President Biden Increases Minimum Wage for Federal Contractors

Butler Snow LLP

Butler Snow LLP

On April 27, 2021 President Biden issued Executive Order No. 14026 (the “Executive Order”) increasing the minimum wage for federal contractors. Starting January 30, 2022, all executive branch agencies must incorporate a $15 minimum wage in new contract solicitations. Additionally, by March 30, 2022, all executive branch agencies will need to implement the minimum wage in new contracts. Federal contractors entering into new contracts must agree to pay employees doing work performed under contracts the applicable minimum wage established by the Executive Order. The increase is anticipated to be implemented into existing contracts when the parties exercise their options to extend federal contracts.

The Executive Order also phases out the tip credit wage. As of January 30, 2022, tipped workers must earn a minimum cash wage of $10.50 per hour. By January 1, 2023, the cash wage must be 85% of the federal contractor minimum wage at that time, rounded to the nearest $0.05 – and by January 1, 2024, the cash wage must equal the federal contractor minimum wage in effect at that time.

The Executive Order applies to new contracts, new contract-like instruments, new solicitations, extensions, or renewals of existing contracts or contract-like instruments, and the exercise of an option on an existing contract or contract-like instrument if:

(A) it is a procurement contract or contract-like instrument for services or construction;

(B) it is a contract or contract-like instrument for services covered by the Service Contract Act;

(C) it is a contract or contract-like instrument for concessions, including any concessions contract excluded by Department of Labor regulations at 29 CFR 4.133(b); or

(D) it is a contract or contract-like instrument entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public; and

(ii) the wages of workers under such contract or contract-like instrument are governed by the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act.

Additionally, for contracts or contract-like instruments covered by the Service Contract Act or the Davis-Bacon Act, the Executive Order applies only to contracts or contract-like instruments at the thresholds specified in those statutes. Where workers’ wages are governed by the Fair Labor Standards Act, the Executive Order applies only to procurement contracts or contract-like instruments that exceed the micro-purchase threshold, as defined in 41 U.S.C. 1902(a), unless expressly made subject to the Executive Order pursuant to regulations or related implementation actions.

The Department of Labor is expected to issue regulations implementing the Executive Order on or before November 24, 2021.

The Policy supporting the Executive Order is as follows:

This order promotes economy and efficiency in Federal procurement by increasing the hourly minimum wage paid by the parties that contract with the Federal Government to $15.00 for those workers working on or in connection with a Federal Government contract . . . [r]aising the minimum wage enhances worker productivity and generates higher-quality work by boosting workers’ health, morale, and effort; reducing absenteeism and turnover; and lowering supervisory and training costs. Accordingly, ensuring that Federal contractors pay their workers an hourly wage of at least $15.00 will bolster economy and efficiency in Federal procurement.

Importantly, whether the increase will ultimately support the stated Policy reasons is something that can be tracked, i.e. whether worker productivity increases and generates higher quality work, whether absenteeism is reduced, whether turnover is reduced, and whether supervisory and training costs are lowered overall.  It seems that the ability to track these measurable goals will ultimately help support what many believe is the President’s goal of eventually raising the federal minimum wage for all workers to $15.00.

Ultimately, contractors planning to enter into new federal contracts on or after January 30, 2022 must incorporate into their planning and forecasting minimum wage rates for the employees working on the federal contract to be at least $15 per hour.

Given the increased costs for federal contracts moving forward any contractor that is unsure whether their contract would be subject to the Executive Order should immediately contact legal counsel to assist with making that determination.

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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