The Department of Labor (DOL) has announced that the hourly minimum wage for employees performing work on covered federal contracts will increase from $17.20 to $17.75 on Jan. 1, 2025. The new minimum wage rate will apply in full to tipped and non-tipped employees, as well as to workers with disabilities.
The Details
Background
Executive Order 14026 was signed by President Biden on April 27, 2021. Executive Order 14026 builds on the foundation established by Executive Order 13658, “Establishing a Minimum Wage for Contractors,” which was signed by President Obama on Feb. 12, 2014. Executive Order 13658 established a minimum wage for certain federal contractors. Executive Order 13658 provided that workers performing on or in connection with covered federal contracts are entitled to a minimum wage of: (i) $10.10 per hour, beginning Jan. 1, 2015; and (ii) beginning Jan. 1, 2016, and annually thereafter, an amount determined and announced by the Department of Labor, accounting for changes in inflation as measured by the Consumer Price Index. That rate has increased each year since 2015.
Executive Order 13658 also established a minimum hourly cash wage requirement for tipped employees performing on or in connection with covered contracts, initially set at $4.90 per hour for 2015 and gradually increasing to 70 percent of the full E.O. 13658 minimum wage over a period of years.
Executive Order 13658 vs Executive Order 14026
While there are a number of similarities between the two executive orders, Executive Order 14026 further raised the minimum wage and phased out a covered employer’s ability to claim a tip credit towards the Executive Order minimum wage owed to tipped employees, and defines “new contract” differently, among other things. In addition, the regulations implementing Executive Order 14026 provide that the Executive Order applies to covered contracts in certain territories of the United States, whereas the regulations implementing Executive Order 13658 did not. These differences and the interaction between the two executive orders are discussed in greater detail on the Department of Labor’s website, as well as in the final rule implementing Executive Order 14026.
Rate Increases
On Sept. 30, 2024, the DOL published formal notice in the Federal Register of the new rate of $17.75 under Executive Order 14026 to take effect Jan. 1, 2025.
The increased wage rate applies to workers performing work “on or in connection with” the following categories of federal contracts entered into on or after January 30, 2022:
- Procurement contracts for construction projects covered by the Davis-Bacon Act (“DBA”);
- Service contracts falling under the Service Contract Act (“SCA”);
- Concessions contracts, including those excluded from the SCA by the DOL regulations at 29 C.F.R. 4.133(b); and,
- Contracts related to federal property or lands and connected to providing services for federal employees, their dependents, or the general public.
Employees who perform work on or in connection with a covered contract are entitled to the increased wage rate if their wages under the contract are governed by the Fair Labor Standards Act (“FLSA”), SCA, or the DBA. Certain categories of employees under the FLSA, however, such as learners, apprentices, messengers, and full-time students employed under certificates are not entitled to the increased wage rate. Review the Department of Labor’s website for more information (see worker coverage).
Contracts entered into, renewed, or extended prior to Jan. 30, 2022, generally remain subject to the minimum wage rate under Executive Order 13658. The operative minimum wage for those contracts will increase from $12.90 to $13.30 per hour and the tipped employee minimum hourly cash wage will increase from $9.05 to $9.30 per hour.
Next Steps
There are several lawsuits challenging Executive Order 14026 and resulting increases in the wage rate. These lawsuits might not be resolved until after Jan. 1, 2025 and the Order might be upheld by the courts. Therefore, impacted federal contractors should be prepared to implement the increase on Jan. 1, 2025 while continuing to monitor the pending lawsuits.