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Minimum Wage

Regulatory Update: Federal Contractor Minimum Wage Rises

June 17, 2021
Federal contractors and subcontractors are measuring the impact of the Biden Administration’s decision to raise the minimum wage to $15 per hour.

Federal contractors are still trying to measure the impact of the Biden Administration’s decision to raise the minimum wage they are expected to pay their workers.

The April 27 Executive Order increases the minimum wage paid to employees working on or in connection with federal government contracts to $15.00 per hour, effective Jan. 30, 2022. This will be a substantial increase from the current minimum wage of $10.95 applicable to most federal contractors.

In addition, it also applies to federal subcontractors. While it remains to be seen exactly how application of the new minimum wage to subcontractors will be implemented, it is likely that this will be done through a flowdown provision similar to the current federal minimum wage requirements that were adopted under an executive order issued during the Obama Administration.

Also, in each subsequent year after the new minimum wage officially goes into effect in 2022, it will be subject to Consumer Price Index-based increases that will be published by the Secretary of Labor at least 90 days before they are to go into effect.

Under the order, the Secretary of Labor is expected to issue implementing regulations by November 24, and the Federal Acquisition Regulatory Council is directed to amend contract rules to provide the new minimum wage provisions in federal procurement solicitations, contracts and contract-like instruments. This will take place within 60 days after issuance of the implementing regulations issued by the Department of Labor.

Does this mean that the new hourly minimum wage for federal contracts will not be imposed until early next year? Not necessarily, according to Scott Arnold, an attorney with the law firm of Blank Rome.

The Executive Order states that with respect to contracts that are already existing, or that are entered into between April 27, 2021, and Jan. 30, 2022, agencies are strongly encouraged, to the extent permitted by law, to ensure that the hourly wages paid under such contracts are “consistent with” the minimum wages that do not actually go into effect until Jan. 30, 2022.

To the extent agencies heed this encouragement, the executive order will have an impact on wages federal contractors must pay prior to 2022, in Arnold’s view.

While the executive order expressly applies to solicitations issued and contracts awarded on or after Jan. 30, 2022, it also expressly applies to extensions or renewals of, and options exercised under, previously awarded contracts.

“To the extent any of these scenarios result in contractors needing to pay higher wages than lawfully required when the contract was originally bid and awarded, contractors may wish to consider pursuing requests for equitable adjustments,” Arnold suggests.

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