The Minimum Wage for Federal Contractors Is Going Up in 2023

The U.S. Department of Labor's Wage and Hour Division (WHD) recently released two notices regarding the 2023 minimum wage rates that are going up for federal contractors.

Contractor Minimum Wage Background

Back in 2014, President Obama signed an Executive Order (EO 13658) that established a minimum wage rate for federal contractors. The EO required parties that contract with the federal government to pay workers who perform work on, or in connection with, covered federal contracts at least:

• $10.10 per hour beginning January 1, 2015 and
• An amount determined by the U.S. Secretary of Labor in accordance with the methodology in the EO, beginning January 1, 2016 and annually after that.

In 2021, President Biden signed EO 14026, which raised the hourly minimum wage for certain federal contract workers. It established an initial minimum wage of $15.00 ($10.50 for tipped workers) as of January 30, 2022, to be increased annually.

Both EO 13658 and EO 14026 apply to:

• Procurement contracts for construction covered by the Davis-Bacon Act,
• Service contracts covered by the Service Contract Act,
• Concessions contracts, including those excluded from the Service Contract Act by certain DOL regulations, and
• Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents or the general public.

The New Wage Amounts Under EO 14026

One of the DOL's recent Notices provides that the minimum wage for federal contractors under EO 14026 will increase from $15 per hour to $16.20 per hour, effective January 1, 2023.

The WHD has announced that the minimum cash wage for tipped employees who perform work on, or in connection with, a federal contract will increase from $10.50 per hour to $13.75 per hour, effective January 1, 2023. The contractor must increase the cash wage paid to a tipped employee to make up the difference if a worker's tips combined with the required cash wage of at least $13.75 per hour don't equal the hourly minimum wage rate for contractors as noted above. Certain other conditions must also be met.

Note: As explained above, EO 14026 applies only to contracts entered into, renewed, or extended on or after January 30, 2022.

EO 13658 for Contracts Prior to January 30, 2022

In a separate Notice, the DOL announced the minimum wage rates for federal contracts entered into, renewed or extended prior to January 30, 2022, as established by EO 13658. The minimum wage is increased from $11.25 per hour to $12.50 per hour, effective January 1, 2023. The minimum wage for tipped workers under these contracts is increased from $7.90 per hour to $8.50 per hour.

Comparing the Two EOs

The DOL offers a side-by-side comparison between EO 13658 and EO 14026 and how they're each applied. Click here to read the comparison.

For example, EO 14026 applies to contracts in connection with seasonal recreational services and seasonal recreational equipment rental offered for public use on federal lands that are exempt from coverage under EO 13658. EO 14026 generally applies to independent agencies, such as the Bureau of Consumer Financial Protection, National Labor Relations Board, Office of the Comptroller of the Currency and Securities and Exchange Commission but is only "strongly encouraged" under EO 13658. Finally, EO 13658 applies to all 50 states and the District of Columbia while EO 14026 also applies to specified U.S. territories, including Guam and Puerto Rico. 

The comparison doesn't currently reflect the 2023 rates.

EO 14026 Faces Legal Challenges

President Biden's EO 14026 has been met with legal challenges. An outdoor adventure company operating on federal lands representing other river rafting outfitters has filed suit challenging it. The U.S. Court of Appeals for the Tenth Circuit granted a preliminary injunction postponing implementation of EO 14026 for "contracts... in connection with seasonal recreational services or seasonal recreational equipment rental for the general public on federal lands" (Bradford, et al v. U.S. Dept. of Labor, Dkt. No. 22-1023, 2/1/22)

Also, in February 2022, eight state attorneys general filed suit in response to EO 14026. Decisions are pending in both cases.

What's the Federal Minimum Wage for Non-Contractors?

The federal minimum hourly wage is currently $7.25 for covered nonexempt employees who don't work for federal contractors. It has been $7.25 since 2009.

An employer may pay a tipped employee not less than $2.13 an hour in direct wages if: that amount plus the tips received equal at least the federal minimum wage; the employee retains all tips; and the employee customarily and regularly receives more than $30 a month in tips. If an employee's tips combined with the employer's direct wages of at least $2.13 an hour don't equal the federal minimum hourly wage, the employer must make up the difference.

However, many states and localities also have their own minimum wage laws. In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.

The minimum hourly wage rates in more than half of the states now exceed the federal requirement of $7.25. As with the federal contractor and federal rates, there are generally lower rates for tipped employees. In addition, some states and localities have higher rates for large employers; lower rates for employers that provide health insurance; and lower rates for teenage workers.

Some state rates are automatically adjusted based on changes in the consumer price index, while others are adjusted from time to time by state legislatures.