On April 27, 2021, President Biden signed an Executive Order raising the minimum wage from $10.95 to $15.00 per hour for certain federal contractors, starting January 30, 2022. The Executive Order will apply to any new contract; new contract-like instrument; new solicitation; extension or renewal of an existing contract or contract-like instrument; and exercise of an option on an existing contract or contract-like instrument” for certain covered contracts. These covered contracts include procurement contracts for services or construction; Service Contract Act (“SCA”) contracts; concession contracts; and contracts related to federal property and the offering of services the general public, federal employees, and their dependents. These are the same categories that are already covered by the current federal contractor minimum wage requirement.
The Department of Labor (“DOL”) is tasked with issuing implementing regulations no later than November 24, 2021, and the FAR Council is required to amend the FAR within 60 days of DOL issuing such regulations. It is not yet known how the DOL will account for this change in their future wage determinations. When the federal minimum wage was last increased in 2015, the DOL included a note in each wage determination informing contractors of the new minimum wage but did not make changes to the individual labor categories. This minimum wage increase will impact many more labor categories than the previous wage increase did, as there are several labor categories with prevailing wages currently below the $15 minimum. The impact will be the greatest in industries and in areas of the country where prevailing wages are currently lower than $15.00. Raising the minimum wage of these traditionally lower-paid positions may cause a ripple effect eventually leading to an increase in the prevailing wages for other labor classifications and nearby regions, which may in time come to be reflected in the Department of Labor’s wage determinations.
Federal contractors should keep in mind both the immediate and long-term impact this minimum wage increase may have on their existing contracts and upcoming opportunities. Contractors should assess whether they have any covered contracts and any employees whose wages will be impacted by this increase. Although the Executive Order does not specific how this cost increase will be accounted for in current contracts, most likely contractors will be able to request a price adjustment for any increases to the wages and fringe benefits required by the increased minimum wage. The Executive Order “strongly encourages” agencies to include these terms in contracts that result from solicitations issued within 60 days of the January 30, 2022 effective date. Thus, contractors should also begin monitoring solicitations issued during that time period for language incorporating the new minimum wage requirements.
Stephanie Wilson is a Partner and Co-Director of Government Contracts at Berenzweig Leonard. She can be reached at [email protected]. To sign up for our monthly government contracts newsletters, please email [email protected].