President Biden’s Administration Issues Executive Order to Raise Minimum Wage for Federal Contractors

On April 27, 2021, President Biden issued an Executive Order (E0 14026) requiring federal contractors to pay a minimum wage of $15/hour, raising the hourly rate from $10.65/hour for federal contractor employees. The increase went into effect on January 30, 2022, providing all agencies time to incorporate language into contract solicitations and contracts, with a final deadline of March 30, 2022. The current national minimum wage for nonfederal contractor employees is $7.25/hour.

Responses to the wage increase within the federal contracting space are varied. Many believe this wage increase may help contractors locate and attract talent in a competitive job market, but other contractors disagree. They are asking for wage determinations to be revised, providing even higher basic hourly rates than the $15/hour minimum. Their argument is that certain regions and metropolitan cities are already paying more than $15/hour for many wage classes. These employers contend that the new federal minimum wage is not adequate to be competitive in hiring skilled and unskilled workers in such markets.

In contrast to that viewpoint, there are many federal contractors that believe a total compensation approach should be considered when recruiting hourly employees, not just the base wage. Hourly service and construction federal contractor employees working in the United States and territories, for example, receive required sick leave of up to 56 hours per year. Additionally, in the service industries, hourly employees receive up to an additional $4.23/hour in fringe dollars to pay for employee benefits expenses required on the contract. The construction industry may have an even greater hourly fringe amount for employee benefits expenses.

Hourly employees working in the United States’ commercial industries do not enjoy the same opportunity for additional hourly pay rates for benefits or sick leave hours as their counterparts working in the federal contracting space. This total compensation approach makes federal service and construction contracts a more attractive working environment. This provides a positive advantage for federal contractors in the recruiting process.

On February 8th, 2022, five states – Arizona, Idaho, Indiana, Nebraska, and South Carolina – sued the Biden administration on the claim that the minimum wage increase was an overstep of presidential authority. The states claim that the Executive Order violates the Procurement Act and the Spending Clause of the U.S. Constitution. The debate over the federal government’s right to impose a higher minimum wage versus the states’ rights to oppose such a mandate is a discussion that has existed for as long as the nation itself – it is unlikely to be resolved any time soon. In totality, workers employed by federal service and construction contracts domestically do enjoy a greater total compensation package than employees working in the nonfederal commercial industries. This is largely due to the fact that they are afforded a greater degree of federally required mandates on the contracts they are employed under.

There are techniques which can be applied to give federal government contractors their best competitive advantage and our AssuredPartners Government Contractor Solutions team is there to help you craft that solution for your client. It is recommended that when working with a federal government contractor, you ask about their approach to labor and pay rates on their contracts. Our Government Contractor Solutions Team is prepared to be your partner and craft a customized solution to fit any contract. Reach out today and see what solutions we have for you.