Final Regulations to Up Federal Contractor Minimum Wage to $15 by January 30, 2022
December 18, 2021
On April 27, 2021, President Biden signed an Executive Order (EO 14026), “Increasing the Minimum Wage for Federal Contractors.” The EO sets the hourly minimum wage paid to workers performing work on or in connection with covered federal contracts to $15.00 per hour, beginning January 30, 2022. Beginning January 1, 2023, and annually thereafter, the minimum wage will have inflation-based increases to be determined by a methodology published by the Department of Labor. This EO revokes EO 13658 which had previously set the federal contractor minimum wage as of January 30, 2022.
The final regulations under the EO were promulgated on November 22, 2021. The EO and final regulations apply to the following types of contracts:
- Procurement contracts for construction covered by the Davis-Bacon Act, but not the Davis-Bacon Related Acts
- Service Contract Act (“SCA”) covered contracts
- Concessions contracts
- Concessions contract means a contract under which the federal government grants a right to use federal property, including land or facilities, for furnishing services. The term concessions contract includes but is not limited to a contract the principal purpose of which is to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment, regardless of whether the services are of direct benefit to the government, its personnel, or the general public
- Contracts related to federal property and the offering of services the general public, federal employees, and their dependents
On the other hand, the regulations do not apply to:
- Contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the federal government
- Contracts or agreements with Indian Tribes under the Indian Self-Determination and Education Assistance Act
- Contracts excluded from coverage under the SCA or DBA specifically excluded in the implementing regulations
- Other contracts specifically excluded. See NPRM Section 23.40
The regulations apply to “new contracts” after January 30, 2022, but that term is more expansive than it appears. “New Contracts” include extensions or renewals of existing contracts or contract-like instruments and exercises options on existing contracts or contract-like instruments on or after January 30, 2022. Thus, the federal government may unilaterally exercise an option in an “old” contract not subject to the $15 rate and make the contract subject to the new $15 wage requirement.
Contracts include contracts performed in U.S. territories, not just the 50 states.
Only workers who are non-exempt under the Fair Labor Standards Act and performing work on or in connection with a covered contract must be paid $15 per hour. The wage requirement applies only to hours worked on or in connection with a covered contract.
A worker performs “on” a contract if the worker directly performs the specific services called for by the contract. A worker performs “in connection with” a contract if the worker’s work activities are necessary to the performance of a contract but are not the specific services called for by the contract.
The Final Rule includes a “less-than-20% exception” for those workers who only perform work “in connection with” a covered contract, but do not perform any direct work on the contract. For workers who spend less than 20% of their hours in a workweek working indirectly in connection with a covered contract, the contractor need not pay the $15 wage for any hours for that workweek. For example, an HR Assistant that assists with recruitment for a federal project may be covered. Payroll who does it for all employees may not be covered.
For most federal contractors, this Executive Order will not likely impact them. For smaller federal contractors and hospital systems who do not have a $15 an hour wage base, they will have to adjust wages and benefits accordingly. The issue is whether subcontractors’ wage increases will be passed on to contractor costs and ultimately the federal government in future contracts.
Any federal contractor using temporary employees must review whether these employees fall under EO 14026, and if so, make wage adjustments, if necessary, as well as for compliance purposes.
With respect to DisabilityOne contracts and any disabled employees, the contractor must pay all covered workers at least $15.00 per hour for all hours spent performing on or in connection with that contract, beginning January 30, 2022. It does away with the subminimum wage for disabled employees.
Finally, notice must be provided to all employees of the new federal contractor minimum wage. The contractor may meet the Executive Order notification requirement by posting, in a prominent and accessible place at the worksite and/or online. Notice will be available closer to January 30, 2022, from the U.S. DOL.