The Deadline is Here for Federal Contractors to Start Paying at least $15 an Hour

President Biden’s $15 hourly minimum wage for employees of federal contractors officially took effect on Sunday. 

Biden announced this initiative shortly after taking office in January 2021, then followed up with an executive order in April. The final regulation, which was issued in November, will be indexed for inflation. It also eliminates the tipped minimum wage for federal contractors by 2024, ensures workers with disabilities don’t earn a sub-minimum wage and protects outfitters and guides working on federal lands, reversing a policy from the Trump administration. 

“The $15 minimum wage required by Executive Order 14026 applies only to contracts entered into, renewed or extended (pursuant to an exercised option or otherwise) on or after Jan. 30, 2022,” Labor Department spokesperson Edwin Nieves told Government Executive on Thursday. “Despite recent litigation, the DOL is proceeding with the implementation of [the executive order].” 

Government Executive reported on one legal challenge in December. The U.S. District Court for the District of Colorado denied the plaintiff's request for a preliminary injunction on the rule on Jan. 24 and they appealed that decision last Wednesday. 

“Contracting agencies will need to take appropriate implementing steps to ensure that covered contracts comply with the executive order’s requirements by, for example, incorporating the relevant contract clause into covered contracts,” Nieves continued. 

More than 300,000 individuals will be impacted in the first year

To help contractors and contracting agencies prepare for implementation, the Labor Department’s Wage and Hour Division issued fact sheets, frequently asked questions and answers, a training video and other materials as well as hosted two virtual seminars last week. Also, training on the executive order will be included in the Wage and Hour Division’s prevailing wage seminars in the spring, said Nieves. The Labor Department estimated that 327,300 individuals will be affected in the first year of implementation.  

Laura Mitchell, an attorney at Jackson Lewis P.C. who specializes in pay equity and government contracts, pointed out in an interview with Government Executive on Thursday that President Obama issued a similar executive order in 2014, so contractors and contracting agencies have experience with this. 

“I think wages are always a potential issue,” she said. “However, for federal contractors part of the bid process is putting forth what your costs would be to complete the contract, so contractors have the ability to work into pricing labor, the cost of labor. So essentially, flowing through to the government any increased cost that they would incur by an increased minimum wage.” This potential issue is for small and large businesses. 

Also, “it’s not as though everything happens on Jan. 30,” she said. “You could have a contract a year from now that would include this provision, so it's really about monitoring the terms of any new contracts.”

Timothy Taylor and Eric Crusius, partners at the law firm Holland & Knight, wrote in a December post that, “the procedures and penalties for enforcement of the new requirement are essentially the same as those in place already for the pre-existing minimum-wage requirement and are similar to those for Davis-Bacon Act and Service Contract Act violations.” According to them, “the procedures are byzantine and the penalties are harsh.”

Stan Soloway, president and CEO of Celero Strategies, LLC and an expert in federal contracting, told Government Executive on Friday that wage compression could become an issue over time. Wage compression is when there is only a small difference in salary among employees regardless of their experience levels. This is “raised in the rule, but not addressed,” Soloway said.

The Federal Acquisition Regulatory Council issued an interim final rule earlier this week to apply the $15 minimum wage increase to FAR-based contracts, as anticipated. It also took effect on Sunday, but the difference is “the FAR Council’s rule only applies to contracts that are governed by the Federal Acquisition Regulation (a big book of rules used for most, but not all, federal government contracts),” Taylor told Government Executive on Friday. “The Labor Department’s rule additionally covers all other federal government contracts.” 

“A little more breathing room”

The upcoming wage increases for federal employees and contract workers “will provide those workers and their families a little more breathing room,” said Biden in a statement on Friday. “And because we know that higher wages boost productivity and mean lower job turnover, these orders will allow the government to do its work better and faster.” The president once again called on Congress to raise the federal minimum wage to $15 an hour.

As of Jan. 1, the minimum wage was increased in 21 states and 35 cities and counties, which reached or exceeded $15 in two states and 31 cities and counties. Then later in 2022, four more states and 22 local jurisdictions will increase their wage floors and in 17 cities and counties it will reach or exceed $15, according to a report from the National Employment Law Project. This is a “record number” of wage increases, according to the report. 

The “Fight for $15," movement, which will mark its 10-year anniversary in November 2022, “has influenced policy debates and the public conversation about fair pay and workplace rights,” but there is more to be done, said the report. 

“The COVID-19 pandemic has forced a reckoning in low-wage industries and throughout the economy,” the report continued. “Low pay, a lack of job security, and poor working conditions are endemic in service and other frontline jobs, with disproportionate effects on Black women, Latinas, and Asian Americans of any gender.”