On April 27, 2021, President Biden issued an Executive Order on Increasing the Minimum Wage for Federal Contractors, requiring covered government contractors and subcontractors to pay workers performing work on or in connection with a government contract at least $15.00/hour.

The increase, which is generally effective on January 30, 2022, comes four months after President Biden directed his administration to “start work” to allow him to issue the Executive Order. Currently, covered government contractors and subcontractors have to pay their workers working on or in connection with a government contract or subcontract at least $10.95/hour. The Executive Order states that federal contractors paying their workers at least $15.00/hour will bolster economy and efficiency in federal procurement.

The Executive Order directs the Department of Labor to issue regulations implementing the Executive Order by November 24, 2021. Within 60 days of the issuance of the Department of Labor regulations, the FAR Council is to amend the FAR to include a clause requiring the $15.00/hour minimum wage.

The $15.00/hour minimum wage applies to new solicitations issued on or after January 30, 2022, and new contracts awarded on or after March 30, 2022, that are governed by the Davis-Bacon Act, the Fair Labor Standards Act, or the Service Contract Act. It also will apply to contract extensions and . While the increase in the minimum wage is not required until 2022, the Executive Order strongly encourages the executive agencies to include the $15.00/hour minimum wage in solicitations issued and new contracts awarded before January 30, 2022. Therefore, contractors should carefully review new solicitations and contracts to see if the new minimum wage requirement has been included.

The $15.00/hour minimum wage will be adjusted for inflation annually beginning on January 1, 2023, based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (United States city average, all items, not seasonally adjusted).

The Executive Order also phases out the tipped minimum wage by 2024. The tipped minimum wage will be increased to $10.50/hour starting on January 30, 3022. Thereafter it will be increased to 85% of the adjusted minimum wage until the tipped minimum wage equals the federal minimum wage beginning on January 1, 2024.

To the extent government contractors and subcontractors currently are paying wages below $15.00/hour, they should be prepared to provide higher wages on future contracts as well as contract options and extensions. It is likely that the new regulations will provide for an equitable adjustment if the contractor or subcontractor is required to pay higher wages for contract options and extensions. Government contractors and subcontractors will need to factor in wage increases for new contracts in their bids and proposals.

 

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