Jacob W. Scott of Smith, Currie & Hancock LLP
Published May 18, 2021
On April 27, 2021, President Biden issued Executive Order 14026 – Increasing the Minimum Wage for Federal Contractors (“EO 14026”), which sets the minimum wage for federal contractors at $15.00 starting in 2022. EO 14026 applies to “workers working on or in connection with a Federal Government contract[,]” making it widely applicable. The order explains, “Raising the minimum wage enhances worker productivity and generates higher-quality work by boosting workers’ health, morale, and effort; reducing absenteeism and turnover; and lowering supervisory and training costs. Accordingly, ensuring that Federal contractors pay their workers an hourly wage of at least $15.00 will bolster economy and efficiency in Federal procurement.” EO 14026 supersedes EO 13658 – Establishing a Minimum Wage for Contractors, and revokes EO 13838 – Exemption From Executive Order 13658 for Recreational Services on Federal Lands.
EO 14026 takes effect immediately, but for practical purposes will kick in on January 30, 2022. After that date, federal agencies are instructed to “ensure that contracts and contract-like instruments … include a clause that the contractor and any covered subcontractors … shall incorporate into lower-tier subcontracts. This clause shall specify that, as a condition of payment, the minimum wage to be paid to workers employed in the performance of the contract or any covered subcontract thereunder … shall be” at least the amount then in effect under EO 14026, rounded up to the nearest nickel. Although the minimum rate begins at $15.00, that rate is to be increased “by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (United States city average, all items, not seasonally adjusted)” starting in January 2023. If any federal, state, or local law requires a wage higher than that required by EO 14026, such as a Department of Labor wage determination in excess of $15.00, employers must pay the higher wage.
Tipped workers must be paid at least $10.50 by an employer. By January 1, 2023, tipped works must be paid at least 85% of the wage in effect under EO 14026. By January 1, 2024, tipped workers will be entitled to the same employer-paid wage as other employees under EO 14026 ($15.00 plus annual Consumer Price Index adjustments).
EO 14026 will apply to all new contracts or contract-like instruments (“an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law”), new solicitations, renewal or extension of a contract or contract-like instrument, and the exercise of an option on an existing contract or contract-like instrument,1 if:
(A) it is a procurement contract or contract-like instrument for services or construction;
(B) it is a contract or contract-like instrument for services covered by the Service Contract Act;
(C) it is a contract or contract-like instrument for concessions, including any concessions contract excluded by Department of Labor regulations at 29 C.F.R. 4.133(b); or
(D) it is a contract or contract-like instrument entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public[.]
However, the identified contracts and contract-like instruments are only subject to EO 14026 if they are also subject to the Service Contract Act, the Davis Bacon Act, or the Fair Labor Standards Act. EO 14026 encourages, but does not require, agencies to include the $15.00 minimum wage requirement in all new solicitations even before January 30, 2022.
The new minimum wage for federal contractors will apply to most, but not all, federal contracts. EO 14026 does not apply to agreements with Indian Tribes under the Indian Self-Determination and Education Assistance Act, or to any other agreements excluded under the regulations to be promulgated under EO 14026.
While EO 14026 may not immediately affect contractors currently paying in excess of $15.00 per hour, the annual cost of living adjustment may require adjustments to wage scales in the future. If your contracts are subject to EO 14026, watch for the applicable regulations, which the Secretary of Labor must issue by November 24, 2021, and the subsequent amendment to the Federal Acquisition Regulation (“FAR”).
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1 Although EO 14026 does not define “contract or contract-like instrument,” the Secretary of Labor defines a contract or contract-like instrument to include “all contracts and any subcontracts of any tier thereunder, whether negotiated or advertised, including any procurement actions, lease agreements, cooperative agreements, provider agreements, intergovernmental service agreements, service agreements, licenses, permits, or any other type of agreement, regardless of nomenclature, type, or particular form, and whether entered into verbally or in writing. The term contract shall be interpreted broadly as to include, but not be limited to, any contract that may be consistent with the definition provided in the Federal Acquisition Regulation (FAR) or applicable Federal statutes. This definition includes, but is not limited to, any contract that may be covered under any Federal procurement statute.” 29 C.F.R. §10.2.
Jacob W. Scott is a Partner in Smith Currie’s Washington, D.C. office. In serving his extensive national client base, Jake practices government contract law and construction litigation, with a focus on federal construction law, where the intersection of his skill sets in litigation and contracts manifests. He can be reached at jwscott@smithcurrie.com or 202.452.2140.