10 May 2021

$15 Minimum Wage for Federal Contractors: What’s the Real Deal?

There’s been a lot of press coverage devoted to the recent Executive Order 14026 that requires a $15 minimum wage for employees of certain federal contractors and subcontractors.  Left out of many articles is the fact that this actually applies to very few businesses that have typical contracts to sell goods and services to the federal government.

On April 27 President Biden signed an “Executive Order on Increasing the Minimum Wage for Federal Contractors.”  This sets a new minimum wage rate of $15 per hour ($10.50/hour for tipped workers) for new or renewed federal contracts entered into starting January 30, 2022, with adjustments for inflation annually thereafter.  This new executive action supersedes 2014’s Executive Order 13658 enacted by then-President Obama that established a $10.10 minimum wage at the time, and is currently at $10.95 per hour.  President Biden’s Executive Order builds upon the framework of that 2014 enactment, and accelerates the increase to its minimum wage rate.  It also is intended to fulfill a campaign and post-election promise to deliver a $15 minimum wage to America.

This new Executive Order applies to only a very limited set of federal government contracts:

  • Procurement contracts for services or construction (such as covered by Davis-Bacon Act);
  • Contracts for services covered by the Service Contract Act;
  • Contracts for concessions (such as a snack shop, news stand or barber shop in a federal office building or courthouse); and
  • Contracts to provide services to employees or the general public on federal property or lands (such as a national park hotel or restaurant).

The Biden administration has touted that the higher minimum wage will benefit “hundreds of thousands” of American workers, in contrast to the estimated 40+ million workers who are employed by private sector federal contractors and subcontractors.  Thus, the Executive Order does not apply to a multitude of contracts to sell products and services to federal government agencies or the military.  Moreover, the higher minimum wage only applies to employees who are actually working on a covered federal contract, and not all employees of a federal contractor (although a clear dividing line is sometimes blurry).

The U.S. Department of Labor/Office of Federal Contract Compliance Programs has been directed to publish new regulations clarifying the Executive Order and its enforcement by late November 2021.  Meanwhile, we’ll keep you posted!

If you have any questions about this Executive Order, please contact the authors or a member of the Affirmative Action and Government Contractors practice group.