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Federal Register / Vol. 86, No. 138 / Thursday, July 22, 2021 / Proposed Rules because, as discussed more fully above in the preamble and as reflected in the RIA, the Department has further examined the issue since its prior rulemaking in 2014 and consequently determined that the Federal Governments procurement interests in economy and efficiency would be promoted by extending the Executive Order 14026 minimum wage to workers performing on or in connection with covered contracts in Puerto Rico, the Virgin Islands, Outer Continental Shelf lands as defined in the Outer Continental Shelf Lands Act, American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Wake Island, and Johnston Island.
The Department also rejected this alternative of excluding the territories from coverage of Executive Order 14026
because each of the territories listed above is covered by both the SCA, see 29 CFR 4.112a, and the FLSA, see, e.g., 29 U.S.C. 213f; 29 CFR 776.7; Fair Minimum Wage Act of 2007, Public Law 11028, 121 Stat. 112 2007. Because contractors operating in those territories will generally have familiarity with many of the requirements set forth in part 23 based on their coverage under the SCA and/or the FLSA, the Department does not believe that the proposed extension of Executive Order 14026 and part 23 to such contractors will impose a significant burden.
Second, pursuant to the Departments authority to adopt, as appropriate, exclusions from the requirements of the order, 86 FR 22836, the Department is proposing to include in this NPRM, as it did in the regulations implementing Executive Order 13658, an exclusion from coverage for FLSA-covered workers who spend less than 20 percent of their work hours in a workweek performing in connection with covered contracts. This proposed exclusion does not apply to any worker performing on a covered contract whose wages are governed by the FLSA, SCA, or DBA. The proposed exclusion, which appears in 23.40f, is explained in greater detail in the discussion of the Exclusions section of this NPRM. The Department considered alternatives related to this proposed exclusion.
As the first alternative related to this exclusion, the Department considered eliminating the exclusion for FLSAcovered workers performing in connection with covered contracts for less than 20 percent of their workhours in a given workweek. The Department considered the elimination of this exclusion as an alternative, in part because Executive Order 14026
expressly states that its minimum wage protections apply to workers working
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on or in connection with covered contracts. 86 FR 22835.
As the second alternative pertaining to this exclusion, the Department considered raising the 20 percent threshold for this exclusion for FLSAcovered workers performing in connection with covered contracts. The Department assessed raising the threshold but does not have the discretion to entirely exclude these workers because the Executive order itself directs that they be generally covered.
The Department lacks data on how much time FLSA-covered workers spend in connection with covered contracts and is therefore unable to identify how many FLSA-covered workers perform services in connection with covered contracts for less than 20
percent of their work hours in a workweek. As a result, the Department provides a qualitative discussion of the alternatives.
If the Department were to omit this exclusion, more workers would be covered by the rule, and contractors would be required to pay more workers the applicable minimum wage rate initially $15 per hour for time spent performing in connection with covered contracts. This would result in greater income transfers to workers. Conversely, if the Department were to raise the 20
percent threshold, fewer workers would be covered by the rule, resulting in a smaller income transfer to workers.
The Department rejected these regulatory alternatives because having an exclusion for FLSA-covered workers performing in connection with covered contracts based on a 20 percent of hours worked in a week standard is a reasonable interpretation. The proposed exclusion ensures the broad coverage of workers performing on or in connection with covered contracts directed by Executive Order 14026 while also acknowledging the administrative challenges imposed by such broad coverage as expressed by contractors during the Executive Order 13658
rulemaking. The Department believes that the exclusion, as proposed, will assist both contractors and workers in adjusting to the requirements of Executive Order 14026 and reduce costs while ensuring broad application of the Executive order minimum wage.
V. Initial Regulatory Flexibility Analysis IRFA
The Regulatory Flexibility Act of 1980
RFA, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 SBREFA, hereafter jointly referred to as the RFA, requires agencies to prepare regulatory
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flexibility analyses when they propose regulations that will have a significant economic impact on a substantial number of small entities. See 5 U.S.C.
603. This rule is expected to have a significant economic impact, and thus the Department has prepared an RFA.
The RFA defines a small entity as a 1 small not-for-profit organization, 2 small governmental jurisdiction, or 3 small business. SBA establishes separate standards for each 6-digit NAICS industry code, and standard cutoffs are typically based on either the average annual number of employees or average annual receipts. For example, businesses may be defined as small if employing fewer than 100 to 1,500
employees, depending on the NAICS. In other industries, firms are small if annual receipts are less than $1 million to $41.5 million.107
A. Number of Affected Small Entities and Employees The total number of potentially affected firms 507,200 is explained in section IV.B.2. This section describes how the Department determined that 385,100 of those firms are small businesses. The Department used three methods to identify small firms based on the data source:
1. For firms identified in SAM, the Department identified small contractors based on the six-digit NAICS code listed as their primary NAICS and whether SAM flagged the firm as small in that NAICS.108 Of the 418,300 firms in SAM, 327,900 are small firms. The data in SAM is self-reported, so firms may not always indicate if they are small, or may not update their data, which may result in firms being listed as small when they no longer are. As a result, it is uncertain whether the number of small firms in SAM may be an underor over-estimate.
2. Because some subcontractors may not be in SAM, the Department supplemented the SAM data with USAspending data see section IV.B.2.
To identify small subcontractors in the USASpending data, the Department searched for keywords Small or SBA in the business type field. Of the 33,500 subcontractors identified, 12,200
are small firms.
107 The most recent SBA size definitions were set in August 2019. See https www.sba.gov/
document/support--table-size-standards. However, some exceptions do exist, for example, depository institutions including credit unions, commercial banks, and non-commercial banks are classified by total assets.
108 The NAICS CODE STRING variable column 33 and the PRIMARY NAICS variable column 31 were the specific variables used. If the primary NAICS value contained a Y at the end when listed in the NAICS CODE STRING column, the firm was identified as small.

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