Federal Contractor $15 Minimum Wage Now Effective

The Department of Labor’s (DOL) final rule implementing Executive Order 14026 (EO), which raises the minimum hourly wage from $10.95 to $15.00 for certain workers working on or in connection with covered federal contracts and subcontracts, became effective on January 30, 2022. Contractors should determine whether they are covered by the final rule and, if so, ensure that they are in compliance.

As a reminder, the final rule does not automatically apply to all workers. Rather, it applies to:

  1. certain non-exempt workers
  2. working on or in connection with covered federal contracts or subcontracts
  3. where such contracts or subcontracts are entered into on or after January 30, 2022, and contain a clause requiring the higher minimum wage.

Specifically, the $15 minimum wage rate applies to workers whose wages are governed by the Fair Labor Standards Act (FLSA), the Service Contract Act (SCA), or the Davis-Bacon Act and who are performing work on:

  • procurement contracts for construction covered by the Davis-Bacon Act;
  • contracts for services covered by the SCA;
  • contracts for concessions (including those excluded from coverage under the SCA); or
  • contracts entered into with the federal government in connection with federal property and related to offering services for federal employees, their dependents, or the general public.

Certain contracts are excluded from the requirement. These include:

(i) grants;

(ii) contracts with Indian Tribes under the Indian Self-Determination and Education Assistance Act, as amended;

(iii) procurement contracts for construction that are not covered by the Davis-Bacon Act;

(iv) contracts for services that are exempted from the SCA; and

(v) contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the federal government, including those that are subject to the Walsh-Healey Public Contracts Act.

The minimum wage also does not apply to:

(i) exempt employees under the FLSA;

(ii) learners, apprentices, or messengers;

(iii) students;

(iv) employees in a bona fide executive, administrative, or professional role; and

(v) FLSA-covered employees who do not work “on” covered contracts and perform less than 20     percent of their work in a particular workweek working “in connection with” covered contracts.

The minimum wage rate only applies to work performed in the United States and certain outlying areas. To the extent that a worker performs some of their work under the contract outside these areas, that work will not be subject to the $15 minimum wage rate requirement.

The $15 minimum wage requirement must flow down to covered subcontractors. Thus, any subcontractors on a covered contract (or covered subcontract) must flow the EO minimum wage contract clause down to any lower-tier subcontractors. The prime contractor and higher-tier contractor will be responsible for subcontractor or lower-tier subcontractor compliance.

Beginning January 1, 2023, and annually thereafter, the minimum wage may be increased (but not decreased) to reflect inflation.

Separately, the final rule also increases the tipped hourly minimum wage for covered workers to $10.50 (from $7.65), and will gradually phase out the tip credit for covered contractors in succeeding years.

Federal contractors should be on the lookout for the incorporation of the minimum wage clause in new contracts and be prepared to come into compliance.

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