On April 27, 2021, President Biden issued an executive order (EO) that will, beginning in early 2022, raise the minimum hourly wage from $10.95 to $15.00 for workers working on or in connection with covered federal contracts and subcontracts. More information about the EO is available on the Administration’s fact sheet. This minimum wage will increase in subsequent years based on inflation. The EO makes good on the Administration’s announcement in January that the President would increase the minimum wage requirements for federal contractors in his first 100 days in office.   

When do the new requirements take effect?

The EO applies to “new contracts; new contract-like instruments; new solicitations; extensions or renewals of existing contracts or contract-like instruments; and exercises of options on existing contracts or contract-like instruments” that are entered into, extended, renewed, or exercised on or after January 30, 2022. Contractors whose existing contracts are impacted by the EO should consider whether they are able to recover under Federal Acquisition Regulation (FAR) price-adjustment provisions the price increases that result from the requirement to pay higher wages. Although contracts predating January 30, 2022 are not covered, the EO “strongly encourage[s]” agencies, “to the extent permitted by law,” to increase the minimum wage requirements in their contracts.

Which types of contracts does the EO cover?

Generally, the new wage requirements apply to construction and services contracts and “contract-like instruments” subject to the workers’ wage rules of the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act.

Importantly, the EO directs agencies to flow down the higher minimum wage requirements into covered subcontracts.

What should contractors expect in the near future?

The EO directs the Department of Labor (DOL) to issue implementing regulations by November 24, 2021. The regulations will delineate more precisely how the EO will be applied; however, contractors should expect that the regulations will be similar to those issued under Executive Order 13658, which was issued under the Obama Administration.

No more than 60 days after the DOL issues its rules, the FAR Council must update the FAR to include a clause that requires contractors to pay employees who work on federal contracts the new minimum wage and to extend the wage requirements to “covered subcontractors.”

Finally, the EO states that DOL may enforce the new minimum wage requirements and establish in regulations the process for resolving disputes over the new requirements. Given that the Administration’s Fiscal Year 2022 Discretionary Funding Request seeks more spending on DOL’s enforcement activities, contractors should anticipate that DOL investigators will scrutinize contractors’ compliance with the new wage requirements.

Are there any other impacts of the EO?

Separately, the EO phases out the sub-minimum wage for tipped workers working on or in connection with federal contracts and subcontracts; by January 1, 2024, federal contractors must pay these workers the higher minimum wage paid to other workers. Lastly, the EO rescinds Executive Order 13838, which President Trump issued in 2018, and which exempted certain seasonal recreational workers who work on contracts on federal lands from higher minimum wage requirements.