Yesterday, President Biden signed an executive order (Biden Order) that will increase the applicable minimum wage rate to be paid to workers performing work on or in connection with federal contracts from $10.95 to $15.00 per hour beginning January 1, 2022. As early as his second day in office, President Biden committed to modifying an Obama-era executive order to get one step closer to a national minimum wage increase of the same magnitude. Below are key details on the applicability of the Biden Order minimum wage increase for government contractors.

While a 37% increase in the minimum wage is striking at first glance, it is important to understand the probable impact, or lack thereof, given how the Biden Order is structured. It builds on Obama Executive Order 13658 (Obama Order), which is implemented through FAR 52.222-55 and applies to most prime contractor and subcontractor employees working on contracts covered by the Service Contract Act and / or Davis-Bacon Act. It also applies to those working “in connection with” a federal contract, but who are not necessarily billed to or working directly on contract deliverables, as well as to unionized employees that are being paid at rates below the required minimum pursuant to a collective bargaining agreement. If the Obama Order is applicable to a contractor, the contractor must pay at least the prescribed minimum wage or, if applicable, the wage rates required by the Service Contract Act or the Davis-Bacon Act, whichever is higher. In many of these classifications, the prevailing wage already exceeds the $15 minimum rate, although certain localities will be impacted more than others. Those employees working “in connection with” a covered contract may be those most often eligible for an adjustment and most probable to be overlooked in applying the requirement, a significant consideration for employers seeking to understand how the Biden Order might affect their workforce. Additionally, contrary to the way many news outlets are portraying the Biden Order, the Obama Order has always prescribed that the minimum wage increase each year by indexing the rate to inflation.

The Biden Order specifies that beginning January 30, 2022, all agencies must incorporate the $15 minimum wage into covered contract solicitations and that by March 30, 2022, all agencies must incorporate the minimum wage into new contracts and any existing contract when the agency exercises its right to extend such contracts. The Biden Order also eliminates the tipped minimum wage for federal contractors by 2024, ensures those with disabilities are also eligible for the $15 minimum wage, and restores wage protections to outfitters and guides operating on federal lands by revoking Trump Executive Order 13838.

Finally, the intent of the Obama Order was not that contractors would have to bear the increase, but that they would be eligible for an adjustment to their contract price based on the resulting increase in wages. We do not expect this to change as the administration moves forward in updating associated regulations.

If you have questions about how the Biden Order may impact your business or requesting an adjustments in your contract price to implement wage increases at your company, please contact Nichole Atallah, the author of this client alert, or a member of PilieroMazza’s Labor & Employment for Government Contractors Group or the Government Contracts Group.