Publication

May 6, 2021Client Alert

President Biden Signs Executive Order Raising the Minimum Wages for Many Workers on Federal Contracts

On April 27, 2021, President Biden issued an Executive Order on Increasing the Minimum Wage for Federal Contractors (the Biden Executive Order) mandating a wage of at least $15 an hour for workers on many government contracts and $10.50 an hour for tipped employees. The increased wages will apply to new contracts entered into on or after January 30, 2022. In addition, the new minimum wages will apply to existing contracts which are modified, extended, renewed or subject to exercise of options on or after January 30, 2022. The Secretary of Labor annually will publish increases in the minimum rates.

The Biden Executive Order is in many ways similar to President Obama’s 2014 Executive Order 13658 (EO 13658) on minimum wages for contractors. Both Executive Orders apply to workers whose wages are governed by the Fair Labor Standards Act, the Service Contract Act, or the Davis-Bacon Act and who work on or in connection with:

  1. procurement contracts or contract-like instruments for services or construction;
  2. contracts or contract-like instruments for services covered by the Service Contract Act;
  3. contracts or contract-like instruments for concessions, including any concessions contract not covered by the Service Contract Act; or
  4. contracts or contract-like instruments entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

Notably contracts that are purely for the sale of goods, loans, and grants are not covered by the Executive Orders.

Although the two orders identify the same the four types of contracts to which the minimum wage obligations apply, there are some important differences between the two Executive Orders. In addition, the Department of Labor under the Biden Administration may make different regulatory decisions which could make the Biden Executive Order applicable to more contractors. For example, in drafting regulations and over the objection of the AFL-CIO, the Department of Labor under Obama made the decision that EO 13658 would not cover service contracts exempted from the Service Contract Act and construction contracts not covered by the Davis-Bacon Act. This meant that many contracts for things like automobile services, financial services, hotel conferences, transportation, real estate services, or where most of the work would be performed by workers exempt from the FLSA, were not subject to the minimum wage requirement. With Marty Walsh, a former union official, as Secretary of Labor, it is possible that the Biden administration will make a different decision about including service contracts not covered by the Service Contract Act within the mandated minimum wages.

In addition to a possible expansion of the types of contracts covered, the Biden Executive Order differs in how annual wage increases will be calculated and how tipped workers will continue to be paid. Rather than pegging wage increases to changes in the Consumer Price Index, the Biden Order uses the Consumer Price Index for Urban Wage Earners and Clerical Workers, which is based on the expenditures of households in which more than half of the income comes from clerical or wage occupations. The Biden Order also will phase out the lower wage for tipped workers. In 2023, the minimum tipped wage will be 85 percent of the minimum wage and starting in January 2024 the wage for tipped workers must be equivalent to the wage for non-tipped workers covered by the Executive Order.

The Biden Executive Order requires the Department of Labor to issue regulations by November 24, 2021. Until then, contractors potentially covered by the Biden Executive Order can look to the Department of Labor fact sheets and information on EO 13658 on the Department of Labor’s website.  Due to the similarity in the Executive Orders, the EO 13658 fact sheets and Frequently Asked Questions provide some guidance on important questions around what it means to be a worker on or working in connection with a contract, options for paying workers who work on covered and uncovered contracts, and what changes in a current contract after January 30, 2022 could make the contract subject to the new wage requirements.

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