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NeoSystems Corporation


A Peek into 2015 for GovCon Firms

December 31, 2014 | BY: NeoSystems
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Where to start…

Last year the big buzz was the Affordable Care Act. The web site debacle notwithstanding, the ACA doesn’t seem to have caused any widespread harm and may have actually done some good for people that could really use a break.

Hey! That’s not a given for a new government program.  When it happens, it’s worth a mention.

Outside the HR departments, most GovCon firms hardly noticed the ACA.

This year’s not quite so obvious.  Immigration is a candidate, but to be completely honest, I just don’t see how that’s going to have a big impact in the GovCon world. Whether the issue is reform, executive orders, border security or something else – pick your favorite controversy – it just doesn’t seem like it will affect us much unless DHS decides to fund another virtual fence project.

Now labor costs could be a different story.

A Minimum Wage Change

President Obama signed an Executive Order on February 12, 2014, mandating a minimum wage of $10.10 per hour on all federal contracts effective January 1, 2015 – that would be tomorrow, folks. (See the full text of the Executive Order here.)

The order is to be implemented via a clause to be inserted in all new contracts and solicitations.  Some contracts may already have the clause, but all contracts awarded after today certainly will. Of course, most wages paid on federal contracts already exceed the new minimum, so this is not really anticipated to have a big effect in the GovCon world.

A Fair Labor Standards Act (FLASA) Rule Change

A proposed change to the FLSA salary test could be a very different matter.

Last March, President Obama directed the Secretary of Labor to increase the salary test for exemption from the Fair Labor Standards Act (FLSA). (See the White House release of the memo here.) The President is responsible for revisions to the rules that implement the FLSA, but, of course, the actual rules are promulgated by the DOL. Such rule changes typically take six to twelve months to implement, so we could see this change any time now.

The FLSA requires payment of overtime at “time and a half” for all hours worked in excess of 40 in a week. Workers may be exempt from the overtime requirement if they are (1) paid on a salary basis, (2) perform duties that fall into several categories such as professional, administrative or executive, and (3) are paid a minimum of $455.00 per week. And, that’s where the directed rule change will happen.

Various articles published about this change have speculated that President Obama might raise the so-called “salary test” amount (last raised to $455.00 by President Bush in 2004) to $984.00 per week, or a little more than $51,000 per year.

This could come as a rude shock for some companies that have mandated a 45 or 50 hour week to lower their effective hourly labor rates – especially on T&M contracts. Instead of being “free,” those extra 5 or 10 hours could cost them time-and-a-half. Of course, firms in that position could just hire more people and cut the work week back to 40 hours. The cost per hour would still go up – just not as much.

Federal contractors performing contracts subject to the Service Contract Act (SCA) could face yet another issue. For them, many contract employees are exempt from the SCA because of their exemption under the FLSA. Any employees working on an SCA-covered contract that lose their FLSA exemption as a result of the change would immediately become SCA covered.

And, that’s a whole new topic. Watch for more on that when the FLSA change is actually issued.

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