Big News: Government Raises Minimum Wage for Federal Contract Workers

The U.S. Department of Labor’s Wage and Hour Division (WHD) has recently announced an update to the minimum wage for federal contract workers under President Biden’s Executive Order 14026. Starting January 1, 2025, the hourly minimum wage for workers performing duties on or in connection with federal contracts will increase to $17.75 per hour. This change directly affects both tipped and non-tipped workers, ensuring fair compensation across the board. For companies working on federal projects, this update should not be ignored. It brings new requirements for payroll management and worker compensation.

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Understanding Executive Order 14026 and Its Impact

Executive Order 14026, signed by President Biden in April 2021, is designed to improve wages for workers on federal contracts. It builds on a similar order signed in 2014, but with updated wage levels to reflect economic conditions. The goal is to ensure that federal contract workers are paid competitive wages that help boost morale, reduce turnover, and increase work quality.

Federal contractors must take note: this update applies to all contracts entered into or extended after January 30, 2022. For contracts signed before that date, workers will follow the older minimum wage rate under Executive Order 13658, which will rise to $13.30 per hour on January 1, 2025.

This wage increase reflects the federal government’s commitment to improving working conditions and fostering greater efficiency. For construction companies managing federal contracts, adhering to these wage updates is essential for maintaining compliance. Failing to meet these requirements could lead to penalties, project delays, and even contract terminations.

Key Changes for Federal Contractors

The new minimum wage for federal contract workers—set to increase from $17.20 to $17.75 per hour—marks a significant shift. This change affects all types of workers, including tipped employees and those with disabilities. Here are the main points federal contractors need to be aware of:

1. Minimum wage increase: Starting January 1, 2025, all covered federal contractors must pay a minimum wage of $17.75 per hour.
2. Tipped employees: Even workers who earn tips are entitled to the full minimum wage under Executive Order 14026. Employers cannot offset the minimum wage with tips.
3. Workers with disabilities: All federal contract workers, including those with disabilities, must receive the new minimum wage, ensuring equality in pay across the workforce.

This new wage increase doesn’t just impact payroll; it can also influence other aspects of workforce management, from project bidding to subcontractor agreements. For construction companies working on federal contracts, it’s crucial to understand how these changes affect labor costs and plan accordingly.

Payroll Strategies to Ensure Compliance

For construction businesses managing federal contract workers, the new minimum wage update requires a thoughtful approach. Payroll managers need to ensure systems are up to date, and labor costs are correctly calculated. Here are some key tips for navigating these changes:

1. Update Payroll Systems

Make sure your payroll software and systems are updated to reflect the new minimum wage of $17.75 per hour. This will ensure that all workers on federal contracts receive the correct pay starting January 1, 2025. Failure to do this could result in back pay requirements, penalties, or contract disputes.

2. Train HR and Payroll Staff

Ensure that all staff involved in payroll and human resources understand the new minimum wage rules. They should know which workers are covered, how tips factor into wages (or don’t), and the specific requirements for workers with disabilities.

3. Review Existing Contracts

If your company has active federal contracts that were entered into before January 30, 2022, make sure you’re following the appropriate minimum wage rules. These contracts remain subject to Executive Order 13658, which raises the minimum wage to $13.30 per hour. Misunderstanding which order applies to which contract could lead to compliance issues.

4. Plan for Budget Adjustments

The new minimum wage for federal contract workers could impact your company’s overall labor costs. Be prepared to adjust budgets for projects that extend into 2025. By planning for these wage increases now, you can avoid being caught off guard and ensure that your bids and proposals reflect accurate labor costs.

5. Review Subcontractor Agreements

If your construction business relies on subcontractors, it’s crucial to ensure that they are also compliant with the new wage requirements. As the primary contractor, you may be held accountable if your subcontractors fail to meet wage obligations. Regularly review and update agreements to reflect the new wage standards.

Workforce Management Considerations

The new minimum wage for federal contract workers doesn’t just affect payroll; it has broader implications for workforce management. Construction companies must take a proactive approach to managing their teams and ensuring all requirements are met. Here are some areas to consider:

1. Boost Worker Morale

One of the main goals of Executive Order 14026 is to ensure that workers feel valued and fairly compensated. Higher wages can help improve morale, which in turn boosts productivity. For construction companies, this can translate to better work quality and faster project completion.

2. Reduce Employee Turnover

Offering competitive wages helps reduce employee turnover. Workers are more likely to stay with companies that pay well, which means less time and money spent on recruiting and training new employees. This can be particularly valuable for construction businesses working on long-term federal contracts.

3. Ensure Accurate Record-Keeping

As wage rates increase, accurate record-keeping becomes even more important. Payroll and workforce management teams need to carefully document wages paid, hours worked, and compliance with federal guidelines. This helps protect your business in the event of an audit or dispute.

4. Prepare for Audits

The Wage and Hour Division may audit companies to ensure compliance with Executive Order 14026. Construction companies should be prepared for potential audits by keeping detailed payroll records, worker classifications, and wage documentation.

Long-Term Effects of Wage Increases

The minimum wage for federal contract workers will continue to be updated annually, with adjustments based on economic factors like inflation. As a construction business owner or payroll manager, it’s important to stay ahead of these changes. Regularly reviewing updates from the Wage and Hour Division will help you stay compliant and avoid penalties.

The effects of these wage increases will ripple across the construction industry. Workers will benefit from higher wages, but businesses must carefully manage labor costs. For federal contractors, proper planning and attention to detail are key to successfully navigating these updates.

A Significant Increase: Minimum Wage for Federal Contract Workers

The U.S. Department of Labor’s Wage and Hour Division has made a significant update to the minimum wage for federal contract workers under Executive Order 14026. As of January 1, 2025, the new minimum wage will be $17.75 per hour, affecting all federal contract workers, including tipped employees and workers with disabilities. Construction companies managing federal contracts must update payroll systems, train staff, and review contracts to stay compliant with these new rules.

By following these guidelines, construction companies can ensure compliance, manage labor costs, and foster a more motivated workforce. Stay informed on future updates and be proactive in managing payroll challenges to keep your business running smoothly.

The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.