On April 27, 2021, President Biden issued an executive order raising the minimum wage to $15.00 an hour for employees working on or in connection with federal contracts. The order, entitled “Executive Order on Increasing the Minimum Wage for Federal Contractors,” is predicted to increase the wages of hundreds of thousands of contract workers. Once implemented, the order will apply to service contracts covered by the Fair Labor Standards Act, the Service Contract Labor Standards, and the Davis Bacon Act.
Raising the minimum wage for federal contractors from $10.95 to $15.00 per hour, the order builds on a February 2014 executive order that required federal contractors to pay employees $10.10 per hour, indexed to inflation. The new executive order will continue to index the minimum wage to inflation, such that the minimum wage will automatically be adjusted to reflect changes in the cost of living every year after 2022.
Other provisions of the order include extending the required $15.00 minimum wage to federal contract workers with disabilities and restoring the minimum wage protections to outfitters and guides operating on federal lands. Additionally, the order will eliminate the tipped minimum wage for federal contractors by 2024.
The executive order states that the increased minimum wage will “bolster economy and efficiency in federal procurement.” According to the White House, higher wages are not expected to increase costs for taxpayers because the boost in workers’ health, morale, and effort is expected to enhance worker productivity and produce higher quality work. Other benefits of the order include reduced turnover and absenteeism, as well as reduced supervisory and training costs. Finally, the Administration believes the order will improve the economic security of families and make progress toward reversing income inequality.
All federal agencies are required to incorporate the increased hourly minimum wage in new contract solicitations starting January 30, 2022, and all new contracts awarded on or after March 30, 2022, must include the new minimum wage. In addition, after March 30, 2022, agencies are required to include the new requirement in existing contracts when the next option is exercised under that contract.
The executive order does not impact wage determinations that typically apply to service contracts and contractors must still adhere to the applicable wage rate listed in the wage determination applicable to those contracts to the extent the specified wage is higher.
If you have any questions about this legal update, please reach out to the Government Contracts group.