On April 27, 2021, President Biden issued an Executive Order requiring federal contractors and subcontractors to pay a minimum wage of no less than $15.00 per hour to all workers who are working on federal construction and/or services contracts and to $10.50 per hour for tipped workers. This Executive Order builds on President Obama’s Executive Order 13658, issued in February 2014, which required federal contractors to pay employees working on federal contracts a minimum of $10.10 per hour, indexed to inflation. The current minimum wage for workers performing work on covered federal contracts is $10.95 per hour and the current tipped minimum wage is $7.65 per hour. The Economic Policy Institute estimates that this Executive Order will affect nearly 400,000 federal contract workers. The Secretary of Labor must issue implementing regulations for this Executive Order by no later than November 24, 2021.
When Will This New Minimum Wage Take Effect?
- Starting on January 30, 2022, all agencies will incorporate a $15.00 per hour minimum wage for workers on federal construction and/or services contracts and a $10.50 per hour minimum wage for tipped workers in new contract solicitations (although agencies may incorporate these increased minimum wages in new contract solicitations prior to this date).
- By March 30, 2022, all agencies will need to implement the $15.00 minimum wage for workers on federal construction and/or services contracts and the $10.50 minimum wage for tipped workers into new contracts.
- Agencies must also implement the higher minimum wage requirements into existing contracts when the parties exercise their option to extend contracts, which typically occurs annually.
Will the $15.00 Minimum Wage Be Indexed For Inflation?
Yes – the minimum wage will start at $15.00 per hour in 2022, but for each year after 2022, the $15.00 minimum wage will be automatically adjusted to reflect changes in the cost of living using the Consumer Price Index for Urban Wage Earners and Clerical Workers.
How Will the $15.00 Minimum Wage Affect the Tipped Minimum Wage?
- Executive Order 13658 raised wages for tipped workers but did not completely phase out the subminimum wage for tipped workers. The current Executive Order goes one step further and ensures that tipped workers will earn closer to and later the same minimum wage as other employees on federal contracts.
- The wage that must be paid by an employer to a tipped worker shall be at least $10.50 per hour beginning on January 30, 2022.
- Beginning on January 1, 2023, the wage that must be paid by an employer to a tipped worker shall be no less than 85% of the wage in effect for a non-tipped worker.
- Beginning January 1, 2024, and for each year thereafter, the wage that must be paid by an employer to a tipped worker must be no less than 100% of the wage in effect for the non-tipped worker.
Are There Any Exceptions?
- Yes – Executive Order will not apply to grants, contracts, contract-like instruments, or agreements with Indian Tribes under the Indian Self-Determination and Education Assistance Act.
- Currently, no other exceptions to this Executive Order exist but may be set forth in the implementing regulations to be issued later this year.