At the end of April, President Biden signed an executive order to establish a $15 per hour minimum wage for federal contractors. Currently the minimum wage for workers affected by this order is $10.95 per hour, with a tipped minimum hourly wage of $7.65.

According to the press release issued by the White House,

“This executive order will promote economy and efficiency in federal contracting, providing value for taxpayers by enhancing worker productivity and generating higher-quality work by boosting workers’ health, morale, and effort. It will reduce turnover, allowing employers to retain top talent and lower the costs associated with recruitment and training. It will reduce  absenteeism, a change that has been linked to higher productivity, not just by the employees who are more present, but by their co-workers, too. And, it will reduce supervisory costs.” (Source)

The move to increase the federal minimum wage to $15 per hour is an extension of an 2014 executive order by the Obama-Biden administration. Implementation and enforcement for this executive order will be handled by the Department of Labor’s Wage and Hour Division and the Federal Acquisition and Regulatory Council.

Here are some things you should know about the increased minimum wage for federal contractors:

  • The $15 federal minimum wage applies to general contractors and subcontractors working on federal projects.
  • The new federal minimum wage applies to contracts and contract-like instruments covered under the Service Contract Act, Davis-Bacon Act and the Fair Labor Standards Act.
  • The increase is required for all new contract solicitations by January 30,2020 and by March, 2022, all agencies must implement the minimum wage into new contracts.
  • Existing contracts that exercise their option to extend must do so at the new minimum wage.
  • The new federal minimum wage will be indexed to inflation so that it will be adjusted to reflect changes in the cost of living every year after 2022.
  • This executive order will eliminate the tipped minimum wage for federal contractors by 2024 to eliminate subminimum wages for tipped workers on eligible federal contracts.

While this order has a greater impact on non-skilled labor, every federal contractor should be aware of the impact it will have on future contracts. This may include an overall increase in the cost of non-skilled labor and discontent among skilled labor due to wage compression.

Read the White House press release regarding the new federal minimum wage for contractors here.

Read the executive order here.

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.

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