On April 27, 2021, President Biden issued an Executive Order that will increase the minimum wage for all employees of covered federal contractors and subcontractors to $15.00 per hour, with annual increases beginning in 2023 to account for inflation.  The Executive Order builds upon President Obama’s 2014 Executive Order requiring federal contractors to pay employees at least $10.10 per hour.  The White House expects that “hundreds of thousands of workers” will be affected by the Executive Order.  A White House statement on the Executive Order is available here.

The minimum wage increase does not apply immediately.  Rather, it will only apply to new or renewed contracts beginning January 30, 2022.  Specifically, the following types of contracts, so long as they are also governed by the Fair Labor Standards Act, Service Contract Act, or Davis-Bacon Act, will be subject to the new minimum wage: (1) procurement contracts for services or construction; (2) contracts for services covered by the Service Contract Act; (3) contracts for concessions; and (4) contracts that are both (a) entered into with the federal government in connection with federal property or lands and (b) related to offering services for federal employees, their dependents, or the general public.

The Executive Order also restores minimum wage protections for outfitters and guides operating on federal lands by revoking an exemption created by President Trump.  With regard to tipped workers, the Executive Order increases their minimum wage from $7.65 per hour to $10.50 per hour for new or renewed covered contracts beginning January 30, 2022.  The tipped wage will continue to increase each year until January 1, 2024, when it will be eliminated, and afterwards tipped employees will have to be paid the same minimum wage as other employees on federal contracts.  Further, the Executive Order ensures that individuals with disabilities will be paid the $15.00 minimum wage.  The Executive Order does not apply to agreements with Indian Tribes under the Indian Self-Determination and Education Assistance Act.

The Executive Order specifies that covered federal contracts will have to include a clause increasing the minimum wage, and contractors and any subcontractors will have to incorporate that clause into lower-tier subcontracts.  The Secretary of Labor must issue regulations by November 24, 2021 to implement the Executive Order.  The Secretary may provide, as appropriate, exclusions from the requirements of the Executive Order.

Contractors should evaluate their contracts and workforce to determine (1) which contracts subject to the Executive Order are up for renewal during the remainder of this year and after January 30, 2022 and (2) which job classifications in those contracts currently make below $15.00 per hour.  Contractors should also assess the extent to which wage increases will affect the pricing of their bids and may be considered a cost reimbursement under their respective contracts.