clause. Instead, such disputes would 
be resolved in accordance with the dispute resolution process set forth 
in 29 CFR part 10. Paragraph (l) also provided that disputes within the 
meaning of the clause included 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.
    The Department has added paragraph (m) to the contract clause in 
response to various comments it received related to providing notice to 
workers of the applicable Executive Order minimum wage. The methods of 
notice contained in paragraph (m) reflect those contained in Sec.  
10.29 of the final rule. A full discussion of the relevant comments, 
and the methods of notice contained in paragraph (m), can accordingly 
be found in the preamble describing the operation of Sec.  10.29.
    With respect to other issues pertaining to implementation of the 
proposed contract clause, the NILG and EEAC requested that the 
Department allow for incorporation of the contract clause by reference. 
The Department's analysis of these comments also is discussed in the 
preamble to Sec.  10.11. In summary, 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 and this final rule, and the Department therefore 
prefers that covered contracts include the contract clause in full At 
the same time, there will 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 particular, the full contract clause will be 
deemed to have been incorporated by reference in a covered contract if 
the contract provides that ``Executive Order 13658--Establishing a 
Minimum Wage for 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 of this part, or to the 
provision of the FAR containing the contract clause promulgated by the 
FARC to implement this rule.
    The EEAC questioned how parties might include a contract clause in 
a verbal agreement. The Department anticipates that the vast majority 
of covered contracts will be written. However, the Department's 
decision to include verbal agreements as part of its definition of the 
term ``contract'' derives from the SCA's regulations. See 29 CFR 4.110. 
Under the SCA, a contract may be embodied in a verbal agreement, see 
id., notwithstanding the regulatory obligation to ``include'' the SCA 
contract clause found at 29 CFR 4.6 ``in full'' in the contract. 
Similarly, it is possible that the facts and circumstances of the 
parties' relationship will render appropriate a finding of 
incorporation by reference of the contract clause in a verbal 
agreement. For example, a contracting agency and contractor might be 
parties to a written contract that includes the Executive Order 
contract clause and agree to renew the contract orally, rather than in 
writing. In such a circumstance, WHD likely would conclude that the 
parties' verbal agreement incorporated the contract clause by 
reference.
    The purpose of including verbal agreements in the definition of 
contract and contract-like instrument is to ensure that the Executive 
Order's minimum wage protections apply in instances where the 
contracting parties, for whatever reason, rely on a verbal rather than 
written contract. As noted, such instances are likely to be exceedingly 
rare, but workers should not be deprived of the Executive Order's 
minimum wage because contracting parties neglected to memorialize their 
understanding in a written contract.

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 the collection of information, nor may it impose 
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 
79 FR 34568 (June 17, 2014). 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 August 
15, 2014, the OMB issued a notice that continued the previous approval 
of the information collections under the existing terms of clearance 
and asked the Department to resubmit the information collection 
requests upon promulgation of the final rule and after consideration of 
public comments received.
    Circumstances Necessitating Collection: Executive Order 13658 
provides that agencies must, to the extent permitted by law, ensure 
that new contracts, as described in section 7 of the Order, include a 
clause specifying, as a condition of payment, that the minimum wage to 
be paid to workers in the performance of the

[[Page 60691]]

contract shall be at least: (i) $10.10 per hour beginning January 1, 
2015; and (ii) an amount determined by the Secretary, beginning January 
1, 2016, and annually thereafter. 79 FR 9851. Section 7(d) of the 
Executive Order establishes that this minimum wage requirement only 
applies to a new contract 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. 79 FR 9853. Section 7(e) 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. 79 FR 9853. 
The NPRM contained several provisions that could be considered to 
entail collections of information: The section 10.21 requirement for a 
contractor and its subcontractors to include the applicable Executive 
Order minimum wage contract clause in any covered subcontract, the 
section 10.26 recordkeeping requirements, the section 10.41 complaint 
process, and the subpart E administrative proceedings.
    Proposed subpart C stated the contractor's requirements in 
complying with the Executive Order. Proposed Sec.  10.21 stated 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 subcontracts the minimum wage contract clause in 
any lower-tier subcontracts.
    The Department noted that the proposed rule did not require 
contractors to comply with an employee notice requirement. However, in 
response to commenter concerns, the Department has added an employee 
notice requirement to this final rule at Sec.  10.29. 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.  10.29 does not include an 
information collection subject to the PRA. The Department also notes 
that the recordkeeping requirements in the final rule are requirements 
that contractors must already comply with under the FLSA, SCA, or DBA 
under an OMB approved collection of information (OMB control number 
1235-0018). In the NPRM, the Department indicated that the proposed 
rule did not impose any additional notice or recordkeeping requirements 
on contractors for PRA purposes and therefore, the burden for complying 
with the recordkeeping requirements in this proposed rule was subsumed 
under the current approval. An information collection request (ICR), 
however, was submitted to the OMB that would revise the existing PRA 
authorization for control number 1235-0018 to incorporate the 
recordkeeping regulatory citations in the proposed rule.
    The 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 was submitted to OMB to revise the approval to incorporate the 
regulatory citations in the proposed 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 the 
minimum wage requirement.
    Proposed Subpart E established administrative proceedings to 
resolve investigation findings. Particularly with respect to hearings, 
the proposed rule imposed 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 determined 
the administrative requirements contained in subpart E of this 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 final rule. A contractor may meet the 
requirements of this rule using paper or electronic means. The WHD, in 
order to reduce burden caused by the filing of complaints that are not 
actionable by the agency, uses a complaint filing process that has 
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 public comments regarding 
the potential burdens imposed by information collections contained in 
the proposed rule which reflected 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 some comments with 
respect to the paperwork. The FS commented that ``it could be argued 
that inclusion of the minimum wage clause itself in instruments such as 
FS concession instruments that do not already contain a minimum wage 
provision constitutes a new information collection requirement.'' To 
address this concern, the FS suggested that the preamble to the final 
rule expressly state that ``inclusion of the minimum wage clause in 
contracts or contract-like instruments that do not already contain a 
minimum wage provision does not constitute a new information collection 
requirement'' since all the information collected under the clause is 
already being collected under existing federal law. The Department 
agrees that the information required to be collected pursuant to the 
contract clause set forth in Appendix A is already required to be 
collected under existing Federal law.
    The Chamber/NFIB estimated that the Department's Paperwork 
Reduction Act burden estimate provided in the NPRM is low. They 
contended that the Department's assertion of only 35 additional 
complaints filed was not credible. They suggested that a more 
reasonable estimate of the number of complaints, given the large 
numbers of persons becoming entitled to this new wage level, would be 
in the thousands. Additionally, the commenter expressed their view that 
the employer burden under ICR 1235-0018 will also increase. They stated 
that employers will have to keep new records identifying separate wage 
rates to document both Federal and non-Federal contract projects. The 
AOA agreed that tracking different wage rates might be problematic, 
calling it ``cost prohibitive'' to track more than one wage rate for a 
worker. The Department disagrees that tracking the rate of pay for a 
worker is a new information collection requirement.

[[Page 60692]]

Rate of pay is already a required record under the FLSA, SCA and DBA. 
The Department further notes that in its experience many types of 
employers track different rates of pay for workers.
    Other commenters expressed the view that their recordkeeping costs 
would increase without describing the underlying reasons for their 
view. For example, O.A.R.S. indicated that their ``recordkeeping and 
compliance costs for our seasonal business, which employs up to 250 
seasonal staff members would be monumental.'' Still others referenced a 
general increase in burden but did not address the PRA burdens 
specifically or offer alternative methods for calculating burden.
    The George Washington University Regulatory Studies Center 
suggested that the Department should identify or commit to collecting 
the information needed to measure the rule's success. They expressed 
their view that the Department should collect after the implementation 
of the minimum wage increase data on productivity of workers, morale of 
workers (if quantifiable), turnover reduction, turnover costs, and 
supervisory costs. They also suggested that the Department should 
collect data on employment levels, number of contracts, number of 
workers assigned to contracts, and hours of work performed on contracts 
by minimum wage/low-income laborers.
    With respect to the potential increase to the number of complaints, 
the Department notes a partial error in the publication of the NPRM. In 
ICR 1235-0021, the currently approved responses for the Employment 
Information Form used to collect complainant information is 35,000 
annually. The Department notes that in the NPRM, the number was 
increased to 35,350 (although it incorrectly identified only 35 new 
responses in the subsequent brackets to this rulemaking). The correct 
number is 35,350 which was listed in the NPRM but 350 of that amount is 
from this rulemaking. Some commenters thought this should be listed in 
the thousands. The Department does not agree with such an assessment. 
Of the millions of employees that are included in the FLSA information 
collection, the Department only receives about .06% in annual 
complaints. Of the 183,814 affected workers estimated in the NPRM, the 
Department estimates it will receive approximately 350 complaints (or 
.19%). This amount is approximately triple the percentage of complaints 
the Department currently receives for the FLSA, SCA, and DBA combined. 
As a result, the Department declines to incorporate the ``thousands'' 
of complaints suggested by some commenters into its burden estimates.
    With respect to suggestions that the Department commit to 
collecting more information to evaluate the success of the rule, the 
Department notes that the weight of the comments were opposed to 
increasing burden. As a result, the Department declines to add 
additional burden and instead holds the burden increases to as little 
as possible to carry out Executive Order 13658 effectively.
    With respect to the objections to the notice provisions in the 
NPRM, the Department has added Sec.  10.29 to the final rule. Most 
workers will still be alerted to the Executive Order minimum wage rate 
by the posting of the wage determination as is currently required. 
However, for those workers who are not covered by the DBA or SCA but 
are covered by the Executive Order 13658, the Department will develop a 
poster and require that contractors or subcontractors who engage such 
workers post this notice developed by the Department. Electronic 
posting is allowed as long as it meets the requirement of the 
regulation.
    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 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.
    Comments to the OMB should be directed to: Office of Information 
and Regulatory Affairs, Attention OMB Desk Officer for the Wage and 
Hour Division, Office of Management and Budget, Room 10235, Washington, 
DC 20503; Telephone: 202-395-7316/Fax: 202-395-6974 (these are not 
toll-free numbers). The OMB will consider all written comments that 
agency receives within 30 days of publication of this final rule.
    The OMB and the Department are particularly interested in comments 
that:
     Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
agency, including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Total burden for the recordkeeping and complaint process 
information collections, including the burdens that will be unaffected 
by this proposed 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: 35,350 (350 from this rulemaking).
    Estimated number of responses: 35,350 (350 from this rulemaking).
    Frequency of response: On occasion.
    Estimated annual burden hours: 11,783 (116 burden hours due to this 
rulemaking).
    Estimated annual burden costs: $286,562.00.
    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: 3,911,600 (0 from this 
rulemaking).
    Estimated number of responses: 40,998,533 (0 from this rulemaking).
    Frequency of response: Weekly.
    Estimated annual burden hours: 1,250,164 (0 from this rulemaking).
    Estimated annual burden costs: 0.

IV. Executive Orders 12866 and 13563

    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

[[Page 60693]]

approaches that maximize net benefits. Executive Order 13563 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, 
including equity, human dignity, fairness, and distributive impacts.
    Under Executive Order 12866, the Department must determine whether 
a regulatory action is significant and therefore subject to the 
requirements of the Executive Order and to review by OMB. 58 FR 51735. 
Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a rule 
that: (1) Has an annual effect on the economy of $100 million or more, 
or adversely affects 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) creates serious 
inconsistency or otherwise interferes with an action taken or planned 
by another agency; (3) materially alters the budgetary impacts of 
entitlement grants, user fees, or loan programs, or the rights and 
obligations of recipients thereof; or (4) raises novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in Executive Order 12866. Id.
    The Department has determined that this final rule is a 
``significant regulatory action'' under section 3(f) of Executive Order 
12866 because it is economically significant based on the analysis set 
forth below. As a result, OMB has reviewed this final rule.
    Executive Order 13658 requires an increase in the minimum wage to 
$10.10 for workers on covered Federal contracts where the solicitation 
for such contracts has been issued on or after January 1, 2015. 
Beginning January 1, 2016, and annually thereafter, the Secretary of 
Labor will determine the applicable minimum wage in accordance with 
section 2 of Executive Order 13658. Workers performing work on or in 
connection with covered contracts as described in the Executive Order 
and this rule are entitled to the minimum wage protections of this 
part. The Executive Order applies only to new contracts, which in 
accordance with Sec.  10.2, are those that result from a solicitation 
issued on or after January 1, 2015, or those awarded outside the 
solicitation process on or after January 1, 2015.
    In order to determine whether the proposed rule would have an 
annual effect on the economy of $100 million or more, it was necessary 
to determine how many workers on contracts covered by the Executive 
Order are earning below $10.10 (affected workers). Because no single 
source contained data reflecting how many Federal contract workers 
receive wages below $10.10, the Department relied on a variety of data 
sources to estimate the number of affected workers. First, the 
Department used the Principal North American Industry Classification 
System (NAICS) to identify the industries most likely to employ workers 
covered by the Executive Order. Second, the Department utilized the 
Current Population Survey (CPS) to estimate the number of workers 
within a state within the applicable NAICS category receiving less than 
$10.10 per hour. The Department then relied on ratios it derived from 
USASpending.gov and the Bureau of Labor Statistics Office of Employment 
and Unemployment Statistics (OEUS) data to determine what percentage of 
the applicable CPS workers receiving less than $10.10 per hour were 
working on Federal contracts. Finally, the Department relied on ratios 
again derived from USAspending.gov data to determine what percentage of 
workers receiving less than $10.10 per hour while working on Federal 
contracts were performing work on Federal contracts covered by the 
Executive Order. Using this methodology, the Department estimated in 
the NPRM that there are 183,814 affected workers.
    It was additionally necessary in the NPRM to estimate both the 
average wage rate of affected workers and how many hours affected 
workers would spend on covered contracts. The Department estimated 
affected workers receive an average wage of $8.79, or $1.31 below the 
Executive Order minimum wage, and work 2,080 hours per year on 
Executive Order covered contracts. The Department further estimated 
that twenty percent (20%) of contracts extant in 2015 will qualify as 
``new'' for purposes of the Executive Order and that approximately all 
contracts extant by 2019 will be ``new'' for purposes of the Executive 
Order. Based on these estimates, the Department anticipated that the 
annual effect of the rule in 2015 and 2019 would be approximately 
$100.2 million (183,814*$1.31*2080*.20 = $100.2 million) and $501 
million (183,814*$1.31*2080), respectively.
    In estimating the annual effect on the economy of this rule in the 
NPRM, the Department proceeded in steps. The first step was to estimate 
the number of affected workers who currently earn less than $10.10 per 
hour. The second step was to estimate the average wage increase for the 
affected workers. The average increase in wages will reflect the range 
of hourly wage rates of the affected workers currently earning between 
$7.25 and $10.10. In the third step, the Department calculated the 
total increase in hourly wages for the affected workers by multiplying 
the number of affected workers (Step 1) by the average increase in 
wages of the affected workers (Step 2) and the estimated number of work 
hours per year. Because this rule would apply only to new contracts as 
defined in Sec.  10.2, the Department also needed to estimate in the 
proposed rule the percentage of extant contracts that would be ``new'' 
in the years covered by this analysis.
    The Federal Government does not collect data that precisely 
quantifies the number of private sector workers performing work on 
Federal contracts. The Department accordingly used various methods 
based on the data sources available to derive an estimate of the number 
of affected workers. First, the Department gathered data on Federal 
contracts from USAspending.gov, which classifies government contract 
spending based on the products or services being purchased, to 
determine the types of Federal contracts covered by the Executive 
Order.\12\ Specifically, the Department's estimate of spending on 
contracts that are covered by this Executive Order included contracts 
for work related to Research and Development (``A'' codes), Special 
Studies and Analyses--Not R&D (``B'' codes), Architect and 
Engineering--Construction (``C'' codes), Automatic Data Processing and 
Telecommunication (``D'' codes), Purchase of Structures and Facilities 
(``E'' codes), Natural Resources and Conservation (``F'' codes), Social 
Services (``G'' codes), Quality Control, Testing, and Inspection (``H'' 
codes), Maintenance, Repair, and Rebuilding of Equipment (``J'' codes), 
Modification of Equipment (``K'' codes), Technical Representative 
(``L'' codes), Operation of Government Owned Facilities (``M'' codes), 
Installation of Equipment (``N'' codes), Salvage Services (``P'' 
codes), Medical Services (``Q'' codes), Professional, Administrative 
and Management Support (``R'' codes), Utilities and Housekeeping 
Services (``S'' codes), Photographic, Mapping, Printing, and 
Publications (``T'' codes), Education and Training (``U'' codes),

[[Page 60694]]

Transportation, Travel and Relocation (``V'' codes), Lease or Rental of 
Equipment (``W'' codes), Lease or Rental of Facilities (``X'' codes), 
Construction of Structures and Facilities (``Y'' codes), and 
Maintenance, Repair or Alteration of Real Property (``Z'' codes).
---------------------------------------------------------------------------

    \12\ The Department excluded all contracts for products from its 
estimate because the Executive Order generally does not cover such 
contracts.
---------------------------------------------------------------------------

    The Department focused in the NPRM on information found in the 
USASpending.gov Prime Award Spending database, which enabled it to 
discern how some Federal contracts are further redistributed to 
subcontractors. For example, a business performing a Professional, 
Administrative and Management Support contract may subcontract with 
other businesses to complete their work. USASpending.gov is not a 
perfect data source from which to estimate all the Federal contracts 
subject to the Executive Order because a portion of contracts in 
several of the product service codes may not be covered by this final 
rule. In addition, USASpending.gov does not capture some concessions 
contracts and contracts in connection with Federal property or lands 
related to offering services for Federal employees, their dependents or 
the general public that will be covered by this final rule. Therefore, 
the Department noted in the NPRM that its estimate of the number of 
affected workers may be somewhat imprecise. As the Department further 
noted, however, the inclusion of all contracts in the aforementioned 
product service codes and the exclusion of some concessions contracts 
and covered contracts in connection with Federal property or lands 
likely offset each other to at least some degree in calculating the 
total number of affected workers under this final rule.
    Second, the Department utilized 2012 \13\ OEUS data on total output 
and employment by industry in conjunction with the data on total 
spending on Federal contracts by industry from USAspending.gov to 
calculate the share of workers in each industry sector employed under 
Federal contracts. According to USASpending.gov, the Federal Government 
spent $461.48 billion on procurement contracts in 2013. Subtracting 
amounts spent on contract work performed outside of the United States 
that the Executive Order does not cover resulted in Federal Government 
spending on procurement contracts of approximately $407.68 billion in 
2013. The Department illustrated its approach in the NPRM using the 
example of the information industry; OEUS data indicated that total 
output and total employment for the information industry (NAICS code: 
51) in 2012 were $1.25 trillion and 2.74 million workers, respectively. 
Total Federal contract spending for the information industry according 
to USASpending.gov was $10.4 billion in 2013. The Department then 
divided the total Federal contract spending for the information 
industry by the total output for the information industry to derive a 
share of industry output in the information sector of .83 percent 
($10.4 billion/$1.25 trillion). Using this method, the Department 
estimated the share for each industry sector from USAspending.gov that 
it identified as containing Federal contracts subject to the Executive 
Order (see Table A below).
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    \13\ The total spending data on Federal contracts by industry in 
2012 was similar to the total spending data on Federal contracts by 
industry in 2013. The Department accordingly concluded it was 
appropriate to compare the total spending data on Federal contracts 
from USASpending.gov in 2013 to the 2012 data on total output and 
employment from the OEUS.
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    In the proposed rule, the Department additionally augmented the 
national contracting data with information on state-based geographic 
differences in the minimum wage and contracting services purchased. By 
integrating state-level data, the Department captured some of the 
variation in the minimum wage level and contracting within states. The 
Department determined where Federal agencies were investing by the 
place of performance data associated with each entry in the 
USASpending.gov database, which is typically the zip code of the 
location where the contract work takes place. In order to avoid 
overstating the contracts covered by this final rule, the Department 
developed an estimate to measure the proportion of total Federal 
spending on services and products in a given state. To measure the 
ratio of covered contracts, the Department divided a state-industry 
pair's total Federal spending on contracts covered by Executive Order 
13658 by the state-industry pair's total Federal spending on all 
contracts (including both services and products) in 2013. The 
Department defined the industries in the state-industry pairs using the 
principal NAICS of the contractor providing the service (see Table B). 
For simplicity, the Department chose to aggregate the data by two-digit 
NAICS industries. Affected workers were estimated based on contracts by 
industry two-digit NAICS level. The Department noted that its estimate 
included all industry classifications of contracts, and that this 
approach captured all vendors irrespective of industry whose contracts 
are covered by this final rule.
    Third, the Department used wage and industry data from the CPS \14\ 
to calculate the total number of workers in each state by two-digit 
NAICS level who earn less than $10.10 per hour.\15\ The Department then 
applied the share of industry output ratios to this CPS data to 
estimate the total number of workers within an industry within a state 
who earn less than $10.10 per hour working on a Federal contract. 
Implicit in the Department's use of the USASpending.gov and CPS data in 
this manner was the Department's assumption that the industry 
distribution of Federal contractors was the same as that in the rest of 
the U.S. economy. For example, according to CPS data, there were 5,991 
workers in the information industry in Maryland who earn less than 
$10.10 per hour, so applying the share of industry output ratio 
estimate of 0.83 percent indicated that there were 50 workers in the 
information industry who earned less than $10.10 and were performing 
work on a Federal contract in Maryland. The Department then accounted 
for those workers who were performing on a covered contract by 
employing the applicable ratio of covered contracts. By example, the 
Department noted the ratio of covered contracts in the information 
industry in Maryland was 67 percent. The Department accordingly 
calculated that the number of affected workers in the information 
industry in Maryland who earn less than $10.10 per hour is 33 (67% x 
50). By following this procedure for each state-industry pair, the 
Department estimated that out of the 868,834 workers on covered Federal 
contract jobs, 183,814 (21 percent) were paid $10.10 per hour or less. 
See Table C for calculation of the number of affected workers.
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    \14\ The CPS, sponsored jointly by the U.S. Census Bureau and 
the BLS, is the primary source of labor force statistics for the 
population of the United States. The CPS is the source of numerous 
high-profile economic statistics, including the national 
unemployment rate, and provides data on a wide range of issues 
relating to employment and earnings.
    \15\ While the ideal data set for the number of affected workers 
would be Federal procurement data that shows a wage distribution for 
all contract and subcontract workers, such a data set is not 
available.
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    The Department has closely reviewed the economic analysis it 
utilized in the NPRM, and carefully considered all the pertinent 
comments received. Based on its review and its consideration of the 
comments, the Department has concluded that the method it used to 
conduct the economic analysis in the NPRM reasonably estimated the 
annual effect of the proposed rule, based on the data sources available 
to the

[[Page 60695]]

Department. The Department is accordingly adopting the proposed rule's 
economic analysis for purposes of this final rule. As the Department's 
estimate of the annual effect of the rule exceeds $100 million, the 
Department has concluded its implementing regulations constitute a 
``significant regulatory action'' under section 3(f) of Executive Order 
12866.
    Demos, the Chamber/NFIB, and Advocacy expressed their views on the 
Department's estimate of the number of affected workers subject to this 
Executive Order. Demos estimated the number of affected workers to be 
350,721. It represented that it derived its estimate from use of the 
American Community Survey (ACS) and requested that the Department use 
ACS, rather than the CPS, to estimate the number of affected workers.
    The Department understands that Demos derived its estimate of the 
number of affected workers by considering data that included workers 
performing work on all Federal procurement contracts, including 
contracts for products to which the Executive Order does not apply. 
Demos' estimate of workers receiving less than $10.10 accordingly 
includes workers the Executive Order does not cover. Because the 
Department concludes its exclusion of contracts for products more 
accurately identifies the number of affected workers than Demos' 
inclusion of contracts for products, it is not adopting Demos' estimate 
of the number of affected workers. The Department additionally notes 
that estimates of affected workers derived from CPS data are similar to 
the estimates derived from ACS data, provided one excludes from each 
estimate workers performing work on contracts for products.\16\
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    \16\ If Demos had used the ACS after excluding workers 
performing work on contracts for products, the estimated number of 
affected workers would be approximately 176,025 with the percentage 
of affected workers at 20.26 percent of all workers on covered 
Federal contract jobs. The percentage of affected workers from CPS 
data was estimated at 21.16 percent, resulting in 183,814 affected 
workers.
---------------------------------------------------------------------------

    Demos also commented that low-wage workers at companies with 
federal concession agreements and private entities that lease space in 
federal buildings must be accounted for in the estimates of the number 
of affected workers. It further stated that, while there is little 
comprehensive data on these workers, there could be more than 10,000 
low-wage workers at companies with federal concession agreements and 
private entities that lease space in Federal buildings. Advocacy 
similarly expressed concern that the Department's economic analysis in 
the NPRM does not consider the impact on small businesses that employ 
affected workers on federal concession agreements and contracts related 
to leases of space in Federal buildings.
    The Department agrees that there are likely some affected workers 
working on or in connection with covered concession agreements or 
leases in federal buildings that its estimate may not include. The 
Department, however, has identified no data source that allows it to 
reasonably estimate the number of those affected workers. Indeed, as 
Demos itself notes, there is little comprehensive data on these 
workers. In this context, the Department has concluded it is not 
feasible to include such workers in its estimate. Moreover, the 
inclusion of all contracts in the product service codes and the 
exclusion of some concessions contracts and covered contracts in 
connection with Federal property or lands likely offset each other, to 
at least some degree, in calculating the total number of affected 
workers under this Executive Order.
    The Chamber/NFIB asserted that there is no basis to support the 
Department's assumption that wages among Federal contract workers 
follow the same distribution in terms of below and above $10.10 per 
hour as the wider group of private sector wage earners for whom the 
data is available. The Chamber/NFIB added that much of the required 
data may already be available through information currently collected 
by the Department's Office of Federal Contract Compliance Programs 
(OFCCP) in relation to its enforcement of affirmative action/non-
discrimination regulations. The commenter also said the Department 
should conduct a survey of contractors to obtain definitive data 
regarding the number of affected workers.
    The Department disagrees with these comments. The Department used 
wage and industry data from the CPS to calculate the total number of 
affected workers assuming the industry and wage distribution is the 
same for federal contractors and those in the rest of the U.S. economy. 
The Department believes this assumption is reasonable because the wage 
rates workers receive under the Federal construction and service 
contracts within the CPS are frequently derived from the applicable SCA 
or DBA wage rates, both of which are derived from data the Department 
primarily collects from private sector employers. The Department 
further notes that CPS data includes both contractor and non-contractor 
firms, and that a data source reflecting only wages paid by Federal 
contractors is not available. In particular, the OFCCP does not collect 
or maintain a database of wages paid by all Federal contractors. 
Lastly, the Department did not conduct a survey of contractors to 
determine the number of affected workers because a reasonable estimate 
of the number of affected workers can be made by using CPS data.
    This regulation affects only new contracts as that term is defined 
at Sec.  10.2; it does not affect existing contracts. The Department, 
as explained in the NPRM, found no precise data with which to measure 
the number of construction and service contracts that are new each 
year. According to a 2012 Small Business Administration (SBA) study, 
between FY 2005 and FY 2009, an average of 17.6 percent of all Federal 
contracts with small businesses were awarded to small businesses that 
were new to Federal contracting (and thus must have been new contracts) 
based on data from the Federal Procurement Data System (FPDS).\17\ In 
the economic analysis of the final rule of ``Nondisplacement of 
Qualified Workers Under Service Contracts,'' the Department assumed 
that slightly more than 20 percent of all SCA covered contracts would 
be successor contracts subject to the nondisplacement provisions.\18\ 
After considering these factors, and recognizing in particular that 
some contracts covered by the Executive Order (including those exempted 
from SCA coverage under 29 CFR 4.133(b)) are for terms of more than 
five years, the Department conservatively assumed for purposes of this 
analysis that roughly 20 percent of Federal contracts are initiated 
each year; therefore, it will take at least five years for the final 
rule's impact to fully manifest itself.
---------------------------------------------------------------------------

    \17\ Small Business Administration, ``Characteristics of Recent 
Federal Small Business Contracting,'' May 2012, https://www.sba.gov/sites/default/files/397tot.pdf.
    \18\ Department of Labor, ``Nondisplacement of Qualified Workers 
Under Service Contracts,'' Final Rule, Wage and Hour Division, 2011, 
https://www.federalregister.gov/articles/2011/08/29/2011-21261/nondisplacement-of-qualified-workers-under-service-contracts.
---------------------------------------------------------------------------

Transfers From Federal Contractor Employers and Taxpayers to Workers

    The most accurate way to measure the pay increase that affected 
workers can expect to receive as a result of the minimum wage increase 
would be to calculate the difference between $10.10 and the average 
wage rate currently paid to the affected workers. However, the 
Department was unable to find data reflecting the distribution of the 
wages currently paid to the affected workers who earn less than $10.10 
per hour.

[[Page 60696]]

Thus, it is not possible to directly calculate the average wage rate 
the affected workers are currently paid.
    Given this data limitation, the Department used earnings data from 
the CPS to calculate the average wage rate for U.S. workers who earn 
less than $10.10 per hour in the construction and service industries. 
Assuming that the wage distribution of Federal contract workers in the 
construction and service industries is the same as that in the rest of 
the U.S. economy, the Department estimated that the average wage for 
the affected workers associated with this final rule is $8.79 per hour. 
The difference between the estimated average wage rate of $8.79 per 
hour and $10.10 is $1.31 per hour.
    The Chamber/NFIB, the AOA, Anthony Pannone, and Advocacy stated the 
Department's estimate of the direct impact of the minimum wage increase 
mandate is incomplete because this rule would also increase payroll 
taxes and workers' compensation insurance premiums in addition to the 
increase in wage payments (e.g., $1.31 per hour). The Department 
recognizes that it will be incumbent upon contractors to pay the 
applicable percentage increase in payroll and unemployment taxes and 
that it has not factored these costs into its analysis. Similarly, the 
Department is not including within the estimates of the costs imposed 
by the minimum wage increase costs that Advocacy, Ski New Hampshire, 
the AOA, Louise Tinkler, and the Chamber/NFIB assert they, or their 
members, will incur based on the asserted need to adjust upward the 
wages of workers not covered by the Order. While some contractors may 
choose to increase wages of workers who currently earn more than 
$10.10, the Department has not quantified this potential ancillary 
impact to contractors in the economic analysis of this rule.
    The Association/IFA contended that there will be an increase in 
costs associated with the employment of tipped employees on a covered 
contract. The commenter said that on January 1, 2015, the minimum cash 
wage for tipped employees will more than double (i.e., increase by 
$2.77 ($4.90-$2.13)) and that within three years after that date, the 
minimum cash wage for tipped employees will nearly quadruple. The 
commenter also said that the increased costs will mean that these 
contractors will need to either significantly increase their prices or 
fundamentally restructure the method of payment to these employees. The 
Association/IFA also contended that the Department failed to account 
for the increased direct wage payment to tipped employees in the NPRM.
    There is no credible data source that allows the Department to 
estimate the number of tipped employees covered by this Executive 
Order. The Department expects, however, that the number of tipped 
employees covered by the Executive Order will be small because 
contractors on the most commonly occurring DBA- and SCA-covered 
contracts rarely engage tipped employees on or in connection with such 
contracts, and the Department has received no data from interested 
commenters, including the Association/IFA, indicating that there will 
be a significant number of tipped employees covered by the Executive 
Order. Moreover, the Association/IFA's comment fails to account for the 
benefits, discussed in greater detail below, that may accrue to its 
members in conjunction with the new Executive Order minimum wage, 
including anticipated increases in productivity, lower absenteeism, 
less turnover and reduced supervisory costs.
    The Department then applied the estimated average $1.31 increase in 
the applicable minimum wage to the Federal contract workers who will be 
potentially affected by the change. The Department also needed to 
account for the fact that this rule applies only to new contracts. As 
noted, the Department estimated that about 20 percent of covered 
contracts are new each year.\19\ To estimate the total wage increase 
per year, the Department needed to calculate the total work hours in a 
year. The Department assumed a forty hour workweek, and by multiplying 
40 hours per week by 52 weeks in a year, concluded that affected 
workers work 2,080 hours in a year.
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    \19\ Because many of the affected permits and authorizations are 
issued for one-year terms, the rule's impact on concessionaires--
which the Department has not quantified--will likely be experienced 
more immediately than the linear increase over five years estimated 
for other types of contractors.
---------------------------------------------------------------------------

    The Department calculated the total increase that Federal 
contractors will pay their employees by multiplying the number of 
affected workers by the average wage increase of $1.31 per hour and 
2,080 work hours per year. Based on the assumption that only 20 percent 
of contracts in 2015 will be new, the total increase that Federal 
contractors will pay affected workers by the end of 2015 is estimated 
to be $100.20 million (183,814 x $1.31 x 2,080 x 20%).\20\ When this 
rule's impact is fully manifested by the end of 2019, the total 
increase in hourly wages for affected workers is expected to be $501 
million (in 2014 dollars) ($100.20 million x 5 years).\21\ There is 
however, a possibility that this estimate is overstated because the 
analysis does not account for changes in state and local minimum wages 
that will raise wages independently of this final rule.\22\ An 
additional reason to believe the transfer may be overestimated is 
because firms may respond to minimum wage increases by cutting fringe 
benefits and overtime (as found by Fairris, Runstein, Briones, and 
Goodheart (2005) in their examination of the results of a living wage 
ordinance in Los Angeles).
---------------------------------------------------------------------------

    \20\ Because the rate is effective for contracts resulting from 
solicitations on or after January 1, 2015, it is likely that work on 
covered contracts will not commence until later in 2015. Therefore, 
our analysis overstates the cost estimate as we used 2,080 hours to 
reflect the full year for 2015.
    \21\ Beginning January 1, 2016, the minimum wage will be 
adjusted annually by the annual percentage increase in the Consumer 
Price Index for Urban Wage Earners and Clerical Workers (CPI-W). 
Accordingly, this will adjust upward our estimated wage increase in 
2016 and after. However, our estimates of wage increases for the 
affected workers are measured in 2014 constant dollars and therefore 
remain unchanged.
    \22\ The estimate of rule-induced transfers is based on an 
assumption that the final rule would have no impact on employment. 
According to the Council of Economic Advisers, the bulk of the 
empirical literature shows that raising the minimum wage by a 
moderate amount has little or no negative effect on employment. The 
published literature has primarily studied the impact of minimum 
wages in the private sector and thus may be more directly predictive 
of rule-induced outcomes for concessionaires and lessees than for 
other contracting entities affected by the final rule. In the public 
sector, many of the same factors that affect private companies, like 
the impact on the productivity of workers, are relevant for 
considering any impact on employment. However, ultimately employment 
related to federal contracts will largely depend on the future 
decisions of policymakers, such as budget and procurement decisions.
---------------------------------------------------------------------------

    This $501 million is the estimated transfer cost from employers and 
taxpayers to workers in 2019. The Department expects these transfers to 
be accompanied by workers' increased productivity, reduced turnover, 
and other benefits to employers and the Federal Government as discussed 
in the Benefits section. Overall, the Department believes that the 
combined benefits to employers and the Federal Government justify the 
costs that would be incurred.
    NELP, Ski New Hampshire, the AOA, and the Chamber/NFIB expressed 
their views on the increased wage cost to contractors as a result of 
this rule. NELP commented that the Department overstated the increased 
cost to contractors because five states (Massachusetts, Vermont, 
Connecticut, Maryland, and Hawaii) have recently raised their minimum 
wage, and the minimum wage in California, the nation's largest state, 
will be only 10 cents less than $10.10 an hour. It additionally noted 
that if a contract is

[[Page 60697]]

covered by the SCA or the DBA, the wage rates under those statutes can 
be higher than the minimum wage established by the Executive Order.
    The Department's analysis accounted for states with minimum wage 
rates higher than the Federal minimum wage rate. It also accounted for 
instances where SCA and DBA wage rates are higher than the current 
Federal minimum wage rate of $7.25. However, the Department's estimate 
of the wage increase does not reflect the minimum wage increase to 
$10.00 in California that is scheduled to take effect on January 1, 
2016, or the minimum wage increase to $11.50 in the District of 
Columbia that is scheduled to take effect on July 1, 2016; therefore, 
there may be a very slight overestimate of the average wage increase 
for affected workers in 2016 and thereafter.
    Ski New Hampshire contended that a $10.10 rate will represent a 40 
percent differential in pay scales between New Hampshire ski areas 
operating on Federal lands and New Hampshire ski areas that do not. 
While $10.10 is approximately 40 percent greater than $7.25, the 
commenter submitted no data related to what its member ski resorts pay 
workers for work performed at ski resorts on private land. In addition, 
the Executive Order minimum wage requirements apply only to ``new 
contracts'' as defined in Sec.  10.2. The Executive Order thus ensures 
that contracting agencies and contractors will generally have 
sufficient notice of any obligations under Executive Order 13658 and 
can take into account any potential economic impact of the Order on 
projected labor costs after January 1, 2015.
    The Chamber/NFIB commented that indexing the minimum wage to 
inflation implies a permanence that may inspire firms to make deep cuts 
in labor costs. To the extent the commenter is asserting that cuts in 
labor costs will result from the Executive Order's minimum wage 
requirements, the Department believes that any downward pressure on 
hiring is likely to be mitigated by the impacts of higher wages on 
worker productivity, reduced turnover, lessened supervisory costs and 
other benefits. Moreover, the bulk of the empirical literature suggests 
that, on net, minimum wages have little to no adverse impact on 
employment. The Department additionally notes that the purpose of 
indexing the minimum wage to inflation is to approximately maintain the 
value of, not increase, the minimum wage after the initial increase. 
Indeed, the Executive Order's inflation index provides workers a wage 
that keeps pace with the rising costs of goods and services consistent 
with the manner in which the prices of goods and services provided by 
contractors generally increase in a manner commensurate with inflation. 
Therefore, the Department disagrees with the commenter that indexing 
the minimum wage to inflation would cause employers to make cuts in 
labor costs.
    The Chamber/NFIB and HR Policy Association asserted that empirical 
literature and economic theory firmly indicate that across-the-board 
hikes in the minimum wage will directly benefit some workers but reduce 
overall employment. The George Washington Regulatory Studies Center 
asserted it is conceivable that the Executive Order minimum wage 
increase will result in a decrease in worker hours or the number of 
workers assigned to a contract. All three commenters cited the 
Congressional Budget Office's estimate that if such a wage increase to 
$10.10 were implemented nationally, it would reduce employment by 
500,000 workers. The Mercatus Center at George Mason University 
similarly asserted that raising the minimum wage is an incentive for 
employers to lay off less productive workers.
    The Department has carefully considered the comments, and closely 
scrutinized the potential effect on employment associated with the wage 
increase to the affected workers covered by federal contracts. For the 
following reasons, the Department disagrees with the suggestion that 
the Executive Order minimum wage increase will necessarily reduce 
overall employment. The CBO study estimated that increasing the minimum 
wage to $10.10 nationwide would reduce total employment by 0.3 percent 
(or 500,000 workers). The study also indicated that the total reduction 
in employment might be smaller in the long run because a higher minimum 
wage tends to increase the employment of higher-wage workers. Moreover, 
a higher minimum wage for low-wage workers, who tend to spend a larger 
fraction of their earnings, can increase demand for goods and services 
which, in turn, would boost employment and economic growth. 
Furthermore, empirical evidence shows that firms are able to respond to 
mandatory increases in minimum wages without significantly reducing 
employment.\23\ A possible partial explanation for this result is that 
firms experience increased productivity of labor through better 
screening, training, and improved production practices, and that these 
measures help mitigate reductions in employment in response to wage 
increases (such as the increase mandated by the Executive Order). The 
Department accordingly expects that an increase in the minimum wage to 
$10.10 for workers on covered federal contracts would have, on net, 
little or no negative effect on employment.
---------------------------------------------------------------------------

    \23\ See Dale Belman and Paul J. Wolfson, ``The New Minimum Wage 
Research,'' UPJOHN Institute for Employment Research 21, no. 2 
(2014), for a comprehensive review of the wage literature on the 
impact of minimum wage on employment, https://research.upjohn.org/cgi/viewcontent.cgi?article=1220&context=empl_research.
---------------------------------------------------------------------------

Additional Compliance Costs

    This rule requires 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.
    The Department has drafted this final rule consistent with the 
directive in section 4(c) of the Executive Order that any regulations 
issued pursuant to the Order should, to the extent practicable, 
incorporate existing procedures from the FLSA, SCA and DBA. As a 
result, most contractors subject to this rule generally will not face 
any new requirements, other than payment of a wage no less than the 
minimum wage required by the Order. The final rule does not require 
contractors to make other changes to their business practices. 
Therefore, the Department posits that the only regulatory 
familiarization cost related to this final rule is the time necessary 
for contractors to read the contract clause, evaluate and adjust their 
pay rates to ensure workers on covered contracts receive a rate not 
less than the Executive Order minimum wage, and modify their contracts 
to include the required contract clause. For this activity, the 
Department estimates that contractors will spend one hour. The 
estimated cost of this burden is based on data from the Bureau of Labor 
Statistics in the publication ``Employer Costs for Employee 
Compensation'' (September 2013), which lists hourly compensation for 
the Management, Professional, and Related occupational group as $51.74. 
There are approximately 500,000 contractor firms registered in the 
General Services Administration's (GSA) System for Award Management 
(SAM). Therefore, the estimated hours for rule

[[Page 60698]]

familiarization is 500,000 hours (500,000 contractor firms x 1 hour = 
500,000 hours). The Department calculated the total estimated cost as 
$25.87 million (500,000 hours x $51.74/hour = $25,870,000).
    Four commenters, the Association/IFA, the AOA, Advocacy, and the 
Chamber/NFIB, asserted the Department underestimated the ``additional 
compliance costs'' associated with this rule and that the Department's 
proposal to make contractors responsible for subcontractors' compliance 
would result in significant costs to contractors. The Department 
disagrees that the rule will result in significant compliance costs to 
contractors based on their responsibility for subcontractors' 
compliance. As discussed previously, contractors subject to the SCA 
and/or DBA have long had a comparable flow-down obligation 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 so that upper-tier 
contractors do not incur flow-down liability, are well understood 
concepts to SCA and DBA contractors. See 29 CFR 5.5(a)(6) and 4.114(b). 
While the flow-down structure may be less familiar to some sub-set of 
contractors subject to the Executive Order under sections 7(d)(i)(C) 
and (D), the fact that the SCA applies to many contracts that are 
covered by section 7(d)(i)(C) and (D) should substantially reduce the 
number of contractors with no familiarity with flow-down liability.
    The Association/IFA and AOA asserted that the proposed contract 
clause must be read and understood by a prudent contractor, a task that 
would take more than an hour. The commenters said the idea that only 
one member of the contractor company management would be sufficient to 
read and implement the clause is not credible except for the smallest 
of contractors. For the typical contractor company with fifty to one 
hundred employees, the commenters contended a core management senior 
group of three to five executives, each of whom would need to read and 
understand the rule as well as their attorneys paid at higher hourly 
rates, would likely also need to be involved.
    The Department expects the regulatory familiarization cost to vary 
by contractor. While some contractors may need more than one hour to 
become familiar with the regulations, others will likely need less than 
one hour. That this rule incorporates existing procedures from the 
FLSA, SCA, and DBA to the extent practicable should, however, simplify 
the familiarization process for contractors. Indeed, the Department 
anticipates most contractors subject to the rule, particularly 
contractors with experience complying with the FLSA, SCA and DBA, 
generally will not face significant new requirements, other than 
payment of a wage no less than the minimum wage required by this Order. 
Therefore, the Department adopts its estimation from the NPRM that 
contractors will spend one hour on average to read the contract clause 
and evaluate and adjust their pay rates to ensure affected workers on 
covered contracts receive a rate not less than the Executive Order 
minimum wage.
    Seven commenters (Anthony Pannone, Advocacy, the AOA, CSCUSA, Ski 
New Hampshire, the Association/IFA, and the Chamber/NFIB) expressed 
their views on the increased cost burden to contractors with Federal 
concession agreements and lease contracts. Mr. Pannone contended that 
implementation of this rule will create an uneven playing field for 
small business concessions on military installations relative to their 
direct competitors off base because they do not receive money from the 
government contract; rather, they pay commissions to provide their 
services on base while absorbing additional costs not imposed on their 
competitors off base. Advocacy asserted that affected small businesses 
are concerned that they cannot pass on the costs of a higher minimum 
wage to the government or customers and that fast-food franchisees at 
Advocacy's roundtable expressed concern that the Department is imposing 
labor costs that are almost double inside the military base compared to 
outside the military base. The AOA asserted that many of its members 
compete with other recreational or experimental service providers that 
do not operate on Federal lands and, therefore, requiring outfitters 
and guides who operate on Federal lands to pay a higher minimum wage 
will place them at a serious competitive disadvantage relative to 
operators on non-Federal lands who will not be subject to similar 
increased costs unless the state in which they operate adopts a similar 
requirement. CSCUSA and Ski New Hampshire asserted that the Executive 
Order will increase the costs of ski resorts that operate on Federal 
lands and place their businesses in an uncompetitive position with 
similarly situated ski resorts that do not operate on Federal lands. 
The Association/NFIB represented that contractors with concession 
contracts and contracts in connection with Federal property or lands 
often are in direct competition with other businesses and that 
application of the Executive Order's minimum wage would put businesses 
operating on Federal property or lands at a significant competitive 
disadvantage. The Chamber/NFIB asserted that, unlike contractors who 
are reimbursed for costs by the government for their construction or 
operational services to the government, concessionaires on defense 
bases cannot raise their prices to mitigate increased costs. It further 
asserted that concessionaires (e.g., restaurant franchise operators) on 
military base property are required by law to charge prices no higher 
than they charge at their civilian property locations in the same area.
    In response to these comments, the Department acknowledges that 
concessionaires and lessees, selling goods and services directly to 
private consumers, experience different rule-induced economic 
consequences (including price consequences) than other contracting 
entities affected by this rule. However, the commenters do not account 
for a number of factors that the Department anticipates will 
substantially offset many potential adverse economic effects on their 
businesses. These commenters did not consider that increasing the 
minimum wage of their workers could help 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 do not address the possibility that increased efficiency and 
quality of services will attract more customers and result in increased 
sales. Furthermore, these commenters do not consider the offsetting 
effect of contractors' ability to negotiate a lower percentage of sales 
paid as rent or royalty to the Federal Government in new contracts.\24\
---------------------------------------------------------------------------

    \24\ 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.
---------------------------------------------------------------------------

    Moreover, the Executive Order minimum wage requirements apply only 
to ``new contracts'' as defined at Sec.  10.2. The Executive Order thus 
ensures that contracting agencies and contractors will have sufficient 
notice of any obligations under Executive Order 13658 and can take into 
account any potential economic impact of the Order on projected labor 
costs prior to negotiating ``new contracts'' after January 1, 2015.

[[Page 60699]]

Benefits

    As the Department noted in the NPRM, it expects that increasing the 
minimum wage of Federal contract workers would generate several 
important benefits, including reduced absenteeism and turnover in the 
workplace, improved employee morale and productivity, reduced 
supervisory costs, and increased quality of government services.
    Research shows that absenteeism is negatively correlated with 
wages, meaning that better-paid workers are absent less frequently 
(Dionne and Dostie 2007; Pfeifer 2010).\25\ Pfeifer (2010) finds that a 
one percent increase in wages is associated with a reduction in 
absenteeism of about one percent (but also notes that ``the costs of 
higher absenteeism of workers at the lower tail of the wage 
distribution are rather low''). According to a study by Fairris, 
Runstein, Briones, and Goodheart (2005)--which, unlike the rest of the 
cited absenteeism literature, has identified a causal relationship 
between wages and absenteeism, rather than just correlation between 
absenteeism and either wages or productivity--managers reported that 
absenteeism decreased following the passage of a living wage ordinance 
in Los Angeles because employees had more to lose if they did not show 
up for work, and employees placed greater value on their jobs because 
they knew they would receive a lower wage at other jobs.\26\ When 
workers are paid higher wages, they are absent from work less often. 
Finally, according to studies by Allen (1983), Zhang, Sun, Woodcock, 
and Anis (2013), reduced absenteeism has been associated with higher 
productivity.\27\
---------------------------------------------------------------------------

    \25\ Dionne, Georges and Benoit Dostie, ``New Evidence on the 
Determinants of Absenteeism Using Linked Employer-Employee Data,'' 
Industrial and Labor Relations Review, Vol. 61, No. 1, 2007.
    Pfeifer, Christian, ``Impact of Wages and Job Levels on Worker 
Absenteeism,'' International Journal of Manpower, Vol. 31, No. 1, pp 
59-72, 2010.
    \26\ Fairris, David, David Runsten, Carolina Briones, and 
Jessica Goodheart, ``Examining the Evidence: The Impact of the Los 
Angeles Living Wage Ordinance on Workers and Businesses,'' LAANE, 
2005.
    \27\ Allen, Steven, ``How Much Does Absenteeism Cost?'' Journal 
of Human Resources, Vol. 18, No. 3, pp 379-393, 1983.
    Mefford, Robert, ``The Effects of Unions on Productivity in a 
Multinational Manufacturing Firm,'' Industrial and Labor Relations 
Review, Vol. 40, No. 1, pp 105-114, 1986.
     Zhang, Wei, Huiying Sun, Simon Woodcock, and Aslam Anis, 
``Valuing Productivity Loss Due to Absenteeism: Firm-level Evidence 
from a Canadian Linked Employer-Employee Data,'' Canadian Health 
Economists' Study Group, The 12th Annual CHESG Meeting, Manitoba, 
Canada, May 2013.
---------------------------------------------------------------------------

    A higher minimum wage is also associated with reduced worker 
turnover (Reich, Hall, and Jacobs 2003; Fairris, Runstein, Briones, and 
Goodheart 2005).\28\ In a study of homecare workers in San Francisco, 
Howes (2005) found that the turnover rate fell by 57 percent following 
implementation of a living wage policy. Furthermore, Howes found that a 
$1.00 per hour raise from an $8.00 hourly wage increased the 
probability of a new worker remaining with his or her employer for one 
year by 17 percentage points.\29\ In their study of the effects of the 
living wage in Baltimore, Niedt, Ruiters, Wise, and Schoenberger (1999) 
found that most workers who received a pay raise expressed an improved 
attitude toward their job, including greater pride in their work and an 
intention to stay on the job longer.\30\
---------------------------------------------------------------------------

    \28\ Reich, Michael, Peter Hall, and Ken Jacobs, ``Living Wages 
and Economic Performance: The San Francisco Airport Model,'' 
Institute of Industrial Relations, University of California, 
Berkeley, March 2003.
    Dube, Arindrajit, T. William Lester, and Michael Reich, 
``Minimum Wage Shocks, Employment Flows and Labor Market 
Frictions,'' UC Berkeley Institute for Research on Labor and 
Employment, Working Paper, July 20, 2013.
    Brochu, Pierre and David Green, ``The Impact of Minimum Wages on 
Labor Market Transitions,'' The Economic Journal, Vol. 123, No. 573, 
pp 1203-1235, December 2013.
    \29\ Howes, Candace, ``Living Wages and Retention of Homecare 
Workers in San Francisco,'' Industrial Relations, Vol. 44, No. 1, pp 
139-163, 2005.
    \30\ Niedt, Christopher, Greg Ruiters, Dana Wise, and Erica 
Schoenberger, ``The Effect of the Living Wage in Baltimore,'' 
Working Paper No. 119, Department of Geography and Environmental 
Engineering, Johns Hopkins University, 1999.
---------------------------------------------------------------------------

    Reduced worker turnover is also associated with lower costs to 
employers arising from recruiting and training replacement workers. 
Because seeking and training new workers is costly, reduced turnover 
leads to savings for employers. Research indicates that decreased 
turnover costs partially offset increased labor costs (Reich, Hall, and 
Jacobs 2003; Fairris, Runstein, Briones, and Goodheart 2005). Holzer 
(1990) finds that high-wage firms can partially offset their higher 
wage costs through improved productivity and lower hiring and turnover 
costs. More specifically, Holzer finds that firms with higher wages 
spend fewer hours on informal training, have longer job tenure, more 
years of previous job experience, higher performance ratings, lower 
vacancy rates, and greater perceived ease in hiring. Holzer concludes 
that firms respond to higher wage costs in a variety of ways that 
sometimes offset more than half those costs.\31\
---------------------------------------------------------------------------

    \31\ Holzer, Harry, ``Wages, Employer Costs, and Employee 
Performance in the Firm,'' Industrial and Labor Relations Review, 
Vol. 43, No. 3, pp 147-164, 1990.
---------------------------------------------------------------------------

    A body of literature predicts that companies may pay higher wages 
to reduce the need for direct monitoring and related supervisory costs. 
Workers in higher-wage jobs exhibit greater self-policing in order to 
protect their higher-wage positions. Empirical studies show that higher 
wages are associated with less intensive supervision (Groshen and 
Krueger 1990; Osterman 1994; Rebitzer 1995; Georgiadis 2013).\32\ 
Therefore, increasing the minimum wage of Federal contract workers may 
lead to a reduction in the costs associated with supervisory expenses. 
Higher wages can substitute for other costly forms of supervising 
workers, such as hiring additional managers or including more 
supervisory duties in senior employees' duties.
---------------------------------------------------------------------------

    \32\ Groshen, Erica L. and Alan B. Krueger, ``The Structure of 
Supervision and Pay in Hospitals,'' Industrial and Labor Relations 
Review, Vol. 43, No. 3, pp 134-146, 1990.
    Osterman, Paul, ``Supervision, Discretion, and Work 
Organization,'' The American Economic Review, Vol. 84, No. 2, pp 
380-84, 1994.
    Rebitzer, James, ``Is There a Trade-Off Between Supervision and 
Wages? An Empirical Test of Efficiency Wage Theory,'' Journal of 
Economic Behavior and Organization, Vol. 28, No. 1, pp 107-129, 
1995.
    Georgiadis, Andreas, ``Efficiency Wages and the Economic Effects 
of the Minimum Wage: Evidence from a Low-Wage Labour Market,'' 
Oxford Bulletin of Economics and Statistics, Vol. 75, No. 6, pp 962-
979, 2013.
---------------------------------------------------------------------------

    Higher wages can also boost employee morale, thereby leading to 
increased effort and greater productivity. Akerlof (1982, 1984) 
contends that higher wages increase employee morale, which raises 
employee productivity.\33\ Furthermore, higher productivity can have a 
positive spillover effect, boosting the productivity of co-workers (Mas 
and Moretti 2009).\34\ This means that raising the minimum wage of 
Federal contract workers may not only increase the productivity of 
Federal contract workers, but may also improve the productivity of 
Federal workers.
---------------------------------------------------------------------------

    \33\ Akerlof, George, ``Labor Contracts as Partial Gift 
Exchange,'' The Quarterly Journal of Economics, Vol. 97, No. 4, pp 
543-569, 1982.
    Akerlof, George, ``Gift Exchange and Efficiency-Wage Theory: 
Four Views,'' The American Economic Review, Vol. 74, No. 2, pp 79-
83, 1984.
    \34\ Mas, Alexandre and Enrico Moretti, ``Peers at Work,'' 
American Economic Review, Vol. 99, No. 1, pp 112-45, 2009.
---------------------------------------------------------------------------

    The Department also 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 better 
quality workers who are able to provide better quality services, 
thereby improving the experience of citizens who engage with these 
government contractors. For example, a study by Reich, Hall, and

[[Page 60700]]

Jacobs (2003) found that increased wages paid to workers at the San 
Francisco airport increased productivity and shortened airport lines. 
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 
implemented (Thompson and Chapman 2006).\35\
---------------------------------------------------------------------------

    \35\ Thompson, Jeff and Jeff Chapman, ``The Economic Impact of 
Local Living Wages,'' Economic Policy Institute, Briefing Paper 
#170, 2006.
---------------------------------------------------------------------------

    The Department expects the increase in the minimum wage for Federal 
contract workers to result in less absenteeism, reduced labor turnover, 
lower supervisory costs, and higher productivity. Moreover, higher-paid 
contract workers who demonstrate higher productivity may also boost the 
productivity of those around them, including Federal employees. 
Furthermore, the quality of government services may improve as 
contractors who raise the wage rates paid to their workers incur these 
benefits and attract better quality workers, thereby improving the 
experience of citizens who use government services.
    The Chamber/NFIB, the HR Policy Association, and the George 
Washington Regulatory Studies Center stated that this rule cites 
studies demonstrating that higher minimum wages increase morale, 
productivity, and quality of work and reduce absenteeism, worker 
turnover, and the costs associated with supervisory expenses without 
providing a quantitative cost-benefit analysis of the specific wage 
increases for current and future beneficiaries of this rule. The HR 
Policy Association noted that the Department acknowledges that the 
evidence is based on analysis of firms that have voluntarily raised 
wages and that there may be differences between such firms and the 
contractors that would newly increase wages as a result of the NPRM.
    The Department agrees that its expectation that the increase in the 
minimum wage for federal contract workers will result in less 
absenteeism, reduced labor turnover, lower supervisory costs, and 
higher productivity is based on a review of studies, many of which 
examined why firms voluntarily pay higher wages. Therefore, there may 
be differences between such firms and the federal contractors that 
would newly increase wages as a result of this final rule. The 
Department has not quantified the benefits it expects these regulations 
will engender because there is insufficient data to allow the 
Department to quantify the benefits of this rule. However, the 
Department believes the combined benefits to contractors and the 
Federal Government will justify the costs that will be incurred as a 
result of this final rule, leading to improved economy and efficiency 
in government procurement.\36\
---------------------------------------------------------------------------

    \36\ The phrase ``economy and efficiency'' is used here only in 
the sense implied by the Federal Property and Administrative 
Services Act.
---------------------------------------------------------------------------

    The Mercatus Center at George Mason University stated that even if 
the cited studies in the NPRM suggest that increased wages lead to 
increased productivity, they do not indicate that the value of the 
increased productivity exceeds the cost of the increased wage. The 
Mercatus Center further stated that ``by not comparing the value of 
increased productivity with the cost of achieving the increased 
productivity, the DOL cannot say whether the rule will be net benefit 
or detriment to the economy at large.'' Therefore, the Mercatus Center 
contends, the cited studies fail to support the fundamental premise of 
the NPRM.
    Although most of the cited studies do not quantitatively value 
productivity increases resulting particularly from the wage increase to 
$10.10 to workers covered by this final rule, the cited studies do 
support the conclusion that increased wages can enhance productivity. 
The Department expects this increase in productivity, coupled with the 
anticipated reductions in absenteeism and turnover, lowered supervisory 
costs, and increased quality of government services, to result in 
substantial offsetting of many of the costs to contractors of the 
increased wage.
    The Mercatus Center additionally questioned the manner in which the 
Department's NPRM relied on economic studies, contending the Department 
misinterpreted research, inappropriately generalized results and failed 
to mention important caveats. The Department has carefully reviewed the 
economic studies it cited in the NPRM in light of the commenter's 
assertions. Finally, the George Washington Regulatory Studies Center's 
comment invoked the retrospective review process identified in 
Executive Order 13563, Improving Regulation and Regulatory Review. The 
Department appreciates the comment and notes that its Regulatory 
Agendas, which are published with the Unified Agenda of Federal 
Regulatory and Deregulatory Actions, see, e.g., 79 FR 896, 1020, 
contain information on how the Department implements the retrospective 
review process contained in Executive Order 13563.

Discussion of Regulatory Alternatives

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives. Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
As discussed above, this rule has been designated an economically 
significant regulatory action under section 3(f)(1) of Executive Order 
12866.
    The Department notes that, as the E.O. 12866 analysis of the 
proposed rule explained, Executive Order 13658 delegates to the 
Secretary the authority only to issue regulations to ``implement the 
requirements of this order.'' Because the Executive Order itself 
establishes the basic coverage provisions and minimum wage requirements 
that the Department is responsible for implementing, many potential 
regulatory alternatives are beyond the scope of the Department's 
authority in issuing this final rule. For illustrative purposes only, 
however, this section presents immediately below two possible 
alternatives to the provisions set forth in this final rule. The 
Regulatory Flexibility Act section that follows also contains a 
discussion of regulatory alternatives, including an analysis of 
comments received.

Alternative 1: The Minimum Wage Increases by the Annual Percentage 
Increase in the Consumer Price Index for All Urban Consumers (CPI-U)

    Executive Order 13658 directs the Secretary of Labor to determine 
the minimum wage beginning on January 1, 2016, by indexing future 
increases to the Consumer Price Index for Urban Wage Earners and 
Clerical Workers (CPI-W). See 79 FR 9851. The CPI-W is based on the 
expenditures of households in which more than 50 percent of household 
income comes from clerical or wage occupations. The CPI-W population 
represents about 32 percent of the total U.S. population and is a 
subset, or part, of the CPI-U population.
    A broader CPI is the CPI-U, which covers all urban consumers, who 
represent about 88 percent of the total U.S. population. While the CPI-
W is used to calculate Social Security cost-of-living adjustments 
(COLAs), most other COLAs cited in Federal legislation, such as the 
indexation of Federal income tax

[[Page 60701]]

brackets, use the CPI-U. Under this alternative, the minimum wage 
increases by the annual percentage in the CPI-U. Table 1 below shows 
the annual percentage changes of the CPI-W and CPI-U for 2008-2013.

               Table 1--The CPI-W and CPI-U for 2008-2013
------------------------------------------------------------------------
                     Year                        CPI-W (%)    CPI-U (%)
------------------------------------------------------------------------
2008..........................................          4.1          3.8
2009..........................................         -0.7         -0.4
2010..........................................          2.1          1.6
2011..........................................          3.6          3.2
2012..........................................          2.1          2.1
2013..........................................          1.4          1.5
------------------------------------------------------------------------
(Source: US DOL, BLS, All items (1982-84 = 100)

    The CPI-U generally has lower annual percentage changes and 
therefore, the minimum wage increase by the annual percentage increase 
in the CPI-U would likely result in a slightly smaller impact of this 
final rule. The CPI-U is about 0.2 percent lower than the CPI-W per 
year on average. Thus, the annual impact of this rule, starting in the 
second year of the rule's implementation, would be approximately 0.2 
percent smaller if the CPI-U were used rather than the CPI-W. The 
Department rejected this regulatory alternative because it was beyond 
the scope of the Department's authority in issuing this final rule. 
Executive Order 13658 specifically requires the Department to utilize 
the CPI-W in determining the Executive Order minimum wage beginning 
January 1, 2016, and annually thereafter. See 79 FR 9851.

Alternative 2: The Minimum Wage Increases by the Annual Percentage 
Increase in the Consumer Price Index for Urban Wage Earners and 
Clerical Workers (CPI-W) on a Quarterly Basis

    Executive Order 13658 directs the Secretary of Labor, when 
calculating the annual percentage increase in the CPI-W, to compare the 
CPI-W for the most recent month, quarter, or year available with that 
for the same month, quarter, or year in the preceding year. See 79 FR 
9851. As explained above, the Secretary has proposed to base such 
increases on the most recent year available.
    Under this alternative, the annual percentage increase in the CPI-W 
is calculated only by comparing the CPI-W for the most recent quarter 
with the same quarter in the preceding year. The impact of this 
alternative will be either higher or lower than that of the final rule. 
However, the Department expects that the difference would be less than 
one per cent of the total impact of this final rule.
    The Department rejected this regulatory alternative because 
utilizing the most recent year available, rather than the most recent 
month or quarter, minimizes the impact of seasonal fluctuations on the 
Executive Order minimum wage rate.

             Table A--Shares of Industry Output by Industry
------------------------------------------------------------------------
                                                             Share of
                Industry                    NAICS code      sector (%)
------------------------------------------------------------------------
Total Wage and Salary...................  ..............            1.87
    Mining..............................              21            0.07
        Oil and gas extraction..........             211            0.04
        Mining, except oil and gas......             212            0.12
    Utilities...........................              22            0.33
    Construction........................              23            3.31
    Manufacturing.......................           31-33            4.10
    Wholesale trade.....................              42            1.31
    Retail trade........................          44, 45            0.30
    Transportation and warehousing......    48, 492, 493            1.15
    Information.........................              51            0.83
    Finance and insurance...............              52            0.62
    Real estate, rental, and leasing....              53            0.10
    Professional, scientific, and                     54            8.74
     technical services.................
    Management of companies and                       55            0.00
     enterprises........................
    Administrative and support and waste              56            5.24
     management and remediation services
        Administrative and support                   561            4.78
         services.......................
        Waste management and remediation             562            8.53
         services.......................
    Education services..................              61            2.61
    Health care and social assistance...              62            0.42
    Arts, entertainment, and recreation.              71            0.03
    Accommodation and food services.....              72            0.17
        Accommodation...................             721            0.12
        Food services and drinking                   722            0.19
         places.........................
    Other services......................              81            0.59
    Agriculture, forestry, fishing, and               11            0.12
     hunting............................
------------------------------------------------------------------------

BILLING CODE 4510-27-P

[[Page 60702]]

[GRAPHIC] [TIFF OMITTED] TR07OC14.003


[[Page 60703]]


[GRAPHIC] [TIFF OMITTED] TR07OC14.004


[[Page 60704]]


[GRAPHIC] [TIFF OMITTED] TR07OC14.005

BILLING CODE 4510-27-C

V. Regulatory Flexibility Act/Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., 
establishes ``as a principle of regulatory issuance that agencies shall 
endeavor, consistent with the objectives of the rule and of applicable 
statutes, to fit regulatory and informational requirements to the scale 
of the business, organizations, and governmental jurisdictions subject 
to regulation.'' Public Law 96-354. To achieve that objective, the Act 
requires agencies promulgating proposed or final rules to prepare a 
certification and a statement of the factual basis supporting the 
certification, when drafting regulations that will not have a 
significant economic impact on a substantial number of small entities. 
The Act requires the consideration of the impact of a regulation on a 
wide range of small entities, including small

[[Page 60705]]

businesses, not-for-profit organizations, and small governmental 
jurisdictions.
    Agencies must perform a review to determine whether a proposed or 
final rule would have a significant economic impact on a substantial 
number of small entities. See 5 U.S.C. 603. If the determination is 
that it would, the agency must prepare a regulatory flexibility 
analysis as described in the RFA. Id.
    However, if an agency determines that a proposed or final rule is 
not expected to have a significant economic impact on a substantial 
number of small entities, section 605(b) of the RFA provides that the 
head of the agency may so certify and a regulatory flexibility analysis 
is not required. See 5 U.S.C. 605. The certification must include a 
statement providing the factual basis for this determination, and the 
reasoning should be clear. Id.
    As explained in the NPRM, the Department published an initial 
regulatory flexibility analysis to aid stakeholders in understanding 
the economic impact of the proposed rule upon small entities and to 
obtain additional information on any such impact. See 79 FR 34602. The 
Department requested comments on the initial regulatory flexibility 
analysis set forth in the NPRM, including information regarding the 
number of small entities affected by the minimum wage requirements of 
Executive Order 13658, compliance cost estimates for such entities, and 
whether regulatory alternatives exist that could reduce the burden on 
small entities while still remaining consistent with the objective of 
the Order. See 79 FR 34602-09. The Department received several comments 
on the initial regulatory flexibility analysis.
    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 the Executive Order. 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. The 
Department modified its analysis to some extent from the initial 
regulatory flexibility analysis based on comments received from the 
public; such changes will be discussed below.
    Why the Department is Considering Action: The Department has 
published this final rule to implement the requirements of Executive 
Order 13658, ``Establishing a Minimum Wage for Contractors.'' The 
Executive Order grants responsibility for enforcement of the Order to 
the Secretary of Labor.
    Objectives of and Legal Basis for Rule: This rule establishes 
requirements and provides guidance for contracting agencies, 
contractors, and workers regarding how to comply with Executive Order 
13658 and how the Department intends to administer and enforce such 
requirements. Section 5(a) of the Executive Order grants authority to 
the Secretary to investigate potential violations of and obtain 
compliance with the Order. 79 FR 9852. Section 4(a) of the Executive 
Order directs the Secretary to issue regulations to implement the 
requirements of the Order. Id.
    Compliance Requirements of the Final Rule Including Reporting and 
Recordkeeping: As explained in this final rule, Executive Order 13658 
provides that agencies must, to the extent permitted by law, ensure 
that new contracts, as described in section 7 of the Order, include a 
clause specifying, as a condition of payment, that the minimum wage to 
be paid to workers in the performance of the contract shall be at 
least: (i) $10.10 per hour beginning January 1, 2015; and (ii) an 
amount determined by the Secretary, beginning January 1, 2016, and 
annually thereafter. 79 FR 9851. Section 7(d) of the Executive Order 
establishes that this minimum wage requirement only applies to a new 
contract 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 from the SCA 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. 79 FR 9853. Section 7(e) 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. 79 FR 9853.
    This final rule, which implements the coverage provisions and 
minimum wage requirements of Executive Order 13658, contains several 
provisions that could be considered to impose compliance requirements 
on contractors. The general requirements with which contractors must 
comply are set forth in subpart C of this part. Contractors are 
obligated by Executive Order 13658 and this final rule to abide by the 
terms of the Executive Order minimum wage contract clause. Among other 
requirements set forth in the contract clause, contractors must pay no 
less than the applicable Executive Order minimum wage to workers for 
all hours worked on or in connection with a covered contract. 
Contractors must also include the Executive Order minimum wage contract 
clause in covered subcontracts and require covered subcontractors to 
include the clause in covered lower-tier contracts.
    The final rule also requires contractors to make and maintain, for 
three years, records containing the information enumerated in Sec.  
10.26(a)(1)-(6) for each worker: Name, address, and Social Security 
number; the worker's occupation(s) or classification(s); the rate or 
rates of wages paid to the worker; the number of daily and weekly hours 
worked by each worker; any deductions made; and the total wages paid. 
However, the records required to be kept by contractors pursuant to 
this part are coextensive with recordkeeping requirements that already 
exist under, and are consistent across, the FLSA, SCA, and DBA; as a 
result, a contractor's compliance with these payroll records 
obligations will not impose any obligations to which the contractor is 
not already subject under the FLSA, SCA, or DBA. The final rule does 
not impose any reporting requirements on contractors.
    Contractors are also obligated to cooperate with authorized 
representatives of the Department in the inspection of records, in 
interviews with workers, and in all aspects of investigations. The 
final rule and the Executive Order minimum wage contract clause set 
forth other contractor requirements pertaining to, inter alia, 
permissible deductions and frequency of pay, as well as prohibitions 
against taking kickbacks from wages paid on covered contracts and 
retaliating against workers because they have filed any complaint or 
instituted or caused to be instituted any proceeding under or related 
to Executive Order 13658 or this part, or have testified or are about 
to testify in any such proceeding.
    All small entities subject to the minimum wage requirements of 
Executive Order 13658 and this final rule will be required to comply 
with all of the provisions of the final rule. Such

[[Page 60706]]

compliance requirements are more fully described above in other 
portions of this final rule. The following section analyzes the costs 
of complying with the Executive Order minimum wage requirement for 
small contractor firms.
    Calculating the Impact of the Final Rule on Small Contractor Firms: 
The Department must determine the compliance cost of this final rule on 
small contractor firms (i.e., small business firms that enter into 
covered contracts with the Federal Government), and whether these costs 
will be significant for a substantial number of small contractor firms. 
If the estimated compliance costs for affected small contractor firms 
are less than three percent of small contractor firms' revenues, the 
Department considers it appropriate to conclude that this final rule 
will not have a significant economic impact on small contractor firms.
    As explained in the NPRM, the Department has chosen three percent 
as our significance criterion; however, using this benchmark as an 
indicator of significant impact may overstate the significance of such 
an impact, due to substantial offsetting of many of the costs to 
contractors associated with the Executive Order by the benefits of 
raising the minimum wage, which are difficult to quantify. The 
benefits, which include reduced absenteeism, reduced employee turnover, 
increased employee productivity, and improved employee morale, are 
discussed more fully in the Executive Order 12866 section of this final 
rule.
    The Department received a few comments regarding the proposed 
significance criterion set forth in the NPRM. The Chamber/NFIB 
criticized the Department's use of three percent as the appropriate 
benchmark for testing impact significance, asserting that such a 
threshold is ``arbitrarily high.'' The commenter further stated that 
the Department offered no explanation or justification for selecting 
three percent of revenue as its significance test benchmark. The 
commenter did not provide its views on what it believes to be a 
reasonable threshold. The Chamber/NFIB also contended that DOL should 
have instead analyzed significance based on an examination of the 
relation of contractor profits to revenue and derived a cost-to-revenue 
impact test based on the implicit impact on profits.
    In response to this comment, the Department notes that the 
Regulatory Flexibility Act (RFA) does not define ``significant.'' 5 
U.S.C. 601. It is widely accepted, however, that ``[t]he agency is in 
the best position to gauge the small entity impacts of its 
regulations.'' SBA Office of Advocacy, ``A Guide for Government 
Agencies: How to Comply with the Regulatory Flexibility Act,'' at 18 
(May 2012), available at https://www.sba.gov/sites/default/files/rfaguide_0512_0.pdf (hereinafter, SBA Guide for Government Agencies). A 
threshold of three percent of revenues, not profits, has been used in 
prior rulemakings for the definition of significant economic impact. 
This threshold is consistent with that sometimes used by other 
agencies. See, e.g., 79 FR 27106, 27151 (May 12, 2014) (Department of 
Health and Human Services rule stating that under its agency guidelines 
for conducting regulatory flexibility analyses, actions that do not 
negatively affect costs or revenues by more than three percent annually 
are not economically significant). In light of such precedent and 
because the Department has received no indication that a three percent 
threshold constitutes an inappropriate significance criterion in this 
specific instance, the Department concludes that its use of a three 
percent of revenues significance criterion is appropriate. Moreover, as 
noted above, the Department's use of a three percent benchmark as an 
indicator of significant impact may overstate the significance of such 
an impact because the Department expects substantial offsetting of the 
cost increase to many contractors due to workers' increased 
productivity, reduced turnover, and other benefits as discussed in the 
Executive Order 12866 analysis.
    The Chamber/NFIB also commented that the Department should have 
instead analyzed significance based on an examination of the relation 
of contractor profits to revenue and derived a cost-to-revenue impact 
test based on the implicit impact on profits. In response to this 
comment, the Department used revenue to estimate the cost-to-revenue 
impact in its analysis as the SBA Guide for Government Agencies 
explains that the percentage of revenue is one measure for determining 
economic impact. The Department found no reliable data source that 
allows the Department to obtain contractors' profit information to 
measure the impact as a percentage of their profit.
    The data sources used in the analysis of small business impact are 
the Small Business Administration's (SBA) Table of Small Business Size 
Standards, the Current Population Survey (CPS), and the U.S. Census 
Bureau's Statistics of U.S. Businesses (SUSB). Because data limitations 
do not allow us to determine which small firms within each industry are 
Federal contractors, the Department assumed that these small firms are 
not significantly different from the small Federal contractors that 
will be directly affected by the final rule. In the NPRM, the 
Department focused its analysis on nine industries under which most 
Federal contractors covered by the Executive Order are classified: 
Construction (North American Industry Classification System (NAICS) 
code 23); transportation and warehousing (NAICS codes 48, 492, and 
493); data processing, hosting, related services, and other information 
services (NAICS codes 518 and 519); administrative and support and 
waste management and remediation services (NAICS code 56); education 
services (NAICS code 61); health care and social assistance (NAICS code 
62); accommodation and food services (NAICS code 72); other services 
(NAICS code 81); and agriculture, forestry, fishing, and hunting (NAICS 
code 11).
    Two commenters, the AOA and Advocacy, asserted that the nine 
industrial classifications utilized by the Department did not include 
the recreation, outfitting and guiding industry under which some 
contractors covered by the Executive Order may be classified.
    In response to this comment, the Department has revised its small 
business impact analysis to include nineteen industry sectors 
identified by two-digit NAICS level. The use of these nineteen industry 
sectors is consistent with the use of the same nineteen industry 
sectors set forth in Table A of the Department's Executive Order 12866 
analysis in the NPRM and this final rule. The Department could not find 
industry data specific to the recreation, outfitting and guiding 
industry even at the six-digit NAICS level, but believes that 
contractors in this industry would be included within the broader 
industry sectors of agriculture, forestry, fishing, and hunting (NAICS 
code: 11); arts, entertainment, and recreation (NAICS code: 71); 
accommodation and food services (NAICS code: 72); and other services 
(NAICS code: 81). Of these four industry sectors, only the arts, 
entertainment, and recreation industry was not included in the Initial 
Regulatory Flexibility Analysis.
    The Department used the following steps to estimate the cost of the 
final rule per small contractor firm as measured by the percentage of 
total annual receipts. First, the Department utilized Census SUSB data 
that disaggregates industry information by firm size in order to 
perform a robust analysis of the impact on small contractor firms. The 
Department applied the SBA small business size

[[Page 60707]]

standards to the SUSB data to determine the number of small firms in 
each of the nineteen industries set forth in Table A, as well as the 
total number of employees in small firms. Next, the Department 
calculated the average number of employees per small firm by dividing 
the total number of employees in small firms in each of the nineteen 
industries by the number of small firms.
    However, since the Department knows that not all workers in small 
contractor firms earn less than $10.10 per hour, the Department next 
estimated how many employees of small firms earn less than $10.10 per 
hour. (These employees are referred to as ``affected workers'' in the 
text and summary tables below.) The Department used the same CPS data 
that is used in the Executive Order 12866 section of this final rule to 
ascertain the number of workers paid less than $10.10 per hour by 
industry. The data was then coupled with the employment levels for each 
industry to derive the percent of workers within an industry who will 
be affected by the minimum wage increase. The Department assumes that 
the wage distribution of contract workers covered by this final rule is 
the same as that of workers in the rest of the U.S. economy.
    For each industry, to find the number of affected employees in 
small firms by revenue category, the Department multiplied the number 
of employees by the percent of employees earning less than $10.10 per 
hour in each industry derived from the CPS. The Department then 
calculated the average number of affected employees per small firm by 
dividing the total number of affected employees by the number of small 
firms.
    Next, the Department calculated the annual cost of the increased 
minimum wage per small firm by multiplying the average number of 
affected workers per small firm by the average wage difference of $1.31 
per hour ($10.10 minus the average wage of $8.79 per hour as explained 
in the economic analysis set forth in the Executive Order 12866 section 
of this final rule) and by the number of work hours per year (2,080 
hours). Finally, the Department used receipts data from the SUSB to 
calculate the cost per small firm as a percent of total receipts by 
dividing the estimated annual cost per firm by the average annual 
receipts per firm. This methodology was applied to all nineteen 
industries (identified by two-digit NAICS level) and the results by 
industry are presented in the summary tables below (see Tables D-1 to 
D-19).
    With respect to the Department's tables reflecting costs per small 
firm in each industry set forth in the NPRM, the Department received a 
comment from the FS recommending that the Department include additional 
thresholds below $2,500,000 in the table for the Other Services sector, 
under which the FS stated FS concessions contractors would be 
classified. The FS asserted that approximately 90 percent of permits 
for outfitting and guiding services involve annual revenue of less than 
$100,000 and that 9.5 percent of permits involve annual revenue between 
$100,000 and $2,500,000. The FS further estimated that only 0.5 percent 
of outfitting and guiding permits have annual revenue over $2,500,000.
    In response to this comment, the Department added more revenue 
categories below $2,500,000 to account for the distribution of 
contractors in terms of their revenues for most of the nineteen 
industries. The added revenue categories include firms with sales/
receipts/revenue that are: Below $100,000; from $100,000 to $499,999; 
from $500,000 to $999,999; and from $1,000,000 to $2,499,999. However, 
for four industries (mining, utilities, manufacturing, and wholesale 
trade), the size standard is based on the average number of employees, 
not on revenues, and therefore the Department's analysis based the 
distribution of contractors in those industries on their number of 
employees. The FS did not provide verifiable data on the number of 
small businesses by revenue category, their employment, or revenue for 
the Other Services industry sector that would be necessary for the 
Department to be able to analyze any specific impacts on this 
particular industry; Table D-19 below represents the Department's best 
estimate of the costs of the Executive Order minimum wage requirements 
per small firm in the Other Services industry.

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    In general, the increased wage cost resulting from the rule is 
expected to be insignificant relative to the revenue of small firms. 
For seventeen of the nineteen industries, the economic impact of the 
rule is expected to be less than 3 percent of small firms' revenue, 
meaning that the final rule is not expected to have a significant 
impact on

[[Page 60718]]

small businesses in seventeen of the nineteen industries.
    Based on the above data and analysis, the final rule is expected to 
have a significant impact (more than 3 percent of revenue) on the 
smallest businesses in two industries: 1) the management of companies 
and enterprises industry, and 2) the accommodation and food services 
industry. For the management of companies and enterprises industry, the 
economic impact on small firms earning more than $100,000 per year is 
expected to be well below the 3 percent threshold. However, for firms 
with less than $100,000 in revenue, the annual cost per firm is 
expected to be 15.49 percent of revenue. In the accommodation and food 
services industry, the economic impact on small firms earning more than 
$500,000 per year is expected to be below the 3 percent threshold. 
However, for small firms earning less than $100,000 per year, the 
annual cost per firm is expected to be 5.48 percent of revenue, and for 
small firms earning between $100,000 and $499,999, the annual cost per 
firm is expected to be 3.11 percent of revenue.
    The next question to address is whether a substantial number (more 
than 15 percent) of small firms in the management of companies and 
enterprises industry and in the accommodation and food services 
industry will experience a significant economic impact.\37\ As shown in 
Table E, this rule is expected to have a significant impact on 11.89 
percent of small businesses in the management of companies and 
enterprises industry, falling below the 15 percent threshold. As 
discussed earlier in this preamble in response to comments on the 
impact to restaurant franchises on military bases, the economic impact 
on the accommodation and food services industry arising from the 
Executive Order may be addressed through the offsetting effects of 
productivity and contractors' ability to negotiate a lower percentage 
of sales paid as rent or royalty to the Federal Government in new 
contracts. As shown in Table F, in connection with firms with annual 
revenue below $100,000, this rule is expected to have a significant 
impact on 20.94 percent of small businesses in the accommodation and 
food services industry. As shown in Table F in connection with firms 
with annual revenue between $100,000 and $499,999, this rule is 
expected to have a significant impact on 45.52 percent of small 
businesses.
---------------------------------------------------------------------------

    \37\ The RFA does not define the term ``substantial'' or provide 
any specific thresholds for determining a substantial number of 
small entities affected. 5 U.S.C. 601; see SBA Guide for Government 
Agencies at 18. The determination of what constitutes a 
``substantial'' number of small entities may be industry or rule-
specific. The Department has chosen fifteen percent as its criterion 
for determining substantiality for purposes of this final rule 
because that threshold is in accord with the threshold other Federal 
agencies have used in conducting their regulatory flexibility 
analyses.

------------------------------------------------------------------------
            Management of Companies and Enterprises Industry
-------------------------------------------------------------------------
                                                                 Number
                                     Annual                     of firms
                                    cost per            Total      as
                                     firm as  Number   number    percent
                                     percent    of    of small  of small
                                       of      firms  firms in  firms in
                                    receipts          industry  industry
                                       (%)                         (%)
------------------------------------------------------------------------
Firms with sales/receipts/revenue   15.49     1,895   15,942    11.9
 below $100,000...................
------------------------------------------------------------------------


Table F--Percent of Small Firms With Sales/Receipts/Revenue Below $500,000 With a Significant Economic Impact in
                                  the Accommodation and Food Services Industry
----------------------------------------------------------------------------------------------------------------
                                    Accommodation and Food Services Industry
-----------------------------------------------------------------------------------------------------------------
                                                                                                     Number of
                                                    Annual cost                    Total number      firms as
                                                    per firm as      Number of    of small firms    percent of
                                                    percent of         firms        in industry   small firms in
                                                   receipts (%)                                    industry (%)
----------------------------------------------------------------------------------------------------------------
Firms with sales/receipts/revenue below $100,000            5.48          99,592         475,532            20.9
Firms with sales/receipts/revenue of $100,000 to            3.11         216,446         475,532            45.5
 $499,999.......................................
----------------------------------------------------------------------------------------------------------------

    In conclusion, as stated above, the Department defines significant 
economic impact to be having an effect of more than 3% of a firm's 
annual revenue. Our analysis has shown that for seventeen of the 
nineteen industries covered by the Executive Order, this final rule is 
not expected to have a significant impact on small business annual 
revenue.

Estimating the Number of Small Contractor Firms Affected by the Rule

    The Department now sets forth its estimate of the number of small 
contractor firms actually affected by the final rule. Definitive 
information on the exact number of affected small contractor firms is 
not available. The best source to estimate the number of small 
contractor firms that are affected by this final rule is GSA's System 
for Award Management (SAM). The Department notes, however, that Federal 
contractor status cannot be discerned from the SBA firm size data: SAM 
can only be used to estimate the number of small firms, not the number 
of small contractor firms. The Department accordingly used the SBA data 
to estimate the impact of the regulation on a `typical' or `average' 
small firm in each of the nineteen industries (identified by the two-
digit NAICS level). The Department then assumed that a typical small 
firm is similar to a small contractor firm.
    Based on the most current SAM data available, if the Department 
defined ``small'' as fewer than 500 employees, then there are 328,552 
small contractor firms. If the Department defined ``small'' as firms 
with less than $35.5 million in revenues, then there are 315,902 small 
contractor firms. Thus, the Department

[[Page 60719]]

established the range 315,902 to 328,552 as the total number of small 
contractor firms. Of course, not all of these contractor firms will be 
impacted by the final rule; only those contractors that are paying less 
than $10.10 per hour to any of their workers performing on or in 
connection with covered contracts will be affected. Thus, this range is 
likely an overestimate of the number of firms affected by the final 
rule because some of those small contractor firms may pay all of their 
workers more than $10.10 per hour.
    Advocacy commented that the Department's initial regulatory 
flexibility analysis did not estimate the number of subcontractors 
affected by the rule. Advocacy stated that the Department utilized SAM 
data to estimate there are 328,552 small contractor firms that could be 
affected by this rule, but asserted that subcontractors are not 
required to be in SAM, particularly if they are not paid directly by 
the Federal Government.
    The Department used SAM data because it was the best source 
available to estimate the number of affected small contractor firms. 
SAM includes all prime contractors and some subcontractors.\38\ 
Moreover, as discussed above, the number of affected small contractor 
firms included in the initial regulatory flexibility analysis and in 
the analysis set forth in this final rule likely overestimates the 
actual number of small contractors affected by this Executive Order. 
Thus, the likely overestimate of affected small contractor firms should 
offset to some degree any affected subcontractors that may not be 
registered in SAM. The Department notes that this regulation applies 
only to new contracts. As explained in the Executive Order 12866 
economic analysis, based on the 2012 SBA study, the Department assumed 
that roughly 18 percent of small contractors are new contractors each 
year. Assuming that this final rule will impact only 18 percent \39\ of 
the small contractor firms performing Federal contracts in the first 
year, 59,139 small businesses will be subject to the Executive Order in 
2015. When this rule's impact is fully manifested by the end of 2019, 
all covered Federal contracts held by small firms with workers earning 
less than $10.10 per hour will be impacted.
---------------------------------------------------------------------------

    \38\ The agency with which a subcontractor works determines 
whether that subcontractor must register in SAM. SAM itself, 
however, does not indicate if an entity registered in its database 
is a prime contractor or a subcontractor.
    \39\ The Department assumed 18 percent of small contractors are 
new to Federal contracting each year based on the 2012 SBA study 
(Small Business Administration, ``Characteristics of Recent Federal 
Small Business Contracting,'' May, 2012). The 2012 SBA study shows 
that 17.65 percent of small businesses were new to Federal 
contracting each year between FY 2005 and FY 2009, and the 
Department rounded it up to 18 percent in this analysis. This 18 
percent is separate and distinct from the Department's use of 20 
percent as the number of Federal contracts that are initiated each 
year, which is used in the Executive Order 12866 economic analysis.
---------------------------------------------------------------------------

    Relevant Federal Rules Duplicating, Overlapping, or Conflicting 
with the Rule: Section 4(a) of the Executive Order requires the FARC to 
issue regulations to provide for inclusion of the applicable contract 
clause in Federal procurement solicitations and contracts subject to 
the Order; thus, the contract clause and some requirements applicable 
to contracting agencies will appear in both this part and in the FARC 
regulations. The Department is not aware of any relevant Federal rules 
that conflict with this final rule.
    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 13658 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.
    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 13658. 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 rule's recordkeeping 
provisions apply generally to all businesses--large and small--covered 
by the Executive Order; no reasonable 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.
    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.
    Exemption from Coverage of the Rule for Small Entities: Executive 
Order 13658 establishes its own coverage and exemption requirements; 
therefore, the Department has not exempted small businesses from the 
minimum wage requirements of the Order.
    Discussion of Regulatory Alternatives: In the NPRM, the Department 
invited commenters to identify alternatives to the proposed rule that 
would minimize any significant economic impact on small entities while 
still ensuring the rule accomplished the stated objectives of the 
Executive Order. In its comment submitted on the NPRM, Advocacy 
suggested that the Department should include a description of any 
significant regulatory alternatives to this final rule that accomplish 
the Executive Order's stated objectives and minimize any significant 
economic impact of this final rule on small entities. Advocacy further 
stated the Department should consider any alternatives provided in the 
comment period that minimize the impact of the rule on small businesses 
while accomplishing the rule's objectives. As evidenced throughout the 
analysis contained in the preamble to this part, the Department has 
adopted Advocacy's request to consider regulatory alternatives 
suggested by commenters that might minimize any economic impacts of the 
final rule on contractors, including small entities.
    ABC suggested that the Department could exercise authority under 
section 4 of the Executive Order to provide exclusions from the Order's 
requirements as a regulatory alternative. The Department has previously 
responded in the preamble to specific requests for exclusions from the 
Executive Order's requirements. As explained in the preamble section 
above, the Department declined to adopt the specific exclusion proposed 
by ABC whereby DBA- and SCA-covered workers would be excluded from 
coverage under the Executive Order. However, the Department has 
exercised its authority under the Order to provide certain other 
limited exclusions from coverage as set forth in Sec.  10.4 and 
discussed in the preamble for that

[[Page 60720]]

section. For example, in response to comments received, the Department 
has created an exclusion pursuant to which FLSA-covered workers 
performing in connection with covered contracts are excluded from 
coverage of the rule if they spend less than 20 percent of their hours 
worked in a given workweek performing in connection with covered 
contracts.
    With respect to other commenters' suggestions for regulatory 
alternatives that could potentially mitigate any economic impacts of 
the rule on small entities and other contractors, the HR Policy 
Association suggested that the Department consider leaving the minimum 
wage at its current level as an alternative. CSCUSA suggested that the 
Department consider phasing in the minimum wage increase over the next 
three years to moderate the rule's impact on small businesses. 
Executive Order 13658 delegates to the Secretary the authority only to 
issue regulations to ``implement the requirements of this order.'' 
Because the Executive Order itself establishes the basic coverage 
provisions, sets the minimum wage and establishes the timeframe when 
the minimum wage rate becomes effective, the Department is unable to 
adopt this regulatory alternative suggested by the commenters in the 
final rule.
    The Department also considered, for example, AGC's and ABC's 
request that the applicable minimum wage rate under the Executive Order 
should remain frozen for the duration of covered multi-year contracts. 
The Department similarly considered AGC's request for a safe harbor 
from contractor flow-down responsibility where a contractor included 
the contract clause in its subcontracts. While the Department declined 
to adopt these regulatory alternatives for the reasons explained 
earlier in the preamble to this final rule, the Department notes that 
it has made several modifications in this final rule that are 
responsive to the concerns raised by such commenters. For example, the 
Department has included a provision whereby a contractor is entitled to 
an adjustment where necessary to pay any necessary additional costs 
when a contracting agency initially omits and then subsequently 
includes the contract clause in a covered contract. The Department has 
also provided that a contractor is entitled to be compensated, if 
appropriate, for the increase in labor costs resulting from the annual 
inflation increases in the Executive Order minimum wage beginning on 
January 1, 2016.

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 the Federal mandate's anticipated costs and benefits, 
before promulgating a final rule that includes 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. The current threshold after 
adjustment for inflation is $141 million, using the 2012 Implicit Price 
Deflator for the Gross Domestic Product.
    As explained in the economic analysis set forth in the section 
discussing Executive Orders 12866 and 13563 above, the Department 
estimates that the final rule may result in transfers of up to $500 
million per year (beginning in 2019, with steady increases up to that 
level over the intervening years). Because this final rule applies only 
to new contracts, contractors would have the information necessary to 
factor into their bids the labor costs resulting from the required 
minimum wage, and thus it may be likely that the Federal Government 
would bear the burden of the transfers. However, most contracts covered 
by this final rule are paid through appropriated funds, and how 
Congress and agencies respond to rising bids is subject to political 
processes whose unpredictability limits the Department's ability to 
project rule-induced outcomes. The Department therefore acknowledges 
that this final rule may yield effects that make it subject to UMRA 
requirements. The Department carried out the requisite cost-benefit 
analysis in preceding sections of this document.
    The Chamber/NFIB asserted that the Department's analysis in the 
NPRM under the UMRA was inadequate, contending that the Department must 
separately assess the effects of the rule on State, local and tribal 
governments, which the Chamber/NFIB asserts will be substantial. In the 
Department's experience, however, State and local governments are 
parties to a relatively small number of SCA- and DBA-covered contracts. 
The Department also notes that no State or local government submitted a 
comment expressing concern regarding the cost of compliance with the 
Executive Order's requirements; in fact, the one comment the Department 
received from a state agency (Alaska's Department of Health and Human 
Services) supported the Department's NPRM. In addition, the Executive 
Order does not apply to contracts and agreements with and grants to 
Indian Tribes under the Indian Self-Determination and Education 
Assistance Act. 79 FR 9853. For these reasons, the Department does not 
expect that the promulgation of this final rule will result in the 
expenditure by State, local and tribal governments, in the aggregate, 
of $141 million per year.

VII. Executive Order 13132, Federalism

    The Department has (1) reviewed this rule in accordance with 
Executive Order 13132 regarding federalism and (2) determined that it 
does not have federalism implications. The final rule would 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 would not have tribal implications under Executive 
Order 13175 that would require a tribal summary impact statement. The 
final rule would 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.

IX. Effects on Families

    The undersigned hereby certifies that the final rule would not 
adversely affect the well-being of families, as discussed under section 
654 of the Treasury and General Government Appropriations Act, 1999.

X. Executive Order 13045, Protection of Children

    This final rule would have no environmental health risk or safety 
risk that may disproportionately affect children.

XI. Environmental Impact Assessment

    A review of this final rule in accordance with the requirements of 
the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et 
seq.; the regulations of the Council on Environmental Quality, 40 CFR 
1500 et seq.; and the Departmental NEPA procedures, 29 CFR part 11, 
indicates that the rule would not have a significant impact on the 
quality of the human environment. There is, thus, no corresponding 
environmental assessment or an environmental impact statement.

[[Page 60721]]

XII. Executive Order 13211, Energy Supply

    This final rule is not subject to Executive Order 13211. It will 
not have a significant adverse effect on the supply, distribution, or 
use of energy.

XIII. Executive Order 12630, Constitutionally Protected Property Rights

    This final rule is not subject to Executive Order 12630 because it 
does not involve implementation of a policy that has takings 
implications or that could impose limitations on private property use.

XIV. Executive Order 12988, Civil Justice Reform Analysis

    This final rule was drafted and reviewed in accordance with 
Executive Order 12988 and will not unduly burden the Federal court 
system. The final rule was: (1) reviewed to eliminate drafting errors 
and ambiguities; (2) written to minimize litigation; and (3) written to 
provide a clear legal standard for affected conduct and to promote 
burden reduction.

List of Subjects in 29 CFR Part 10

    Administrative practice and procedure, Construction, Government 
contracts, Law enforcement, Minimum wages, Reporting and recordkeeping 
requirements, Wages.

    Signed at Washington, DC this 29th day of September, 2014.
David Weil,
Administrator, Wage and Hour Division.

    For the reasons set out in the preamble, the Department of Labor 
amends title 29 of the Code of Federal Regulations by adding part 10 to 
read as follows:

PART 10--ESTABLISHING A MINIMUM WAGE FOR CONTRACTORS

Subpart A--General
Sec.
10.1 Purpose and scope.
10.2 Definitions.
10.3 Coverage.
10.4 Exclusions.
10.5 Minimum wage for Federal contractors and subcontractors.
10.6 Antiretaliation.
10.7 Waiver of rights.
Subpart B--Federal Government Requirements
10.11 Contracting agency requirements.
10.12 Department of Labor requirements.
Subpart C--Contractor Requirements
10.21 Contract clause.
10.22 Rate of pay.
10.23 Deductions.
10.24 Overtime payments.
10.25 Frequency of pay.
10.26 Records to be kept by contractors.
10.27 Anti-kickback.
10.28 Tipped employees.
10.29 Notice.
Subpart D--Enforcement
10.41 Complaints.
10.42 Wage and Hour Division conciliation.
10.43 Wage and Hour Division investigation.
10.44 Remedies and sanctions.
Subpart E--Administrative Proceedings
10.51 Disputes concerning contractor compliance.
10.52 Debarment proceedings.
10.53 Referral to Chief Administrative Law Judge; amendment of 
pleadings.
10.54 Consent findings and order.
10.55 Proceedings of the Administrative Law Judge.
10.56 Petition for review.
10.57 Administrative Review Board proceedings.
10.58 Administrator ruling.

Appendix A to Part 10--Contract Clause

    Authority: 4 U.S.C. 301; section 4, E.O. 13658, 79 FR 9851; 
Secretary's Order 5--2010, 75 FR 55352.

Subpart A--General


Sec.  10.1  Purpose and scope.

    (a) Purpose. This part contains the Department of Labor's rules 
relating to the administration of Executive Order 13658 (Executive 
Order or the Order), ``Establishing a Minimum Wage for 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. 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. There is evidence that raising the 
pay of low-wage workers can increase their morale and productivity and 
the quality of their work, lower turnover and its accompanying costs, 
and reduce supervisory costs. The Executive Order thus states that cost 
savings and quality improvements in the work performed by parties who 
contract with the Federal Government will lead to improved economy and 
efficiency in Government procurement. Executive Order 13658 therefore 
generally requires that the hourly minimum wage paid by contractors to 
workers performing on or in connection with covered contracts with the 
Federal Government shall be at least:
    (1) $10.10 per hour, beginning January 1, 2015; and
    (2) An amount determined by the Secretary of Labor, beginning 
January 1, 2016, and annually thereafter.
    (b) Policy. Executive Order 13658 sets forth a general position of 
the Federal Government that increasing the hourly minimum wage paid by 
Federal contractors to $10.10 will increase efficiency and cost savings 
for the Federal Government. The Executive Order therefore establishes a 
minimum wage requirement for Federal contractors and subcontractors. 
The Order provides that executive departments and agencies 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 
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), in the performance 
of the contract or any subcontract thereunder, shall be at least:
    (1) $10.10 per hour beginning January 1, 2015; and
    (2) Beginning January 1, 2016, and annually thereafter, an amount 
determined by the Secretary pursuant to the Order. Nothing in Executive 
Order 13658 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 13658 nor this part creates or 
changes any rights under the Contract Disputes Act or any private right 
of action. 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.  10.2  Definitions.

    For purposes of this part:

[[Page 60722]]

    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 that may be 
consistent with the definition provided in the Federal Acquisition 
Regulation (FAR) 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; 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.
    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 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 its implementing regulations.
    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 minimum wage means, for purposes of Executive Order 
13658, a wage that is at least:
    (1) $10.10 per hour beginning January 1, 2015; and
    (2) Beginning January 1, 2016, 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 its implementing 
regulations.
    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, any Territory or possession of the United States, 
or any independent regulatory agency within the meaning of 44 U.S.C. 
3502(5).
    Independent agencies means independent regulatory agencies within 
the meaning of 44 U.S.C. 3502(5).
    New contract means 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. 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 after January 1, 2015:
    (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.
    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 its implementing regulations.

[[Page 60723]]

    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 its implementing regulations.
    Service Contract Act means the McNamara-O'Hara Service Contract Act 
of 1965, as amended, 41 U.S.C. 6701 et seq., and its implementing 
regulations.
    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 he or she 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 and the 
District of Columbia.
    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.


Sec.  10.3  Coverage.

    (a) This part applies to any new contract with the Federal 
Government, unless excluded by Sec.  10.4, 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. 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 that are subject to the Walsh-Healey Public 
Contracts Act, 41 U.S.C. 6501 et seq.


Sec.  10.4  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 and agreements with and grants to Indian Tribes. This 
part does not apply to contracts and agreements with and grants to 
Indian Tribes under the Indian Self-Determination and Education 
Assistance Act, as amended, 25 U.S.C. 450 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.  10.3(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 this exclusion, 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

[[Page 60724]]

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. This 
exclusion 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.


Sec.  10.5  Minimum wage for Federal contractors and subcontractors.

    (a) General. Pursuant to Executive Order 13658, 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) $10.10 per hour beginning January 1, 2015; and
    (2) Beginning January 1, 2016, and annually thereafter, an amount 
determined by the Secretary pursuant to section 2 of Executive Order 
13658. In accordance with section 2 of the Order, the Secretary will 
determine the applicable minimum wage rate to be paid to workers on 
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) $10.10 per hour beginning January 1, 2015; and
    (2) An amount determined by the Secretary, beginning January 1, 
2016, and annually thereafter. The applicable 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 
establishing a minimum wage higher than the minimum wage established 
under the Executive Order and this part.


Sec.  10.6  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 13658 or this part, or has 
testified or is about to testify in any such proceeding.


Sec.  10.7  Waiver of rights.

    Workers cannot waive, nor may contractors induce workers to waive, 
their rights under Executive Order 13658 or this part.

Subpart B--Federal Government Requirements


Sec.  10.11  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.  10.3, 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 13658 and Sec.  
10.5. For procurement contracts subject to the FAR, contracting 
agencies must use the clause set forth in the FAR developed to 
implement this rule. Such 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.
    (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 13658 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 13658, 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 13658 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 Branch 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 
Branch of Government Contracts Enforcement, Wage and Hour Division, 
U.S.

[[Page 60725]]

Department of Labor, Washington, DC 20210 any:
    (A) Complaint of contractor noncompliance with Executive Order 
13658 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.  10.12  Department of Labor requirements.

    (a) In general. The Executive Order minimum wage applicable from 
January 1, 2015 through December 31, 2015 is $10.10 per hour. The 
Secretary will 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, 2016.
    (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, 2016, by using the 
methodology set forth in Sec.  10.5(b).
    (c) Notice. (1) 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) Wage Determinations OnLine Web site. The Administrator will 
publish and maintain on Wage Determinations OnLine (WDOL), https://www.wdol.gov, 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.  10.11(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.  10.21  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.  10.11(a).
    (b) The contractor and any subcontractors shall include in any 
covered subcontracts the Executive Order minimum wage contract clause 
referred to in Sec.  10.11(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.  10.22  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.  
10.4 of this part. In determining whether a worker is performing within 
the scope of a covered contract, all workers who, on or after the date 
of award, 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 
these regulations 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 13658.
    (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.  10.28.


Sec.  10.23  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) and part 531 of 
this title.


Sec.  10.24  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

[[Page 60726]]

includes both the cash wages paid by the employer (see Sec. Sec.  
10.22(a) and 10.28(a)(1)) and the amount of any tip credit taken (see 
Sec.  10.28(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.  10.25  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 13658 may not be 
of any duration longer than semi-monthly.


Sec.  10.26  Records to be kept by contractors.

    (a) The contractor and each subcontractor performing work subject 
to Executive Order 13658 shall make and maintain, for three years, 
records 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) 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) 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.


Sec.  10.27  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.  10.23), 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.  10.28  Tipped employees.

    (a) Payment of wages to tipped employees. With respect to workers 
who are tipped employees as defined in Sec.  10.2 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) $4.90 an hour beginning on January 1, 2015;
    (ii) For each succeeding 1-year period until the hourly cash wage 
equals 70 percent of the wage in effect under section 2 of the 
Executive Order, the hourly cash wage applicable in the prior year, 
increased by the lesser of $0.95 or the amount necessary for the hourly 
cash wage to equal 70 percent of the wage in effect under section 2 of 
the Executive Order;
    (iii) For each subsequent year, 70 percent of the wage in effect 
under section 2 of the Executive Order for such year rounded to the 
nearest multiple of $0.05; 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 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) Tipped employees. (1) As provided in Sec.  10.2, a covered 
worker employed in an occupation in which he or she receives tips is a 
``tipped employee'' when he or she customarily and regularly receives 
more than $30 a month in tips. Only tips actually retained by the 
employee after any tip pooling may be counted in determining whether 
the person is a ``tipped employee'' and in applying the provisions of 
section 3 of the Executive Order. An employee may be a ``tipped 
employee'' regardless of whether the employee is employed full time or 
part time so long as the employee customarily and regularly receives 
more than $30 a month in tips. An employee who does not receive more 
than $30 a month in tips customarily and regularly is not a tipped 
employee for purposes of the Executive Order and must receive the full 
minimum wage in section 2 of the Executive Order without any credit for 
tips received under the provisions of section 3.
    (2) Dual jobs. In some situations an employee is employed in a 
tipped occupation and a non-tipped occupation (dual jobs), as for 
example, where a maintenance person in a hotel also works as a server. 
In such a situation if the employee customarily and regularly receives 
at least $30 a month in tips for the work as a server, the employee is 
a tipped employee only when working as a server. The tip credit can 
only be taken for the hours spent in the tipped occupation and no tip 
credit can be taken for the hours of employment in the non-tipped 
occupation. Such a situation is distinguishable from that of a tipped 
employee performing incidental duties that are related to the tipped 
occupation but that are not directed toward producing tips, for example 
when a server spends part of his or her time cleaning and setting 
tables, toasting bread, making coffee and occasionally washing dishes 
or glasses. Related duties may not comprise more than 20 percent of the 
hours worked in the tipped occupation in a workweek.
    (c) Characteristics of tips. A tip is a sum presented by a customer 
as a gift or gratuity in recognition of some service performed for the 
customer. It is to be distinguished from payment of a fixed charge, if 
any, made for the service. Whether a tip is to be given, and its 
amount, are matters determined solely by the customer. Tips are the 
property of the employee whether or not the employer has taken a tip 
credit. The employer is prohibited from using an employee's tips, 
whether or not it has taken a tip credit, for any reason other than as 
a credit against its minimum wage obligations under the Executive

[[Page 60727]]

Order to the employee, or in furtherance of a valid tip pool. An 
employer and employee cannot agree to waive the workers right to retain 
his or her tips. Customers may present cash tips directly to the 
employee or may designate a tip amount to be added to their bill when 
paying with a credit card or by other electronic means. Special gifts 
in forms other than money or its equivalent such as theater tickets, 
passes, or merchandise, are not counted as tips received by the 
employee for purposes of determining wages paid under the Executive 
Order.
    (d) Service charges. (1) A compulsory charge for service, such as 
15 percent of the amount of the bill, imposed on a customer by an 
employer's establishment, is not a tip and, even if distributed by the 
employer to its workers, cannot be counted as a tip for purposes of 
determining if the worker is a tipped employee. Similarly, where 
negotiations between a hotel and a customer for banquet facilities 
include amounts for distribution to workers of the hotel, the amounts 
so distributed are not tips.
    (2) As stated above, service charges and other similar sums are 
considered to be part of the employer's gross receipts and are not tips 
for the purposes of the Executive Order. Where such sums are 
distributed by the employer to its workers, however, they may be used 
in their entirety to satisfy the wage payment requirements of the 
Executive Order.
    (e) Tip pooling. Where tipped employees share tips through a tip 
pool, only the amounts retained by the tipped employees after any 
redistribution through a tip pool are considered tips in applying the 
provisions of FLSA section 3(t) and the wage payment provisions of 
section 3 of the Executive Order. There is no maximum contribution 
percentage on valid mandatory tip pools, which can only include tipped 
employees. However, an employer must notify its employees of any 
required tip pool contribution amount, may only take a tip credit for 
the amount of tips each employee ultimately receives, and may not 
retain any of the employees' tips for any other purpose.
    (f) Notice. An employer is not eligible to take the tip credit 
unless it has informed its tipped employees in advance of the 
employer's use of the tip credit. The employer must inform the tipped 
employee 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 additional amount by which the 
wages of the tipped employee will be considered increased on account of 
the tip credit claimed by the employer, which amount may not exceed the 
value of the tips actually received by the employee; that all tips 
received by the tipped employee must be retained by the employee except 
for a valid tip pooling arrangement limited to tipped employees; and 
that the tip credit shall not apply to any worker who has not been 
informed of these requirements in this section.


Sec.  10.29  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 this requirement 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 Web site 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.  10.41  Complaints.

    (a) 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. 
If the complainant is unable to file the complaint in English, the Wage 
and Hour Division will accept the complaint in any language.
    (b) 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.  10.42  Wage and Hour Division conciliation.

    After receipt of a complaint, the Administrator may seek to resolve 
the matter through conciliation.


Sec.  10.43  Wage and Hour Division investigation.

    The Administrator may investigate possible violations of the 
Executive Order or this part either as the result of 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.  10.44  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.  10.51. The Administrator may additionally direct that 
payments due on the contract or any other contract between the 
contractor and the Government be

[[Page 60728]]

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 retaliated 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.  10.11(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.  10.51  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.  10.52, 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 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.  10.52  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 13658 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

[[Page 60729]]

ineligible for a period of up to three years to receive any contracts 
or subcontracts subject to Executive Order 13658 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 13658 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 13658 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.  10.53  Referral to Chief Administrative Law Judge; amendment of 
pleadings.

    (a) Upon receipt of a timely request for a hearing under Sec.  
10.51 (where the Administrator has determined that relevant facts are 
in dispute) or Sec.  10.52 (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.  
10.51, such an amendment may include a statement that debarment action 
is warranted under Sec.  10.52. 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.  10.54  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.  10.55  Proceedings of the Administrative Law Judge.

    (a) The Office of Administrative Law Judges has jurisdiction to 
hear and decide appeals concerning questions of law and fact from the 
Administrator's investigative findings letters issued under Sec. Sec.  
10.51 and 10.52. 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 
13658 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

[[Page 60730]]

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.  10.56  Petition for review.

    (a) 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.  10.57  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.  10.51(c)(1) or (2), Administrator's 
rulings issued under Sec.  10.58, and decisions of Administrative Law 
Judges issued under Sec.  10.55. In considering the matters within the 
scope of its jurisdiction, the Administrative Review Board shall act as 
the authorized representative of the Secretary and shall act fully and 
finally on behalf of the Secretary concerning such matters.
    (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.
    (d) Finality. The decision of the Administrative Review Board shall 
become the final order of the Secretary.


Sec.  10.58  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 29 CFR Part 10--Contract Clause

    The following clause shall be included by the contracting agency in 
every contract, contract-like instrument, and solicitation to which 
Executive Order 13658 applies, except for procurement contracts subject 
to the Federal Acquisition Regulation (FAR):
    (a) Executive Order 13658. This contract is subject to Executive 
Order 13658, the regulations issued by the Secretary of Labor in 29 CFR 
part 10 pursuant to the Executive Order, and the following provisions.
    (b) Minimum Wages. (1) Each worker (as defined in 29 CFR 10.2) 
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 13658.
    (2) The minimum wage required to be paid to each worker performing 
work on or in connection with this contract between January 1, 2015 and 
December 31, 2015 shall be $10.10 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 13658 
results in a higher minimum wage. Adjustments to the Executive Order 
minimum wage under section 2(a)(ii) of Executive Order 13658 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 
13658 minimum wage beginning on January 1, 2016. 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

[[Page 60731]]

wage on www.wdol.gov (or any successor Web site). 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 10.23), 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 on 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 14(c) 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 
13658.
    (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 13658 or 29 CFR part 10, or a failure to 
comply with any other term or condition of Executive Order 13658 or 29 
CFR part 10, 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 10.52.
    (e) The contractor may not discharge any part of its minimum wage 
obligation under Executive Order 13658 by furnishing fringe benefits 
or, with respect to workers whose wages are governed by the Service 
Contract Act, the cash equivalent thereof.
    (f) 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 $10.10 (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 10 
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) The contractor (as defined in 29 CFR 10.2) 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. 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 13658. 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 13658. To utilize this proviso:

[[Page 60732]]

    (1) The employer must inform the tipped employee in advance of the 
use of the tip credit;
    (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 13658 
or 29 CFR part 10, 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 13658 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 10. 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 Web site that is 
maintained by the contractor, whether external or internal, and 
customarily used for notices to workers about terms and conditions of 
employment.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix--Establishing a Minimum Wage for Contractors

[[Page 60733]]

[GRAPHIC] [TIFF OMITTED] TR07OC14.022

[FR Doc. 2014-23533 Filed 10-1-14; 11:15 am]
BILLING CODE 4510-27-C