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Biden Raises Federal Contractors’ Minimum Wage

On April 27, 2021, President Biden signed an Executive Order (“Order”) that raises the minimum wage for employees of federal contractors and subcontractors who are working on, or in connection with, a federal government contract. The minimum wage will increase from $10.95 per hour to $15 per hour, effective January 1, 2022. The $15 minimum wage also applies to federal contract workers with disabilities.

Federal agencies must incorporate the $15 minimum wage into solicitations effective January 30, 2022, and effective March 30, 2022, all agencies must incorporate the $15 minimum wage into new contracts. The order does not apply to grants, or to contracts or agreements with Indigenous tribes. The Order does not alter or excuse compliance with any applicable federal or state prevailing wage law, or any local minimum wage law that requires a rate higher than the rate established by the Order.

In addition, the Order provides for a phasing out of the tipped minimum wage. Currently, tipped employees can receive a cash wage that is lower than the minimum wage rate. For tipped employees working for a federal contractor, the cash wage will increase to $10.50 per hour on January 30, 2022. Beginning January 1, 2023, the cash wage for tipped employees will be 85% of the minimum wage rate for federal contractors, and by 2024 the tipped minimum wage will be eliminated.

Beginning January 1, 2023, and every year thereafter, the minimum wage will automatically be adjusted to reflect changes in the cost of living based on the Consumer Price Index (CPI).

The Department of Labor and the Federal Acquisition Regulatory (FAR) Council will be responsible for issuing and implementing regulations consistent with this Order.

Next Steps for Employers

Federal contractors must ensure that any subcontractors they engage also agree that the minimum wage paid to workers employed in the performance of the subcontract will be at least $15 per hour.

Employers with tipped workers must ensure that tipped employees receive compensation that is at least equal to the minimum wage rate. This may require increasing a tipped employee’s cash wage so that the employee’s cash wage and tips, when combined, are at least equal to the minimum wage rate.

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