Impact of Executive Order 13658 Establishing a Minimum Wage for Contractors on VA-Contracted Nursing Homes

Executive Order (EO) 13658 “Establishing a Minimum Wage for Contractors” was signed by President Obama on February 12, 2014 to raise the minimum wage to $10.10 for all federally contracted workers. The intent of this EO was “to promote economy and efficiency in procurement by contracting with sources who adequately compensate their workers.” However, there may be unintended consequences to this federally mandated minimum wage increase in the form of a decrease in VA-contracted nursing homes.

The implementing regulations were drafted by the Department of Labor, followed by a public comment period that attracted more than 6,500 comments. The final rule became effective on December 8. It raises the hourly minimum wage paid by federal contractors and subcontractors to workers performing work on covered federal contracts to $10.10 per hour. It applies to contracts beginning January 1, 2015 and also includes potential future increases by an amount to be determined annually by the Secretary of Labor. In 2016, it was increased to $10.15.

Contracts entered into on or before the effective date of January 1, 2015 will not have to comply with the 2015 federal minimum-wage increase until they expire. Prior to 2015, the McNamara-O'Hara Service Contract Act (SCA) determined what federal contractors would pay service employees based on the size of the contract. For contracts equal to or less than $2,500, contractors were required to pay no less than the federal minimum wage of $7.25 in effect as of July 24, 2009. Contracts in excess of $2,500 required contractors to pay their employees rates competitive with the local market unless previously negotiated in a prior contractor's collective bargaining agreement.

Although EO 13658 is projected to benefit around 200,000 minimum-wage workers (Department of Labor Fact Sheet: Final Rule to Implement Executive Order 13658, Establishing A Minimum Wage For Contractors), it may incidentally impact veterans’ long-term care, and not for the better. Contracting agencies – like the Veterans Administration – are not only responsible for ensuring that the clause implementing the Executive Order minimum wage requirement is included in any new contracts or solicitations for contracts, but they must also withhold funds when a contractor or subcontractor fails to comply with that clause. For this reason, there are nursing homes that are choosing not to renew or pursue VA contracts due to the financial impact of the requirement to increase the salary of any minimum wage employees.

Unlike VA Community Living Centers that are owned and run by the VA and state veteran’s nursing homes that are owned and run by the state, contract nursing homes are privately owned but have contracts with the VA to provide long-term care paid or subsidized by the VA. What does EO 13658 mean to such nursing homes? This year it means that, if they want to contract with the VA, they will have to pay their employees at least $10.15/hour – an increase of 40% over the older federal minimum wage of $7.25. Some nursing homes are small and will simply not be able to afford this mandate, and those nursing homes that can afford it may decide the VA contract is not worth the cut into their profit margins.

A further nail in the coffin lid of VA-contracted nursing homes may be the proposed EO 13706 Establishing Paid Sick Leave for Federal Contractors signed by President Obama on September 7, 2015. The comment period, which was extended through April 12, 2016, is now over, and we are awaiting publication of a final rule that promises to require federal contractors to also provide paid sick leave to their employees.

By Sabrina A. Scott, Paralegal, The Elder & Disability Law Firm of Victoria L. Collier, PC and Director of VA Services for Lawyers with Purpose.

Victoria L. Collier, Veteran of the United States Air Force, 1989-1995 and United States Army Reserves, 2001-2004. Victoria is a Certified Elder Law Attorney through the National Elder Law Foundation; Author of “47 Secret Veterans Benefits for Seniors”; Author of “Paying for Long Term Care: Financial Help for Wartime Veterans: The VA Aid & Attendance Benefit”; Founder of The Elder & Disability Law Firm of Victoria L. Collier, PC; Co-Founder of Lawyers with Purpose; and Co-Founder of Veterans Advocate Group of America.