Some employees will be getting a raise.
President Biden issued an Executive Order increasing the minimum wage for certain federal contractors to $15 per hour. Similar to President Obama’s Executive Order 13658, which set a minimum wage for employees of federal contractors, this requirement will also apply only to a subset of contractors.
The changes won’t take place for months, but here is what covered contractors need to know:
Which federal contractors have to comply with the minimum wage requirement?
The new requirement will apply only to the following types of federal contracts where the wages of the employees are governed by the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act:
- Procurement contracts for services or construction
- Contracts covered by the Service Contract Act
- Contracts for concessions
- Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.
In other words, this applies to the same contracts that were covered by Executive Order 13658, which is officially superseded by this new Executive Order to the extent that it is inconsistent.
Which employees will be covered by the minimum wage requirement?
Only those employees “working on or in connection with” a covered contract will be entitled to the new minimum wage. The regulations implementing Executive Order 13658 defined this to include individuals “engaged in working on or in connection with the contract, either in performing the specific services called for by its terms or in performing other duties necessary to the performance of the contract.” The regulations excluded workers who were not directly engaged in performing the specific work called for by the contract and were performing only "ancillary" work. If ancillary employees spent less than 20 percent of their hours in a particular workweek performing duties "in connection with" the contract, then they were not covered by the minimum wage requirement for that week. Examples of workers who were performing work "in connection with" a covered contract included a security officer at a Davis-Bacon construction site, or a payroll clerk.
Although we expect the new implementing regulations to be consistent with these existing regulations, we will need to wait and see.
When will the new minimum wage rate go into effect?
Federal agencies will not start including the $15 minimum wage in new solicitations until January 30, 2022, and the new wage provisions must be included in new contracts by March 30, 2022.
The current minimum wage for covered contractors is $10.95; it started at $10.10 in 2015.
Will existing contracts be covered by the new minimum wage requirement?
The new minimum wage requirements will affect existing contracts only when the agreement is extended or renewed by the parties after January 30, 2022. However, for existing contracts that are renewed and for solicitations that occur between now and January 30, 2022, “agencies are strongly encouraged, to the extent permitted by law, to ensure that the hourly wages paid under such contracts . . . are consistent with the minimum wages specified” in the Executive Order.
Will the minimum wage increase each year?
You betcha! Consistent with prior Executive Order 13658, the wage rate will be adjusted annually to account for cost of living increases.
Can tipped employees still be paid a subminimum wage?
The Executive Order phases out the lower minimum wage for tipped employees by 2024. Wages for tipped employees (as defined by the FLSA) will increase as follows:
- Currently = $7.65
- January 30, 2022 = $10.50
- January 1, 2023 = 85 percent of the standard minimum wage for contractor employees in effect at that time
- January 1, 2024 = equivalent to the standard minimum wage for contractor employees
Can covered contractors pay workers with disabilities a subminimum wage?
Not anymore. The Executive Order requires all workers to be paid the $15 minimum wage, including “handicapped workers” whose wages are calculated based on special certificates issued by the Department of Labor under Section 14(c) of the FLSA.
Will the new requirements apply to subcontractors?
Of course! Covered contractors will be required to include the contract clause in lower-tier subcontracts.
Will there be regulations under this new Executive Order?
The Executive Order directs the U.S. Department of Labor to issue regulations implementing the Executive Order by November 24, 2021. Those regulations will provide contractors with more detailed guidance on compliance, so be sure to stay tuned for that additional information, including the proposed regulations that will be issued for notice and comment.
Our Affirmative Action Alert blog focuses on the latest news and topics affecting federal contractors and subcontractors and their compliance with affirmative action and other employment-related laws and regulations. With breaking news, quick updates, and headlines on the Office of Federal Contract Compliance Programs and affirmative action issues, this blog is a great resource for in-house counsel, HR managers, and other compliance professionals. Our blog is a companion to Constangy’s Affirmative Action newsletters, which address significant legislative, regulatory, and administrative proposals and changes. Subscribe to both to stay current on these important topics!
- March 2022
- February 2022
- January 2022
- December 2021
- November 2021
- October 2021
- September 2021
- July 2021
- June 2021
- April 2021
- March 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- July 2020
- May 2020
- April 2020
- March 2020
- February 2020
- January 2020
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- June 2019
- May 2019
- April 2019
- March 2019
- February 2019
- December 2018
- October 2018
- September 2018
- August 2018
- July 2018
- June 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017