On April 27, 2021 President Biden issued an executive order requiring federal contractors and subcontractors to pay a $15 minimum wage to workers on federal contracts and to federal contract workers with disabilities, and directing the incremental elimination of the tipped sub-minimum wage for federal contractors by 2024.

When the New Minimum Wage Goes into Effect

Starting January 30, 2022 all federal agencies will need to include a $15 minimum wage in new contract solicitations, and the new minimum wage must be implemented in new contracts by March 30, 2022. Agencies must also implement the higher wage into existing contracts when those contracts are extended or renewed.

Automatic Increases to the Minimum Wage for Federal Contractors

The minimum wage will be indexed to an inflation measure so that it will automatically adjust every year after 2022 to reflect changes in the cost of living.

Gradual Elimination of the Tipped Minimum Wage

Under current federal law, employers of tipped workers may pay a sub-minimum wage as long as their tipped wages bring their total wages up to the minimum wage. The new Executive Order slowly eliminates the sub-minimum wage for tipped employees working on federal contracts, requiring a wage of at least $10.50 per hour beginning January 30, 2022, an increase to 85% of the new federal contractor minimum wage by January 1, 2023, and an increase to 100% of the new federal contractor minimum wage by January 30, 2024. It should be noted that if the employee does not receive sufficient tips in addition to the amounts set forth above to equal the new federal contractor minimum wage, the cash wage paid must be increased to make sure the worker receives at least the federal contractor minimum wage.

Minimum Wage for Federal Contract Workers with Disabilities

The new Executive Order ensures a $15 minimum wage for federal contract workers with disabilities and includes a cost-of-living increase every year beginning in 2022.

Impact of the New Executive Order

According to the Biden Administration, this Order will directly impact hundreds of thousands of workers who are working on federal contracts. In addition to directly lifting the wages of hundreds of thousands of contract workers, the administration believes that the Executive Order “…will have impacts beyond federal contracting, as competitors in the same labor markets as federal contractors may increase wages, too, as they seek to compete for workers. Employers may seek to raise wages for workers earning above $15 as they try to recruit and retain talent.”

Stay tuned for further information about this Executive Order as the regulations implementing the Executive Order will be issued by November 24, 2021.

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