New Executive Order Increases Minimum Wage for Federal Contractors

President Joe Biden continues to make good on his campaign promises related to wage and collective bargaining reform, starting with Federal Contractors and Subcontractors. On April 27, 2021, the president issued the Executive Order on Increasing Minimum Wage for Federal Contractors. This EO requires an increase to the minimum wage for many federal contractors and subcontractors. Set to take effect Jan. 30, 2022, it will likely have a broad financial impact on impacted companies.

Which Employers are Impacted by the New EO?

The new EO applies to employers who have federal procurement contracts of at least $10,000. Per the order, this includes, “procurement contracts for services or construction, contracts for services covered by the Service Contract Act, contracts for concessions and contracts in connection with Federal property or lands and offering of services to Federal employees, dependents and the general public.”

How Does This EO Impact Federal Contract Workers?

The new EO mandates the following wage increases for federal contract workers:

  1. By Jan. 30, 2022, all federal agencies must incorporate a $15.00/hour minimum wage into new contract solicitations.
  2. By March 31, 2022, all federal agencies must implement the $15.00/hour minimum wage into new contracts and existing contracts which are extended or renewed after the effective date.

There are some additional caveats to these wage increases. Starting Jan. 1, 2023, the $15.00/hour minimum wage will be automatically adjusted annually to reflect changes in the cost of living.

For tipped employees working on or in connection with federal contracts, the EO will require federal contractors to pay tipped employees the same as all other hourly workers by Jan. 1, 2024. Incremental increases start Jan. 30, 2022, when the minimum wage will increase to $10.50/hour. As of January 1, 2023, the minimum wage for tipped workers will be 85% of the inflation-adjusted minimum required for non-tipped employees at the same time. The result is that, by January 2023, it will be equal to or greater than $12.75 per hour. Additional rules apply for 2024. Employers may pay tipped employees a subminimum wage as long as the tips brings wages up to the new minimum.

This executive order also revokes EO 13838, signed by President Donald Trump in 2018. That EO excluded seasonal recreational workers on federal lands (such as tour guides at national parks) from receiving minimum wage benefits under existing federal contractor minimum wage rules. Effective Jan. 30, 2022, federal contractors employing these workers must begin paying them the new minimum wage.

Additional Impacts on Federal Contractors

This minimum wage EO instructs the Secretary of Labor to enforce the new wage minimum rules by both investigating and “obtaining compliance” with the order. Typical enforcement strategies include the recovery of wages for workers and sanctions against the employer.

Additionally, the new minimum wage rule does not exempt them from prevailing state or federal wage minimums under which they may also be governed. As such, other minimum wage rules covering an employer’s business that require a higher wage than the federal minimum wage for contractors will continue to take precedence.

Are There Exclusions or Exemptions for Employers?

Employers should be aware that the new executive order only covers work contracts with federal agencies. The federal minimum wage is set by Congress.

Federal contractors should also consider reviewing Section 4(c) of President Biden’s minimum wage executive order. Specifically, many pre-existing exceptions and inclusions instituted by 2015’s EO 13568 will remain intact.

For example, under the previous federal minimum wage order, individuals employed under subminimum wage contracts (such as students, apprentices and learners), are not entitled to the federal contract worker minimum wage. As well, contractors working for independent regulatory agencies (e.g., Federal Communication Commission (FCC), Federal Energy Regulatory Commission (FERC), Federal Trade Commission (FTC), etc.) are excluded from the latest EO minimum wage rules.

Most other minimum wage exclusions from EO 13658 remain. Employers are strongly encouraged to explore or verify whether any exemptions or exclusions cover their business and any of their contracted workers.

A Continuation of New Policy Changes

President Biden’s executive order is a follow-up to his EO 14003. Officially published on Jan. 22, 2021 (just two days after his inauguration), this order did two things:

  1. Revoked several EOs from the previous administration, many of which restricted collective bargaining rights and employment protections
  2. Authorized the U.S. Office of Personnel Management (OPM) to study and report to the president a recommendation on raising the federal contract workers’ minimum wage to $15.00/hour

With the execution of this latest EO, President Biden has indicated a strong desire to create the precedent for a $15.00/hour minimum wage at a national level. The $15.00/hour number correlates with a groundswell of interest in pulling the minimum wages up to what’s considered a “living wage.”

Once it takes effect, the new minimum wage for federal contractors constitutes a 40% increase in wages for those impacted by the law. Should this spur Congress to update the federal minimum wage to align with it, this would constitute a 106% increase over the existing federal minimum wage of $7.25/hour.

With the $15.00/hour wage marker rapidly trending nationwide, a growing number of employers are considering such a wage even if they’re not legally required to provide it. Some hope to stay ahead of future legislation. Others wish to attract higher quality workers or feel a moral obligation to their employees. Regardless of reason, James Moore’s human resources consultants can help you decide how to proceed.

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