New Executive Order Increases Minimum Wage for Federal Contractors

On April 27, 2021, President Biden signed an Executive Order increasing the minimum wage for federal contractors and subcontractors from the current $10.95 per hour to $15 per hour. This impacts new or renewed contracts starting January 30, 2022 and only applies to employees whose work is related to the contract. Beginning January 1, 2023 and annually thereafter, the minimum hourly wage will be determined by the Secretary of Labor based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI).

For tipped workers, the minimum wage increases from $7.65 to $10.50. This will increase in 2023 to be 85% of the untipped minimum and increase again in 2024 to be 100% of the untipped minimum rate.

This increase applies to all federal contractors and subcontractors with some exceptions noted in Section 8 of the Executive Order. For example, the order does not apply to Indian Tribes. Additionally, the order is subject to other parameters outlined in the Service Contract Act and Davis-Bacon Act.

The Executive Order also outlines that the Secretary of Labor shall issue regulations related to this order by November 24, 2021. The regulations will include definitions, details about exclusions, and more details about implementation.

Although the vast majority of workers employed by federal contractors are already paid at least $15 an hour, there are contractors who will be greatly affected by this increase. Contractors that have a minimum hourly rate below $15 should begin planning how this increase will affect their salary ranges. Additionally, contractors may have to think about their strategy for implementation. Because the order applies to employees whose work is related to a federal contract, organizations will have to be thoughtful on implementation. Organizations may have to make blanket wage increase decisions for practicality reasons and calculate the costs to their bottom line and staff planning. Or organizations may have to be intentional about the population of employees that are working on federal contracts to assist with the minimum wage evaluation.

More information can be found from a White House Fact Sheet.

By: Joanna Colosimo, M.A. and Mike Aamodt, Ph.D.

 

 

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