$15 Federal Contractor Minimum Wage

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On April 27, 2021, President Biden issued a new Executive Order that raises the federal contractor minimum wage to $15 per hour, from the current $10.95 per hour, starting January 30, 2022.

Biden’s new Executive Order is nearly a word for word retread of the Obama Administration’s Executive Order 13658 (originally setting a $10.10 federal contractor minimum wage), with some notable exceptions:

  • The federal contractor minimum wage is raised to $15 per hour starting January 30, 2022
  • The current tipped worker federal contractor minimum wage, setting a lower hourly minimum wage just for tipped workers, is phased out by January 1, 2024; and
  • The Trump Administration exemption for certain “recreational services on federal lands” (Executive Order 13838) is revoked.

What remains the “same” is the following:

  • The new federal contractor minimum wage will be phased in, starting with new “contracts” issued on or after January 30, 2022 and any existing contract that are subsequently extended or renewed or an option is exercised after January 30, 2022;
  • The new federal contractor minimum wage applies to “any new contract; new contract-like instrument; new solicitation; extension or renewal of an existing contract or contract-like instrument; and exercise of an option on an existing contract or contract-like instrument.”
  • The new minimum wage applies to concessions “contracts” and “contracts” covered by the Fair Labor Standards Act, the Service Contract Act, or the Davis Bacon Act;
  • The $15 minimum wage applies to prime contractors and subcontractors;
  • The new $15 minimum wage does not apply to grants, or any contracts, contract-like instruments or agreements with Indian Tribes or any other contracts or contract-like instruments expressly excluded by subsequent regulations;
  • The Secretary of Labor will increase the federal contractor minimum wage each January, by increments of $0.05, based on the annual increase in the Consumer Price Index; and
  • Wage Determinations under both the Service Contract Act and the Davis Bacon Act will have a new $15 per hour wage floor that will likely rise each successive year.

While the new Biden Administration Executive Order contains mostly the same language as Executive Order 13658, it remains to be seen whether the Secretary of Labor and the Federal Acquisition Regulatory Council simply amend the existing federal contractor minimum wage regulations to reflect the new $15/hour starting point, or whether more extensive and substantive revisions will be made.

As we wait for new regulations to be promulgated and in anticipation of the January 30, 2022 start of the new $15/hour federal contractor minimum wage, federal contractors and subcontractors subject to the new minimum wage requirements should:

  • Start planning now to price all new 2022 federal contract work using the new $15/hour minimum wage;
  • Prepare for making Requests for Equitable Adjustment and seeking other appropriate contract price adjustments when the new federal minimum wage is applied to contact extensions or renewals, or when options are exercised;

Because the cost of the rise in the federal contractor minimum wage should largely—if not entirely—be absorbed into contractor pricing models and fully compensated by the federal government, perhaps the biggest concern arising from the new federal contractor minimum wage is the impact the new wage floor will have on employer/employee relations and a contractor’s ability to attract and retain skilled labor.  The new $15 minimum wage will cause a rise in the wage rates for unskilled labor.  Over time, the rising wage floor for unskilled labor will erode the wage differential between unskilled and skilled labor and may even start to approach the hourly rates for certain categories of semi-skilled and skilled labor.  This has the potential to cause some discontent among skilled trade workers.  How contractors address this risk of wage compression will be key and the potential solutions will vary by industry and based on the nature of each contractor’s workforce.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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