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Executive order raises federal contractor minimum wage to $15

Accounting Support • Dec 03, 2021
The U.S. Department of Labor just made a huge announcement on Monday: The federal government will be raising the minimum wage for all federal contractors to $15 an hour! This

Background on Minimum Wage Rule Update for Federal Contractors

In April 2021, Executive Order 14026 was signed which instructed the U.S. Department of Labor to update the minimum wage rate for federal contractors. Following this order, the Department of Labor announced changes to the minimum wage requirements for certain groups of federal contractors.

Specifically, the updated rule established a minimum wage of $15 per hour for all workers on federal construction contracts covered by the Davis-Bacon Act. The new minimum wage also applied to service contracts covered by the Service Contract Act. This marked a significant increase from the previous federal contractor minimum wage.

The $15 per hour minimum wage rate went into effect on January 30, 2022 and applied to all new federal contracts solicited on or after that date. Contracts that predated January 30, 2022 were not immediately affected, unless the contracts were modified or extended after that date.


Details on Implementation and Exemptions

Leading up to and following the rollout of the new minimum wage, the Department of Labor worked extensively with federal contractor groups and the Small Business Administration. The goal was to provide guidance and support to contractors, especially small businesses, to smooth the transition and implementation of the pay increase.

The updated minimum wage rule did contain certain exemptions. For example, it did not apply to federal grants, procurement contracts for construction not covered by Davis-Bacon, and specific service contracts that are exempt from the Service Contract Act or its regulations.


Impact on Required Prevailing Wages

For federal contractors performing work subject to prevailing wage statutes like the Davis-Bacon Act, the new $15 per hour minimum served as the wage floor. If the applicable prevailing wage rate calculated for a particular job classification exceeded $15 per hour, contractors were still required to pay the higher prevailing wage.

The intent was for the increased minimum wage to simultaneously elevate prevailing wages and ensure fair compensation for workers on covered federal contracts.


Ongoing Requirements and Provisions

As part of the updated regulations, federal contractors had to comply with notice and posting requirements by visibly displaying applicable wage determinations at contractor job sites.

The Department of Labor also instituted automatic annual adjustments to the minimum wage rate tied to changes in the Consumer Price Index. Moving forward, the DOL determines and publishes new minimum wage rates at least 90 days prior to them taking effect for federal contractors.

In summary, the increased federal contractor minimum wage aimed to leverage the federal government's buying power to positively improve wages for employees of federal contractors.


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