President Biden Issues an Executive Order Increasing the Minimum Wage for Many Employees of Federal Contractors to $15.00

Pillsbury Winthrop Shaw Pittman LLP

The Executive Order is projected to increase the hourly wage paid to hundreds of thousands of Federal contractor employees.

TAKEAWAYS

  • President Biden issued an Executive Order raising to $15.00 per hour the minimum wage that Federal contractors and subcontractors must pay workers on covered contracts, beginning on January 30, 2022.
  • Because the new $15.00 minimum wage is higher than some prevailing minimum wages paid under the McNamara-O’Hara Service Contract Act (SCA), this Executive Order is projected to increase wages of nearly 400,000 Federal contractor employees.
  • The Executive Order requires the Secretary of Labor to issue regulations implementing its requirements by November 24, 2021.

On April 27, 2021, President Biden signed an Executive Order raising the minimum wage paid by Federal contractors and subcontractors to $15.00 per hour, beginning on January 30, 2022. The Federal minimum wage currently is $10.95 per hour for all workers on Federal construction and service contracts, based on President Obama’s 2014 Executive Order 13658, which had raised that minimum wage to $10.10 per hour and provided for adjustment for inflation. These Executive Orders do not change the current minimum wage of $7.25 under the Fair Labor Standards Act (FLSA) applicable to non-exempt employees who do not work for government contractors, and to employees of government contractors who do not work on or in connection with Federal construction and service contracts.

The new Executive Order states that the $15.00 minimum wage shall apply to “workers working on or in connection with a Federal Government contract” that is a “new contract; a new contract-like instrument; new solicitations; extensions or renewal of an existing contract or contract-like instrument; and exercise of an option on an existing contract or contract-like instrument.” The minimum wage shall apply if the employees are governed by the FLSA, the SCA, or the David-Bacon Act (DBA) and the contract or contract-like instrument falls in one of four categories: (i) it is a procurement contract or contract-like instrument for services or construction; (ii) it is covered by the SCA; (iii) it is a contract or contract-like instrument for concessions, including any concessions contract excluded by Department of Labor regulations at 29 C.F.R. 4.133(b); or (iv) it is 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.

The Executive Order also states that the minimum wage shall be adjusted for inflation using a cost-of-living adjustment (based on the Consumer Price Index for Urban Wage Earners and Clerical Workers) beginning on January 30, 2023 and annually thereafter. Notably, the new $15.00 minimum wage is higher than the prevailing minimum wage currently paid to a number Federal contractor employees under the SCA. Therefore, the Executive Order is expected to result in raises for hundreds of thousands of Federal contractor employees. Federal contractors who employ service employees earning below $15.00 per hour should watch for new wage determinations and seek price adjustments accordingly. Federal contractors must also continue to comply with any applicable state or local minimum wage laws.

The Executive Order will also eliminate the lower minimum wage for tipped workers working on Federal contracts and subcontracts over the next few years. Specifically, the Executive Order states that tipped workers will be paid $10.50 per hour, starting on January 30, 2022. Beginning on January 30, 2023, tipped workers will be paid 85 percent of the minimum paid to non-tipped workers ($15.00 per hour adjusted for inflation). Beginning on January 30, 2024, tipped workers will be paid the same hourly wage as non-tipped workers.

The Executive Order requires the Secretary of Labor to issue regulations by November 24, 2021 to implement the requirements of the order. Then, within 60 days, the Federal Acquisition Regulatory (FAR) Council, shall amend the FAR to provide for inclusion of this requirement in Federal procurement solicitations, contracts, and contract-like instruments.

Contractors should review their service contracts and subcontracts to ensure that those agreements include a clause to authorize price increases resulting from the required increases in direct labor costs caused by the increased minimum wage, such as the FAR 52.222.43-Fair Labor Standards Act and Service Labor Standards – Price Adjustment (Multiple Year and Option contracts) and the FAR 52.222.44-Fair Labor Standards Act and Service Labor Standards – Price Adjustment. Contractors should also be aware that these clauses also allow for recovery of accompanying increases in social security and unemployment taxes and workers’ compensation insurance costs. However, these clauses do not allow price increases for increased general and administrative costs, overhead, or profit.

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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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