President Biden Imposes $15 Minimum Wage Rate on Government Contractors

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On April 27, 2021, President Biden signed an Executive Order 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. With limited exceptions, the E.O. 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 for procurement, services or construction – after January 30, 2022.

The E.O. asserts that, “Raising the minimum wage enhances worker productivity and generates higher-quality work by boosting workers’ health, morale, and effort; reducing absenteeism and turnover; and lowering supervisory and training costs.” Thus, effective January 30, 2022, government contractors and subcontractors must pay workers on covered federal contracts at least the $15 rate. The rate will increase annually by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. However, if a federal/state prevailing wage law or a state/local law or ordinance provides for a minimum wage rate that is higher than the E.O., the higher rate applies.

The E.O. also phases out the tipped employee rate. Under current law applicable to federal contractors, an employer of tipped employees can satisfy its obligation to pay those employees the current contractor minimum wage rate of $10.95 by paying those employees a lower direct cash wage (no less than $7.65/hour) and counting the employees’ tips as a credit to satisfy the difference between the direct cash wage and the minimum wage. The E.O. sets a new tipped rate of $10.50 effective January 30, 2022, with an increase to 85% of the applicable contractor minimum wage rate the following year, and then the elimination of the tipped rate starting January 30, 2024.

The Secretary of Labor is directed to issue regulations implementing this E.O. by November 24, 2021.