Up, Up and Away: Here Comes $16.20 after the Yearly Escalation of the Federal Contractor Minimum Wage
“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.”
--Sam Ewing
When President Biden issued Executive Order 14026 (“EO 14026”) on April 27, 2021, he increased the minimum wage that federal contractors have to pay for their employees on covered contracts to $15.00 an hour effective January 30, 2022. Abrahams Wolf-Rodda has written several blogs on the subject that you can view here: https://www.awrcounsel.com/blog/2022/9/7/get-in-connection-with-the-federal-contractor-minimum-wage, here: https://www.awrcounsel.com/blog/2022/1/12/your-federal-contractor-minimum-wage-to-do-list?rq=Executive, and here: https://www.awrcounsel.com/blog/2021/11/24/dol-issues-final-contractor-minimum-wage-rule?rq=Executive.
The Executive Order applies to new contracts and contract like instruments that were awarded beginning January 30, 2022. The exercise of an option period is treated as an entirely new contract and would therefore be covered under this EO. This EO replaced an existing Executive Order signed by President Obama, Executive Order 13658. That Executive Order increased the Federal Contractor Minimum Wage to $11.25 if your contract is covered by Executive Order 13658. The EO 14026 however originally required a much larger Federal Contractor Minimum Wage of $15.00 per hour and $10.50 per hour for tipped employees.
Moreover, under EO 14026 each year the Federal Contractor Minimum Wage will increase for annual adjustments for inflation. The increase follows these guidelines:
· Not less than the amount in effect on the date of such determination;
· Increased from such amount by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) (United States city average, all items, not seasonally adjusted), or its successor publication, as determined by the Bureau of Labor Statistics (BLS); and
· Rounded to the nearest multiple of $0.05.
29 C.F.R. 23.50(b)(2).
The increase set to become effective in 2023 has now been unveiled. On September 30, 2022, the U.S. Department of Labor (“DOL”) published a notice on the Federal Register to announce the applicable minimum wage rate for workers performing on or in connection with a federal contract for the calendar year of 2023. Starting January 1, 2023, the minimum wage rate that must be paid to workers working on or in connection with a covered contract is $16.20 per hour. That is an 8% escalation. However, tipped employees are owed $13.75 per hour. The increase to the tipped wage is significantly higher than the already significant increase to the general Contractor Minimum Wage because it reflects a formulaic change. Previously, DOL used 70% of the minimum wage owed to most federal contractor employees. Now DOL is using 85% of the minimum wage owed to most federal contractor employees. The EO specifies that the tipped minimum wage will achieve parity in 2024 and equal the minimum wage owed to non-tipped employees starting on January 1, 2024.
Accordingly, these are some very large and inflationary numbers.
As stated above, this new minimum wage will be effective on January 1, 2023, and contractors will be responsible for paying this new wage on that date, provided that the EO 14026 has been added to the contract. For more information on the Federal Contractor Minimum Wage increase, please view DOL’s published Notice on the Federal Register here: https://www.federalregister.gov/documents/2022/09/30/2022-20906/minimum-wage-for-federal-contracts-covered-by-executive-order-14026-notice-of-rate-change-in-effect.
For contracts covered by the “old” Obama-era minimum wage provisions, the new rate is $12.15/hour, or for tipped employees, $8.50 per hour. The Federal Register notice for the old EO can be found at https://www.federalregister.gov/documents/2022/09/30/2022-20905/minimum-wage-for-federal-contracts-covered-by-executive-order-13658-notice-of-rate-change-in-effect.