Minimum Wage Increase for Federal Government Contractors Due to Inflation
In April of 2021, President Biden issued Executive Order 14026, which increased the minimum wage for employees of federal government contractors to $15. The Executive Order provided that this minimum wage would be adjusted to account for inflation.
On September 29, 2022, the U.S. Department of Labor announced that the $15-an-hour minimum wage for federal contractors will increase to $16.20 because of inflation. The increase will take place January 1, 2023, and will apply to the following contracts for work within the United States and its territories:
- Procurement contracts for construction covered by the Davis-Bacon Act;
- Contracts for services covered by the Service Contract Act;
- Contracts for concessions; and
- Contracts entered with the federal government in connection to federal property or lands and related to offering services for federal employees, their dependents, or the general public and with wages governed by the Fair Labor Standards Act, Service Contract Act, or Davis-Bacon Act.
Executive Order 14026 does not apply to contracts for manufacturing or furnishing materials, supplies, or equipment for the federal government, including those that are subject to the Walsh-Healey Public Contracts Act.
This increase will also apply to tipped federal contractors covered by Executive Order 14026, whose minimum wage will increase to $13.75 per hour, up from $10.50.
Executive Order 14026, and its increase in the federal contractor employee minimum wage, applies to federal contracts entered into after January 30, 2022, and existing federal contracts that are renewed or extended after this date.
Federal contracts of the same kind as are covered by Executive Order 14026 and that were entered into, renewed, or extended prior to January 30, 2022, may be subject to Executive Order 13658 and its lower minimum wage requirements. The Executive Order 13658 minimum wage is currently $11.25 per hour.
In some cases, federal contractors may be able to request an equitable adjustment for costs of a new compliance obligation, or a price adjustment under their existing contract obligations, and should consider reviewing whether their relevant extant contracts include a change clause that will enable them to recover the additional cost imposed by this increase in the federal contractor minimum wage. Contractors may also argue that any such adjustment should include the differential not only to raise wages below $15 to the new minimum wage, but to increase other wages beyond that threshold to preserve existing wage levels.
There are two lawsuits challenging President Biden’s authority to increase the federal contractor minimum wage through the use of an executive order.
In February 2022, the Tenth Circuit, in Bradford v. U.S. Department of Labor, No. 22-1023, stayed implementation of the rule as it applies to “contracts . . . in connection with seasonal recreational services or seasonal recreational equipment rental for the general public on federal lands.”
On February 9, 2022, the states of Indiana, Idaho, Arizona, Nebraska, and South Carolina filed an action in the Federal District Court for the District of Arizona, Mark Brnovich, et. al. v. Joseph R. Biden, et. al., Case No. 2:22-cv-213-JJT, challenging the President’s ability to increase the federal contractor minimum wage by executive order.
Decisions in both cases are pending.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact a lawyer.
- Industry Group Leader