$15 Minimum Wage Rate Will Apply to New Federal Contracts

Lisa Nagele-Piazza, J.D., SHRM-SCP By Lisa Nagele-Piazza, J.D., SHRM-SCP September 17, 2021
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The U.S. Department of Labor (DOL) issued a notice on Sept. 16 explaining new minimum wage rates for employees who perform work on or connected to federal contracts. The rate will increase to $11.25 an hour for existing contracts on Jan 1, 2022. Starting Jan. 30, 2022, the rate will be $15 for work performed on new, renewed and extended contracts.

We've rounded up resources and articles from SHRM Online and other trusted outlets on the news.

Rate Varies for Now

The notice in The Federal Register provides clarity on how two executive orders will apply to covered federal contracts. In 2014, Executive Order 13658 established an inflation-tied formula for calculating the minimum wage for workers on federal contracts. Under the formula, the rate will rise to $11.25 at the beginning of 2022. In April, however, President Joe Biden signed Executive Order 14026 requiring federal contractors with covered new, renewed and extended contracts to pay at least $15 an hour by Jan. 30, 2022.

"For some amount of time, the department … anticipates that there will be some existing contracts with the federal government that do not qualify as a covered 'new contract' for purposes of Executive Order 14026 and thus will remain subject to the minimum wage requirements of Executive Order 13658," according the DOL's Wage and Hour Division.

Additionally, the minimum wage that covered contractors must pay tipped employees will rise to $7.90 an hour on Jan. 1, 2022.

(The Federal Register)

DOL Expects More than 300,000 Workers to Benefit

In July, the DOL issued a proposed rule to implement Biden's executive order raising the federal contractor minimum wage to $15. "The Department of Labor estimates that in the first year of implementation, 327,300 contract workers could see a raise to at least $15 per hour under this proposed rule," a DOL spokesperson told Government Executive. "The estimated direct cost per year over 10 years, which includes regulatory familiarization and implementation, is $2.4 million per year. Transfers to workers in the form of higher wages are estimated to be $1.5 billion per year over 10 years."

(Government Executive)

Broad Coverage

The DOL's proposed rule broadly interprets Biden's order by defining covered contracts to include "subcontracts, lease agreements on federal property, licenses, permits, and other forms of agreements between the U.S. government and private-sector businesses."

(Bloomberg Law)

Pressure on Congress

The wage hike is expected to increase pressure on Congress to raise the private-sector minimum wage as well. Sen. Bernie Sanders, I-Vt., said in a tweet that "Congress should follow [Biden's] lead and end starvation wages for the rest of the nation."

The Hill reported that "unlike the broader minimum wage, however, the wage for contractors is funded by the federal government, meaning the costs would theoretically be passed on to the taxpayer or add to the deficit."

(SHRM Online)

Worker Shortage Prompts Private-Sector Wage Hikes

Although efforts to raise the minimum wage have stalled in Congress, some economic experts say that the tight labor market spurred by the COVID-19 pandemic is prompting private employers to offer $15 an hour to remain competitive.

(Bloomberg Law)

Solutions for Employers

Companies nationwide are deploying incentives rarely seen for low-wage jobs, including higher hourly pay and signing bonuses. To fill critical openings, 57 percent of employers surveyed by the Society for Human Resource Management are offering referral bonuses, 55 percent are hiring external or temporary workers, 44 percent are upskilling and reskilling staff, and 43 percent are boosting pay.

(SHRM Online)



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