On April 27, 2021, President Biden issued an Executive Order requiring federal contractors to pay a $15.00/hour minimum wage impacting about 390,000 employees of federal contractors. Estimates project it may lead to an average pay increase for annual, hourly workers of $3,100. Overall, the EO will result in a significant wage jump of almost a third from the former $10.95/hour federal wage.
The Timeline for Implementing:
- By January 30, 2022, federal agencies must include the new $15.00/hour minimum wage requirement in solicitations.
- By March 30, 2022, agencies must include increased minimum wage requirements into new contracts and into contract extensions.
- Agencies will need to continue indexing minimum wage with inflation adjustments each year year after 2022 and adjust the wages further to reflect cost of living increases.
- Federal contractors who employ workers with disabilities will need to extend the $15 minimum wage to these workers.
- The EO also requires that tipped employees be paid the $15 an hour minimum wage as well.
The minimum wage will apply once again to guides and outfitters related to Recreational Services on Federal Lands. What is being said about the EO?
During his campaign, President Biden repeatedly promised to raise the minimum wage on federal contracts.
Those who favor the wage increase believe it will boost the productivity and health of the economy, incentivize workers, and reduce inequality. Those against it believe it will have a detrimental effect on businesses by significantly increasing labor and accounting costs for businesses, many of which are already struggling as a result of the pandemic, and may lead to increased FLSA litigation.
A study released by the nonpartisan Congressional Budget Office in February found that raising the federal minimum wage to $15 an hour would bring nearly 1 million people out of poverty over the next four years, but it also found that it would result in the loss of 1.4 million jobs, raise the cumulative budget deficit by $54 billion from 2021 to 2023 and result in higher prices for goods and services.
What does this mean for federal contractors?
Federal government contractors will need to factor increased labor costs into their costs and pricing when pursuing federal opportunities. Contractors need to be prepared to provide minimum wage to extensions.
Contractors should also be sure that their finance systems will be prepared to implement this new rate. Contractors should continue to maintain updated, accurate and complete payroll information because there will likely be an increase in government audits and investigations of compliance with regulations that will implement this Executive Order, as well as the Fair Labor Standards Act.
As with most wage increase mandates, this Order may have a disproportionate, adverse impact on small businesses attempting to maintain and obtain additional government work. It will also create wider wage disparity issues for employers who engage in both federal contract services as well as private work; especially in states such as Pennsylvania, Georgia, and Wyoming with significantly lower minimum wages.
Cassidy Law counsels businesses as they navigate the complex rules and regulations involved with federal government contracting. Reach out if you have questions on these or any of Biden’s new EO’s that impact federal government contractors.