Beginning on January 1, 2024, Executive Order 14026 (Order) will raise the minimum wage for workers performing work on or in connection with covered contracts to from $16.20 to $17.20 per hour, a second year of a significant adjustment to the minimum wage for service and construction workers doing work on federal projects. Government contractors in the service and construction sectors should evaluate how the minimum wage increase will affect their operations and pricing strategies when bidding on new government contracts.

The Evolution of Federal Contract Minimum Wage

This Order builds upon the foundation laid by Executive Order 13658, which initially established a minimum wage of $10.10 per hour for federal contract workers in 2014. Since then, the minimum wage has seen incremental increases. In 2021, the Biden administration issued Executive Order 14026, adjusting the wage upward to $15.00 per hour with annual adjustments issued by the Department of Labor (DOL) each calendar year, and which automatically become effective on January 1. 

Who Is Affected by Executive Order 14026?

The Order broadly affects federal contracts and subcontracts and applies to:

1. contracts subject to the Davis-Bacon Act (DBA), governing wage rates on federal construction projects and
2. contracts covered by the Service Contract Act (SCA), which regulates service contracts.

Compliance and Enforcement

1. The DOL is responsible for enforcing compliance with the Order. Contractors found to be in violation may face penalties, including the withholding of contract funds.
2. Contractors are required to maintain comprehensive records of employees’ wages, hours worked, and other relevant data related to covered contracts, facilitating the enforcement of the order.
3. Federal Acquisition Regulation (FAR) 52.222-55, Minimum Wages for Contractors Under Executive Order 14026 (distinguished from the former FAR provision with the same number but a different name) should have been modified into applicable contracts or subcontracts that were solicited, renewed, or extended after January 31, 2022.
4. From the effective date of the modification that incorporated the new provision through December 31, 2022, the applicable minimum wage was $15.00 per hour.
5. Effective January 1, 2023, the minimum wage became $16.20 per hour. The DOL may issue increases to the minimum wage that will be effective each year on January 1.
6. At this point, a contract for services or construction should contain the new FAR clause. If it does not, the obligation to pay the higher minimum wage does not apply. However, to avoid possible investigations by the DOL and disgruntled employees, we recommend bringing the issue to the attention of the contracting officer or prime contractor immediately and retroactively applying the wage requirements.
7. You may request a price adjustment for the actual difference in wages and fringe benefits you have to pay as a result of a change, and you should do so within thirty (30) days of the change in wage rate.
8. This requirement applies to non-exempt workers on contracts subject to the DBA and SCA, as well as any non-exempt employee working in connection with a covered contract.