Minimum Wage

On March 25, 2014, President Obama issued executive orders raising the minimum wage to $10.10/hour for contractor employees on government contracts.  The logic, the hardworking cooks serving hamburgers to our troops should not be living in poverty (most likely a reference to the fast food chains which are located on military installations).  Simultaneously, he also directed the Department of Labor to change the federal rules to make more “salary exempt” employees eligible for overtime pay.   The current threshold of $455/week will likely be increased to a significantly higher amount noting that the last change (April 2004) increased the amount from $155/week to $455/week.  The higher amount could be as much as $950/week in which case someone earning $949/week would be eligible for overtime pay (including overtime premium) for hours exceeding 40 hours per week.   In one press release, the Department of Labor used one example of the severe inequity of the existing threshold $455/week), noting that two “hardworking” gas station managers in New Jersey were effectively making less than minimum wage.

We’ve done some additional research on these executive orders and can now report the following highly relevant supplemental information:

  1. No one has been able to locate the two hardworking gas station managers in New Jersey.  Most believe this is purely a hypothetical example because most gas station managers are not classifiable as hard working unless selling lottery tickets, candy, and cigarettes constitutes hard working.   However, there has been a large increase in vacancies for gas station managers who have sought employment as fry cooks making $10.10/hour working at fast food establishments on military installations.
  2. Increasing wages and/or increasing overtime payments for salaried employees is actually based upon a secret study (a collaboration of Health and Human Services with the Labor department) which determined that if the federal government could require higher wages and salaries, there would be an offsetting reduction in the cost of federal subsidies under the Affordable Care Act (ACA or Obamacare).  Noting that ACA federal subsidies are determined based upon the income of the insured (household) measured against the federal poverty level, the secret study has determined the wage or salary increases necessary to largely offset the federal healthcare subsidies.  Hence, end game is for the current administration to claim that the cost of Obamacare is significantly less than original estimates.
  3. Recently, government contractor executive salaries were capped at $487,000 (allowable cost on government contracts after June 26, 2014).  This cap is 51 percent of the previous cap ($952,000) and there is also a secret study by the current administration wherein the plan is to continuously decreasing the executive cap until it aligns with the then current salary exempt overtime threshold.  This is projected to occur as early as 2050 at which point every one working on a government contract will be paid exactly the same amount.

This blog was prepared on April 1, 2014; the date has particular significance in terms of the accuracy of the information.

Written by Michael Steen

Michael Steen Mike Steen is a Emeritus Advisor with Redstone Government Consulting, Inc. and a specialist in complex compliance issues to include major contractor cost accounting & business system regulations, financial compliance, resolution of DCAA audit issues, Cost Accounting Standards application, litigation support, and claims preparation. Prior to joining Redstone Government Consulting, Mike served in a number of capacities with DCAA for over thirty years, and upon his retirement, he was one of the top seven senior executives with DCAA. Mike Served as a Regional Director for two DCAA regions, and during that time was responsible for audits of approximately $25B and 800 employees. In October 2001, he was selected for the Senior Executive Service and in 2006 he received the Presidential Rank Award. During Mike’s tenure with DCAA, he was involved in conducting or managing a variety of compliance audits, to include cost proposals, billing systems, Cost Accounting Standards, claims, defective pricing, and then-evolving programs such as restructuring, financial capability and agreed-upon procedures. He directly supported the government litigation team on significant contract disputes and has prepared and presented various lectures and seminars to DCAA staff and business community leaders. Since joining Redstone Government Consulting in June 2007, Mike has developed and presented training and seminars on Government Contracts Compliance to NCMA, Federal Publications Seminars and various clients. Mike also is a prolific contributor of written articles to government contracting publications, as well as to our own Government Insights Newsletter. Mike also serves as the director of our training service offerings, with responsibilities for preparing and developing course content as well as instructing our seminars to clients and general audiences throughout the U.S. Mike also serves as a faculty instructor for the Federal Publications Seminars organization. Education Mike has a BS Degree in Business Administration from Wichita State University. He is also a graduate of the DCAA Director’s Fellowship Program in Management, and has a Masters Degree in Administration from Central Michigan University. Mr. Steen also completed a number of OPM’s management and executive development courses.

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Employee & Contractor Compensation, Contracts & Subcontracts Administration, Human Resources