DOL Issues Proposed Rule Increasing Minimum Wage Rate for Federal Contractors

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As we discussed in our April 2021 E-Update, President Biden signed an Executive Order (EO) increasing the minimum wage rate applicable to government contractors and subcontractors to $15 an hour – a significant increase from the current rate of $10.95. The U.S. Department of Labor has now issued a proposed rule to implement the EO, which, according to the DOL, will:

  • “Increase the minimum wage for workers performing work on or in connection with covered federal contracts to $15 per hour beginning Jan. 30, 2022.” This is an increase from the current, already escalated rate of $10.95 per hour that went into effect on January 1, 2021.
  • “Continue to index the federal contract minimum wage in future years to an inflation measure.” This measure is the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers (United States city average, all items, not seasonally adjusted) (CPI-W).
  • “Eliminate the tipped minimum wage for federal contract workers by 2024.” Currently, the applicable tipped rate is $7.65. Under the proposed rule, it would increase to $10.50 per hour beginning on January 30, 2022, further increased to 85% of the applicable minimum wage the following year, and phased out altogether by 2024.
  • “Ensure a $15 minimum wage for workers with disabilities performing work on or in connection with covered contracts.” Currently, employers who are certified by the DOL are permitted to pay a subminimum wage rate to workers with disabilities whose productivity is impacted by their disability.
  • “Restore minimum wage protections to outfitters and guides operating on federal lands.”

With limited exceptions, the EO will apply to: new contracts; new contract-like instruments; new solicitations, extensions, or renewals of existing contracts or contract-like instruments; and exercises of options on existing contracts or contract-like instruments entered into or renewed after January 30, 2022. The following arrangements are covered: procurement contracts for services or construction; services contracts covered by the Service Contract Act; concessions contracts; and contracts entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public. In addition, the wages of the workers must be governed by the Fair Labor Standards Act, the SCA, or the Davis Bacon Act. Contractors will need to ensure that their subcontractors also abide by the requirements of the EO and the implementing rule.

The DOL is accepting comments from the public on the rule here, through August 23, 2021. The DOL will then consider the comments and may make changes to the proposed rule before issuing a final rule.