President Biden Orders Federal Contractors to Pay $15 Minimum Wage

The new requirement promotes federal procurement with companies that adequately and fairly compensate their employees, according to the White House. The order states that a higher minimum wage enhances worker productivity, generates higher-quality work, boosts worker morale, reduces absenteeism and turnover, and lowers supervisory and training costs. 

The order not only affects employees of prime contractors but also employees on subcontracts with the federal government.

Specifically, federal agencies are required to:

• Increase the hourly minimum wage for federal contractors to $15. To be included in:
  • New solicitations beginning January 30, 2022.
  • New contracts by March 30, 2022.
  • Existing contracts when options are exercised.
• Continue to index the minimum wage to an inflation measure.
• Eliminate the tipped minimum wage for federal contractors by 2024.
• Ensure a $15 minimum wage for federal contract workers with disabilities.
• Restore minimum wage protections to outfitters and guides operating on federal lands.

Labor’s Wage and Hour Division and the Federal Acquisition and Regulatory Council are responsible for rulemaking to implement and enforce this executive order. Implementation regulations are to be issued by November 24, 2021.

Biden’s action builds on a 2014 Obama-era order, which increased the minimum wage for contractors to $10.10 an hour. Because the rate is indexed for inflation, it currently stands at $10.95 an hour.

According to the Economic Policy Institute, approximately 390,000 federal contract employees will see a raise under the policy, amounting to an average $3,100 pay increase per year. Using these calculations, the American Action Forum estimates that the new policy once fully implemented could cost the federal government an additional $1.2B per year in contract pricing increases.

According to the White House fact sheet, the new minimum wage requirement will likely impact workers supporting the federal government in areas such as janitorial staff, maintenance workers, nursing assistants, food service workers, and construction laborers. Contractors in these industries should monitor guidance as it is published and expect to increase employee wages and federal contract pricing accordingly as the new wage requirement is implemented.