New mandatory minimum wage required for Government contractors
On April 27, 2021, President Joe Biden signed an executive order requiring Federal Government contractors to pay at least $15 an hour to certain employees. The order will go into effect on January 30, 2022.
Before the order will go into effect, the U.S. Department of Labor (DOL) will have to follow the formal procedures required by the Administrative Procedure Act to adopt rules that implement the President’s executive order.
The order will apply to both new contracts issued after March 30, 2022, and to currently existing contracts when they undergo an annual review. Thereafter, the mandatory minimum wage will be automatically adjusted to reflect changes in the cost of living.
Background
In October 2014, President Barack Obama issued a similar order that required Government contractors to pay a minimum wage of at least $10.10 an hour. The DOL issued regulations to implement Obama’s executive order.
After the adoption of those regulations, this mandatory minimum wage has increased every year. As of January 1, 2021, Government contractors are required to pay at least $10.95 an hour.
Additionally, certain types of government contracts, like those involving construction, are already required to pay at least $15 per hour or more under pre-existing regulations.
Rationale
The White House announcement explains the rationale for adopting the new rule:
- To promote economy and efficiency in federal contracting by enhancing worker productivity.
- To generate higher-quality work by boosting worker health, morale, and effort.
- To reduce turnover, allowing Government contractors to retain top talent and reduce costs associated with recruitment and training.
The increased minimum wage is expected to have other benefits, such as reducing absenteeism and supervisory costs. The announcement cites a recent study that showed that raising an hourly wage by $1 yields a return on investment of $1.50 through increased productivity and reduced costs.
Stay tuned
As the DOL issues announcements about the regulations that implement this new mandatory minimum wage, the Third Shift Employment Law Blog will provide information to those that follow the blog, including how you can contact the DOL to express your preferences about the new regulation.
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