The U.S. Department of Labor Announces Final Rule to Increase Minimum Wage for Certain Federal Contractors

On November 22, 2021, the U.S. Department of Labor (DOL) finalized a rule to increase the hourly minimum wage for employees of certain federal contractors beginning January 30, 2022. The final rule implements Executive Order 14026, which President Joe Biden signed earlier this year.

The final rule requires certain federal contractors to pay workers on government contracts at least $15 per hour beginning January 30, 2022. After 2022, the minimum wage will be adjusted annually for inflation at a rate set by the Secretary of Labor.

The increased minimum wage requirement applies to new contracts that will be entered into on or after January 30, 2022. The increased minimum wage requirement also applies to existing contracts where the relevant contract will be extended or renewed, or an option on the contract will be exercised, on or after January 30, 2022. Contracts subject to the increased minimum wage requirement must include a clause mandating that contractors and covered subcontractors flow down the minimum wage requirement into lower-tier subcontracts.

Not all new contracts are subject to the increased minimum wage requirement. The final rule applies only to the following types of contracts:

• Procurement contracts for construction covered by the Davis-Bacon Act
• Contracts for services covered by the Service Contract Act
• Contracts for concessions
• Contracts 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

Furthermore, the final rule applies only to these types of contracts if the wages of workers under the contracts are governed by the Fair Labor Standards Act (FLSA), the Service Contract Act, or the Davis-Bacon Act. The increased minimum wage requirement does not apply to:

• Grants
• Contracts or agreements with Indian tribes
• Procurement contracts for construction that are excluded from coverage of the Davis-Bacon Act
• Contracts for services that are exempted from coverage under the Service Contract Act
• Employees who are exempt from the minimum wage requirements of the FLSA under 29 U.S.C. §§ 213(a), 214(a)–(b)
• FLSA-covered workers performing in connection with covered contracts for less than 20 percent of their work hours in a given workweek
• Contracts that result from a solicitation issued before January 30, 2022, and that are entered into on or between January 30, 2022 and March 30, 2022

However, the DOL “strongly encourages” agencies to modify existing contracts to include the increased minimum wage requirement in contracts that are not considered new contracts under the final rule.

The final rule further provides that the increased minimum wage requirement applies to workers with disabilities whose wages are calculated pursuant to special certificates under the FLSA. But the final rule does not apply to learners, apprentices, messengers, or students whose wages are calculated pursuant to special certificates.

Contractors must notify all workers performing work on or in connection with a covered contract of the applicable minimum wage rate. For workers whose wages are governed by the FLSA, covered contractors must post a notice provided by the DOL in a prominent and accessible place at the worksite so it may be readily seen by workers. Covered contractors that customarily post notices to workers electronically may post the notice electronically provided that the posting is displayed prominently on any website maintained by the contractor that is customarily used for notices to workers about the terms and conditions of employment.

The Final Rule does not override state and local laws that require wages above $15 per hour.

Impact on Tipped Minimum Wage

The final rule also phases out the tipped minimum wage for certain federal contractors according to the following schedule:

• Beginning January 30, 2022, federal contractors must pay tipped workers at least $10.50 per hour
• Beginning January 1, 2023, federal contractors must pay tipped workers 85% of the federal contractor minimum wage
• Beginning January 1, 2024, federal contractors must pay tipped workers the federal contractor minimum wage 

If a tipped worker’s hourly wages and tips do not amount to the higher minimum wage, the federal contractor must increase the hourly wage to make up the difference.

Bearing on Prior Executive Orders

As of January 30, 2022, the final rule supersedes President Barack Obama’s Executive Order 13658, which was issued in 2014 and requires federal contractors to pay federal contract workers $10.10 per hour, indexed to inflation. Under that order, the current minimum wage is $10.95 per hour and the current tipped minimum wage is $7.65 per hour. 

President Biden’s Executive Order 14026 also revoked President Donald Trump’s Executive Order 13838, which provided an exemption from the minimum wage for contracts regarding recreational services on federal lands. In its discussion of the final rule, the DOL explains that the increased minimum wage requirement applies to these types of contracts.

If you have any questions about these matters, please contact one of the Faegre Drinker professionals below for further details.