New minimum wage requirements for federal contractors: Key takeaways

On April 27, 2021 President Joe Biden issued an Executive Order that will increase the minimum wage paid by federal government contractors to their employees beginning in January 2022.

This Executive Order builds upon President Barack Obama’s Executive Order 13658 and requires that all employees working “on or in connection with” a federal government contract be paid a minimum of $15 per hour. This new minimum rate is significantly higher than the minimum wage mandated in the Obama-era Executive Order. Moreover, as discussed below, the Biden EO eliminates several exemptions that were previously applicable to contractors.

More information about the EO will be released in the coming months through its implementing regulations, to be issued by November 24, 2021. In the meantime, government contractors should anticipate and prepare for the new minimum wage to help mitigate any impact to their operations and work forces.

Key aspects of the Executive Order

President Biden’s EO 14026: Increasing the Minimum Wage for Federal Contractors applies to all “contracts and contract-like instruments,” contract extensions or renewals of existing contracts, and exercised option periods. It also applies to subcontractors at all tiers, so prime contractors must be diligent to flow down the new requirement, as applicable.

Contracts subject to this Executive Order include contracts for services or construction, contracts covered by the Service Contract Act, Davis-Bacon Act, or Fair Labor Standards Act, concessions contracts, contracts for federal property, and services for federal employees, their dependents, and the general public. This EO does not apply to federal grants.

The minimum wage requirement applies to “workers working on or in connection with a Federal Government contract.” The EO does not apply to employees who do not work for government contractors, or to employees of government contractors who do not work on or in connection with federal construction and service contracts.

Definitions of key terms will be provided by November 24, 2021 when the Department of Labor releases the implementing regulations. The subsequent comment period may provide additional clarification and responses to questions or concerns raised by contractors and other stakeholders. Sixty days after the Secretary of Labor releases the regulations, the FAR Council will amend the FAR to include the minimum wage requirement.

Starting January 30, 2022, agencies will be required to include the $15 minimum wage requirement in all new solicitations, and, by March 30, 2022, all agencies will be required to incorporate the wage requirement into new contracts. Any existing contracts must incorporate the $15 minimum wage when the parties exercise annual option periods. It is important that contractors continue to monitor the minimum wage as it will be automatically adjusted each year to account for changes in the cost of living.

Some agencies may begin to implement this change prior to January 30, 2022  – President Biden has “strongly encourag[ed]” agencies to ensure compliance with the $15 minimum wage requirement in the time between issuance of the Executive Order and the effective dates.

Some questions remain

Several questions remain for contractors. For example, it is unclear whether workers subject to collective bargaining agreements are required to be paid at least $15 per hour. There has also been no information as to whether temporary or seasonal workers are subject to the Executive Order.  While the Executive Order does not address these issues explicitly, it appears that the intent is for the minimum wage requirements to apply broadly. 

Furthermore, the EO seeks to eliminate existing exceptions for tipped workers and workers with disabilities and to create a more uniform standard. 

While important details will be provided in the implementing regulations, the resulting regulations seem unlikely to adopt a narrow interpretation of the minimum wage requirements.  In any case, contractors must be diligent to ensure their proposed prices align with applicable minimum wage requirements and that they are vigilant in invoking any rights to an equitable adjustment where wage and benefit requirements under existing contracts are changed by operation of law, or otherwise. 

Outstanding issues and takeaways

• Review your contracts. Pay attention to any service contracts and subcontracts that contain, for example, FAR 52.222-43–Fair Labor Standards Act and Service Labor Standards – Price Adjustment (Multiple Year and Option Contracts) and FAR 52.222-44–Fair Labor Standards Act and Service Labor Standards – Price Adjustment.  Such contract vehicles and related renewals and options are likely to be affected by the new $15 minimum wage. Agencies are required to include the revised FAR requirements in new contracts by March 30, 2022, and they may begin earlier than the deadline. Review all requirements when reviewing solicitations and submitting offers, as agencies may include the new minimum wage before their deadline of January 30, 2022. Any contracts with option years remaining will also be subject to the minimum wage requirement at the time of option exercise.
• Be proactive. Identify employees working on or in support of covered federal government contracts. While this may seem straightforward, it can involve nuance and subjective judgments. Early planning to ensure these employees will be paid at least the required $15/hr. can save administrative challenges and help avoid disruption to the business.
• Watch for guidance. Pay attention to any guidance released by the Department of Labor regarding wage determinations changing as a result of this executive order. Implementing regulations will be made available on or before November 24, 2021. These will likely provide further guidance for contractor and agencies before the requirements go into effect on January 30, 2022.

To learn more about the implications of the Executive Order for your business, please contact any of the authors.

*Leslie Edelstein is a law clerk in DLA Piper’s Government Contracts group, based in Washington, DC.