President Biden Raises the Minimum Wage to $15 for Certain Federal Contractors

Faegre Drinker Biddle & Reath LLP

On April 27, 2021, President Joe Biden signed an Executive Order (EO) requiring certain federal contractors to pay workers on government contracts at least $15 per hour beginning January 30, 2022. After 2022, the minimum wage will be adjusted annually for inflation at a rate set by the secretary of Labor (the secretary). The EO supported the minimum wage increase by stating that raising worker wages will promote efficiency in federal procurement through: (1) enhanced worker productivity and generation of higher-quality work from increased workers’ health, morale and effort; (2) reduced absenteeism and turnover; and (3) lowered supervisory and training costs.

The new minimum wage requirement applies to new contracts that will be entered into on or after January 30, 2022. The new minimum wage also applies to existing contracts where the relevant contract will be extended or renewed on or after January 30, 2022. However, agencies are “strongly encouraged” to include the higher minimum wage in contracts that are entered into between the date of the order — April 27, 2021 — and January 30, 2022. New contracts also must include a clause mandating that contractors and covered subcontractors flow down the minimum wage requirement into lower-tier subcontracts.

Impact on Tipped Minimum Wage

The EO also phases out the tipped minimum wage for certain federal contractors according to the following schedule:

  • Beginning January 30, 2022, federal contractors must pay tipped workers $10.50 per hour.
  • Beginning January 1, 2023, federal contractors must pay tipped workers 85% of the higher minimum wage.
  • Beginning January 1, 2024, federal contractors must pay tipped workers the higher minimum wage.

If a tipped worker’s hourly wages and tips do not amount to the higher minimum wage, the federal contractor must increase the hourly wage to make up the difference.

Bearing on Prior Executive Orders

The EO supersedes President Barack Obama’s Executive Order 13658, which was issued in 2014 and requires federal contractors to pay federal contract workers $10.10 per hour, indexed to inflation. Under that order, the current minimum wage is $10.95 per hour and the current tipped minimum wage is $7.65 per hour.

Despite the wage difference, the orders appear similar in applicability. Both orders apply to contracts for concessions and services covered by the Service Contract Act, and neither order applies to contracts or agreements with Indian Tribes under the Indian Self-Determination and Education Assistance Act.

The EO also revokes President Donald Trump’s Executive Order 13838, which provided an exemption from the minimum wage for contracts regarding recreational services on federal lands. The new minimum wage requirement may therefore apply to outfitters and guides operating on federal lands.

Enforcement & Forthcoming Regulations

The EO is clear that the secretary has the sole authority for investigating potential violations related to the required increase in the minimum wage, and that it creates no rights under the Contract Disputes Act regarding whether a contractor has paid wages prescribed by the EO.

Additionally, the secretary will issue regulations to implement the requirements of the EO by November 24, 2021. The regulations should include “definitions of relevant terms and, as appropriate, exclusions from the requirements of this order.”

We will continue to provide updates as more information about the order becomes available.

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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