Boletin Legislativo

Boletín
Legislativo
September, 2014
The information provided in this report
is informational in nature and PRMA
members should review the full text of
the legislation for a comprehensive
assessment of its impact. Although we
have attempted to summarize the key
provisions and amendments of bills
included, only the final and full text
can describe every piece of
legislation in full.
Special Bulletin: Minimum Wage for Federal Contractors
The U.S. Department of Labor issued a Notice of Proposed Rulemaking to implement the new
minimum wage for certain federal contractors based on the Executive Order (EO) that President
Obama signed on February 12. The Notice, published June 17, sets forth the agency's proposed
regulations to clarify and provide guidance to contractors as to their obligations under the new
Executive Order. The final Regulations are expected shortly.
The new minimum wage
The Executive Order provides for an increase in the minimum wage paid to employees under specific
To express your opinion on these
measures please contact us or the
Office of Legislative Affairs at
Fortaleza (787) 724-0919, the
House of Representatives (787)
721-6040 or the Senate (787)
724-2030.
contracts for solicitations and contracts issued on or after January 1, 2015. The new minimum wage
for 2015 will be $10.10 per hour. Beginning January 1, 2016, this amount will increase based on
the Consumer Price Index for Urban Wage Earners and Clerical Workers. The proposed regulation
would require the Department of Labor to publish the new minimum wage in the Federal Register and
on the Wage Determinations OnLine website on an annual basis at least 90 days before the new
minimum wage is to take effect.
Contracts that are covered
The Proposed Rules set forth four categories of covered contracts:
• A procurement contract for construction covered by the Davis-Bacon Act;
• A contract for services covered by the Service Contract Act;
• 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
• A contract entered into with the Federal Government in connection with Federal property or
Puerto Rico Manufacturers Association
PO Box195477
San Juan, PR 00919-5477
lands and related to offering services for Federal employees, their dependents, or the general
public.
In addition, the wages paid must be covered by the Fair Labor Standards Act (FLSA), the Service
Contract Act (SCA), and the Davis-Bacon Act (DBA). We should remember that in Puerto Rico the
Puerto Rico Manufacturers Association
Centro Internacional de Mercadeo
St. 165, Torre II, Suite 702
Guaynabo, PR 00968
Tel. (787) 641-4455
Fax (787) 641-2535
FLSA is the applicable law for employees and employers whose volume of business exceeds
$500,000, whether it be engaged in manufacturing, service or commerce. The FLSA is applicable
in Puerto Rico since 1998 when it was so determine by the PR Legislature, Law 180-1998.
The Executive Order specified the new minimum wage would apply to prime service contracts
covered by the Service Contract Act in excess of $2,500, to construction contracts covered by the
Davis Bacon Law in excess of $2,000 or procurement contracts
words, the minimum wage coverage would extend beyond
that exceed the micro-purchase threshold of $3,000 from
employees already covered by the prevailing wage statute. For
companies governed by the FLSA. The new regulation proposes
example, on a Davis Bacon contract, all employees covered by the
that there be no value threshold for subcontracts. Additionally, the
FLSA who support the Davis Bacon contract work would be entitled
minimum wage requirement applies only to contracts where the
to the new minimum wage, not just the laborers and mechanics
contract is performed, in whole or in part, within the United States.
who work directly on site. The proposed regulations define those
performing within the scope of a covered contract as all workers
The proposed regulations would specifically exclude certain
who "are engaged in working on or in connection with the
agreements from coverage; these items include grants, contracts
contract, either in performing the specific services called for by its
and agreements with and grants to Indian Tribes, procurement
terms or in performing other duties necessary to the performance of
contracts for construction that are excluded from coverage of Davis
the contract." Take notice that this language is much broader that
Bacon, contracts for services that are exempted from coverage
the Executive Order.
under the Service Contract Act, and employees who are exempt
Covered Wages
from the minimum wage requirements of the FLSA (such as
apprentices, and students and white-collar exempt employees). All
contracts that meet the threshold requirements and are not
Even if a contractor is covered by the new minimum wage
specifically excluded must comply with the law.
requirements, it does not mean that all wages a covered contractor
pays to employees are subject to the Executive Order. A covered
Excluded Contracts and Employees
contractor is only required to pay the applicable Executive Order
minimum wage for the time spent performing services on, or in
The Proposed Regulations exclude certain types of contracts and
connection with, a covered contract. In determining whether a
workers. Excluded contracts are:
worker is performing within the scope of a covered contract, a
• “Grants” within the meaning of the Federal Grant and
Cooperative Agreement Act
• Contracts and grants to Indian Tribes under the Indian
Self-Determination and Education Assistance Act
• Procurement contracts for construction, that are excluded
from the Davis-Bacon Act’s coverage
• Contracts for services that are exempted from coverage
under the Service Contract Act
contractor must determine if the employee is performing the specific
services called for by its terms, or is otherwise performing duties
necessary to the performance of the contract. If the services are not
specifically called for or otherwise necessary to the contract, the
wages are not subject to the Executive Order, even if the contractor
is covered and the employee performs services that might be
tangentially related to a covered contract. Employers will have to
keep records that allow federal agencies to determine which
In addition, except for workers who are otherwise covered by the
wages are covered and which wages are excludable from the
DBA or the SCA, the proposed regulations also exclude employees
Executive Order.
who are not entitled to the minimum wage under the FLSA,
including:
Tipped employees
• Learners, apprentices, or messengers
• Students
As we previously reported, the EO provides that tipped employees
• Individuals employed in a bona fide executive,
must be paid an hourly cash wage of at least $4.90 an hour
administrative, or professional capacity
• Outside salespersons
beginning January 1, 2015. The proposed regulation does not
change this provision. This hourly cash rate will increase each year
by 95 cents until the hourly rate paid equals 70 percent of the
Employees entitled to minimum wage
minimum hourly wage paid to other employees under the EO for
the previous year. In addition, the tipped employee must receive
The proposed regulations clearly specify that it is mandatory for all
tips which, when added to the hourly rate, bring the tipped
employees of the contractor who provide support work for the
employee to the minimum hourly wage under the EO. If the tipped
covered contract would be subject to the minimum wage. In other
employee does not receive enough in tips to bring his total hourly
rate up to the minimum, the contractor must make up the difference.
allowed to withhold the money owed the contractor under the
Further, when a tipped employee works overtime, the proposed
contract. The proposed regulations further provide that "whenever"
regulations would require that the tipped employee's "regular rate
a contractor is found by the Secretary of Labor to have violated the
of pay" for purposes of calculating overtime should include both the
EO or its regulations, the contractor and its responsible officers
cash wages paid by the employer and the amount of any tip credit
would be ineligible to be awarded any contract or subcontract
taken. Any tips received by the employee in excess of the tip credit
subject to the EO for a period of up to three years. Additionally, if
are not included in the regular rate of pay. The regulations provide
the contractor does not make the payments and the money withheld
specific definitions of "tipped employee" that track those under the
by the government does not cover the wages owed, the Secretary
FLSA.
of Labor may bring a civil action in court to recover the remaining
unpaid wage. The proposed regulations do not provide for a
Contract clause and consequences for absence
private right of action by employees. The regulations propose a
specific procedure for contractors to use when disputing a finding
The EO provides that the contracting agency must include a
under the EO.
specific contract clause on minimum wage in all covered contracts.
Contractor requirements
The proposed regulations set forth the consequences in the event
the contracting agency fails to do so. If the contracting agency
mistakenly fails to include the language, it would have 15 days
Under the proposed regulations, covered contractors must include
after notice of this failure to fix the mistake and retroactively include
the minimum wage contract clause in every subcontract and
the clause in the covered contract. If the contractor fails to comply
require that subcontractors include the clause in any lower-tiered
with the requirements of the EO and regulations, then the
subcontract as a condition of payment. The proposed regulations
contracting agency can withhold the accrued payments or
also state "the prime contractor and any upper-tiered contractor
advances as may be necessary to pay workers the full amount of
shall be responsible for the compliance by any subcontractor or
wages required under the EO.
lower-tier subcontractor with the Executive Order minimum wage
requirements, whether or not the contract clause was included in
Enforcement
the subcontract." It is not clear how contractors are expected to
ensure compliance by its subcontractors or whether this provision is
The proposed regulations contain an anti-retaliation provision that
designed to hold contractors liable for their subcontractors'
equivalent to that included in FLSA. The proposed regulations
noncompliance.
would make it unlawful "for any person to discharge or in any other
manner discriminate against any workers because such worker has
Recommendation
filed any complaint or instituted or caused to be instituted any
proceeding" or has testified in a proceedings to enforce this law. A
Those companies that are Federal contractors covered by the
protected complaint can be made orally, or in writing. The
Service Contract Act and Davis Bacon need to pay close attention
proposed regulations provide for reinstatement, promotion,
to the regulations to be issued shortly, especially because coverage
payment of lost wages, and any other appropriate relief. As with
under the proposals would extend to many employees not currently
the FLSA, the proposed regulations provide that workers cannot
covered by these laws, since the new wages are to become
waive their rights under the EO.
effective January 1, 2015.
If the government determines that a contractor has failed to make
minimum wage payments as required by the EO, the proposed
regulations would allow it to order the contractor to make the
required payment to its employees. The government would also be