DOL Finalizes $15 Minimum Wage Rule for Federal Contractors

Lisa Nagele-Piazza, J.D., SHRM-SCP By Lisa Nagele-Piazza, J.D., SHRM-SCP November 23, 2021
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Many federal contractors will have to pay workers at least $15 an hour by Jan. 30, 2022, under a final rule that the U.S. Department of Labor (DOL) recently announced.

The final rule implements Executive Order 14026—which President Joe Biden signed in April—and affects most new federal contracts, as well as renewals and extensions of existing contracts.

Labor Secretary Marty Walsh said the rule will help workers who "do essential work on our nation's behalf," such as building and repairing the federal infrastructure, cleaning and maintaining national parks, and caring for veterans. "Implementing this executive order improves the economic security of these workers and their families, many of whom are women and people of color," he said.

The final rule will be published in the Federal Register on Nov. 24.

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

The Details

According to the DOL, the final rule applies in all U.S. states and specified territories and implements Biden's order by:

  • Increasing the minimum wage for workers performing work on covered federal contracts to $15 an hour starting on Jan. 30, 2022.
  • Continuing to index the minimum wage for federal contract workers to keep pace with inflation.
  • Eliminating the tipped minimum wage for federal contract workers by 2024.
  • Ensuring a $15 minimum wage for workers with disabilities who perform work on covered contracts.
  • Restoring minimum-wage protections to outfitters and guides who operate on federal lands.

"In addition to promoting efficiency in federal contracting, the implementation of Executive Order 14026 has other benefits," said Wage and Hour Division Acting Administrator Jessica Looman. "The final rule adds value for taxpayers by boosting worker productivity and reducing employee turnover and absenteeism. It also allows federal contractors to retain top talent and reduce recruiting and training costs." 

(DOL)

Broader Application

The final rule updates a 2014 executive order from President Barack Obama and raises the minimum wage for federal contract workers by $4.05 an hour. Although the prior rule applied only to new and renewed federal contracts, the new rule will apply the $15 minimum wage to existing contracts when agencies opt to purchase additional supplies or services. This means that the new minimum wage won't automatically be applied to all federal contractor employees on Jan. 30. Instead, the timing will depend on when existing contracts are renewed and when contractors opt to purchase more supplies or services.

About 327,000 workers are expected to receive a wage hike under the rule, according to Looman.

(Bloomberg Law)

DOL Worked with Small Business Administration

On a press call about the rule, Government Executive asked if the DOL had any concerns about small businesses being able to raise their wages to comply with the rule. Looman said the department worked closely with the Small Business Administration to provide "outreach, education and guidance" for small businesses.

(Government Executive)

Will a $15 Minimum Wage Hurt Small Businesses?

The federal minimum wage was last raised—to $7.25—in 2009, and just over 1 million workers earned wages that were at or below the minimum wage in 2020, according to the Bureau of Labor Statistics. Since small businesses have been especially hard hit during the COVID-19 pandemic, some believe this is an inopportune time to pursue raising the federal minimum wage to $15 an hour by 2025, as Democrats in Congress have proposed. But advocates of the Raise the Wage Act say lower-income workers have also been struggling during the pandemic and the federal minimum wage is long overdue for an increase.

Some on both sides of the aisle agree that a single, nationwide federal minimum wage may not be the best solution because of the widely varying cost of living across different parts of the country.

(SHRM Online)

Navigating the Minimum Wage Decision

In the absence of action on the federal level, several states and localities have raised their minimum wages. Currently, Washington, D.C., leads the way at $15 per hour. Several other states are following or plan to follow suit over the next few years. In some cases, these jurisdictions have also introduced periodic indexing to keep pace with inflation without additional legislative action.

Businesses that are not obligated by law to raise minimum pay are weighing their options. Employers across industries nationwide say they can't find enough workers to fill open jobs. The tight labor market has given employees more leverage on pay, and many organizations have concluded that they need to raise compensation, especially among their lowest-paid workers, to attract needed talent. In recent months, some large banks, retailers and restaurant chains increased the minimum amount they pay their employees to $15 and even $20 per hour.

However, pay increases are difficult to take back and not all businesses are willing or able to pay $15 per hour. That leaves some employers in a difficult position: leave wages as they are or raise them less than the current market demands, with both options risking a severe labor shortfall.

(SHRM Online)

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Salary Increase Projections for 2022

Pay raises in the U.S. are returning to pre-pandemic levels but rising prices mean higher salaries aren't likely to keep pace with inflation.

Pay raises in the U.S. are returning to pre-pandemic levels but rising prices mean higher salaries aren't likely to keep pace with inflation.

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