Today, President Biden is issuing an executive order requiring federal contractors to pay a $15 minimum wage to hundreds of thousands of workers who are working on federal contracts. These workers are critical to the functioning of the federal government: from cleaning professionals and maintenance workers who ensure federal employees have safe and clean places to work, to nursing assistants who care for the nation’s veterans, to cafeteria and other food service workers who ensure military members have healthy and nutritious food to eat, to laborers who build and repair federal infrastructure.
This executive order will:
- Increase the hourly minimum wage for federal contractors to $15. Starting January 30, 2022 all agencies will need to incorporate a $15 minimum wage in new contract solicitations, and by March 30, 2022, all agencies will need to implement the minimum wage into new contracts. Agencies must also implement the higher wage into existing contracts when the parties exercise their option to extend such contracts, which often occurs annually.
- Continue to index the minimum wage to an inflation measure so that every year after 2022 it will be automatically adjusted to reflect changes in the cost of living.
- Eliminate the tipped minimum wage for federal contractors by 2024. Federal statute allows employers of tipped workers to pay a sub-minimum wage as long as their tips bring their wage up to the level of the minimum wage. The Obama-Biden executive order raised the wages for tipped workers, but didn’t completely phaseout the subminimum wage for these workers. This executive order finishes that work and ensures tipped employees working on federal contracts will earn the same minimum wage as other employees on federal contracts.
- Ensure a $15 minimum wage for federal contract workers with disabilities. To ensure equity, similar to the Obama-Biden minimum wage executive order for federal contractors, this executive order extends the required $15 minimum wage to federal contract workers with disabilities.
- Restore minimum wage protections to outfitters and guides operating on federal lands by revoking President Trump’s executive order 13838 “Exemption From Executive Order 13658 for Recreational Services on Federal Lands.”
This order will build on the Obama-Biden Executive Order 13658, issued in February 2014, requiring federal contractors to pay employees working on with federal contracts $10.10 per hour, subsequently indexed to inflation. The minimum wage for workers performing work on covered federal contracts is currently $10.95 per hour and tipped minimum wage is $7.65 per hour.
This executive order will promote economy and efficiency in federal contracting, providing value for taxpayers by enhancing worker productivity and generating higher-quality work by boosting workers’ health, morale, and effort. It will reduce turnover, allowing employers to retain top talent and lower the costs associated with recruitment and training. It will reduce absenteeism, a change that has been linked to higher productivity, not just by the employees who are more present, but by their co-workers, too. And, it will reduce supervisory costs. One recent study focusing on warehouse workers and customer service representatives at an online retailer found that raising hourly wages by $1 yields a return of approximately $1.50 through increased productivity and reduced costs. As a result of raising the minimum wage, the federal government’s work will be done better and faster.
At the same time, the executive order ensures that hundreds of thousands of workers no longer have to work full time and still live in poverty. It will improve the economic security of families and make progress toward reversing decades of income inequality. Extensive, high-quality research shows that higher minimum wages have the intended effect of raising wages without significantly reducing employment outcomes. Higher minimum wages increase earnings growth for workers at the bottom of the income distribution, and those gains persist for years. A higher minimum wage, and an elimination of the tipped minimum wage, will benefit many women and people of color who likely have children and are the breadwinners in their households. It will help improve the economic security of their families and narrow racial and gender disparities in income. In addition to directly lifting the wages of hundreds of thousands of contract workers, the executive order will have impacts beyond federal contracting, as competitors in the same labor markets as federal contractors may increase wages, too, as they seek to compete for workers. Employers may seek to raise wages for workers earning above $15 as they try to recruit and retain talent. And, research shows that when the minimum wage is increased, the workers who benefit spend more, a dynamic that can help boost local economies.
The U.S. Department of Labor’s Wage and Hour Division and the Federal Acquisition and Regulatory Council will engage in rulemaking to implement and enforce this Executive Order.