On April 27, 2021, President Biden signed an Executive Order (EO) requiring federal contractors performing service, construction or concession contracts to pay a $15 minimum wage to those employees who are working on such contracts.

As noted in the White House Fact Sheet, this EO will build on Executive Order 13658 (signed in February 2014), under which the government required federal contractors to provide a $10.10 minimum wage starting in in 2015. The EO imposes five substantive provisions with the stated goal of “promoting economy and efficiency” in federal contracting.

First, the EO increases the minimum wage for federal contractors. Beginning Jan. 30, 2022, all federal agencies will need to ensure that the $15-per-hour minimum wage is included in any new covered contract solicitations, and by March 30, 2022, all agencies will need to implement the minimum wage in new covered contracts. Additionally, contracting officers must implement the higher wage in existing covered contracts when exercising options and extensions.

Second, the EO will continue the Obama-era policy of indexing the minimum wage for federal contractors for inflation annually, starting in 2023. The current minimum hourly wage for federal contractors is $10.95, reflecting indexing for inflation subsequent to the issuance of Executive Order 13658 in 2014.

Third, the EO requires elimination of the separate and lower tipped minimum wage for federal contractors by 2024. Under this provision, all employees working on federal contracts will earn the same minimum wage, without consideration of any tips they might earn in addition to their hourly wages.

Fourth, the EO extends the required $15 minimum wage to federal contract workers with disabilities. This eliminates certain exceptions that had allowed federal contractors to pay subminimum wages while working on contracts under authority granted through Section 14(c) of the Fair Labor Standards Act. This requirement continues and expands upon policies set forth in Executive Order 13658.

Finally, the EO repeals President Trump’s Executive Order 13838 (Exemption from Executive Order 13658 for Recreational Services on Federal Lands). This restores minimum wage requirements for federal contractors whose employees operate as outfitters and guides in federal parks and on other federal lands.

Currently, the minimum wage requirement for federal contractors applies to more employees than just those who are directly performing work on the contract itself. The minimum wage provisions also extend to employees performing work in connection with covered federal contracts. An employee is considered to be performing work in connection with a covered federal contract if that employee performs duties necessary for the performance of the contract, but is not performing the specific contract work. Employees are typically subject to the federal contractor minimum wage requirement under the current regulations if they spend 20 percent or more of their workweek hours performing work connected to a covered federal contract. The U.S. Department of Labor’s Wage and Hour Division (WHD) and the Federal Acquisition Regulatory (FAR) Council have been instructed to engage in rule-making to implement and enforce the EO. McGuireWoods will closely monitor the rule-making for substantive changes to the current regulations.

All federal contractors should closely review their pricing mechanisms to ensure they are prepared to accurately bid on covered federal contracts that include these enhanced minimum wage requirements. Contractors should pay particular attention to wage determinations in contracts that are fixed-price, labor-hour, or time-and-materials types. Similarly, FAR 52.222-43 and FAR 52.222-44 provide for price adjustments to compensate federal contractors for actual increases in wage and fringe-benefit costs attributable to changes in applicable wage determinations — including changes made to wage determinations where wages are increased by operation of law (such as the new minimum wage EO). Contractors will have the most direct basis for price adjustments if they have service employees presently earning between $10.95 and $15 per hour. However, federal contractors should closely monitor subsequent rule-making by the WHD, which could also increase the wage rates for higher-wage service employees to prevent compression of wages at or just above the $15-per-hour rate.

Please contact the authors if you have any questions about the new federal contractor minimum wage and the potential impact on your business, or if you require assistance interpreting current governing rules and regulations.