Key Details: Starting January 1, 2024, certain federal contractor workers covered by Executive Order (EO) 14026 will experience an hourly minimum wage increase to $17.20 from the previous year's rate of $16.20. The Wage and Hour Division (WHD) of the United States Department of Labor (DOL) issued a Notice published in the Federal Register on September 28, 2023, outlining the wage adjustments. The new rate applies to covered contracts entered, renewed, or extended on or after January 30, 2022. Contractors should review their contract clauses to confirm minimum wage compliance requirements. For contracts covered by the older EO 13658 (applicable to certain federal contracts issued on or after January 1, 2015), the minimum hourly rate will increase from $12.15 to $12.90.
This minimum wage increase could drastically impact a contractor’s profit margins and should be reviewed to ensure compliance. For help understanding wages and what these changes could mean for your business, contact Ryan & Wetmore today.
Applicability
The new rate, effective January 1, 2024, applies to workers, including part-time, temporary, and independent contractors, engaged in work "on or in connection with" specific federal contracts. Workers not directly involved in a covered contract but spending 20% or more of their workweek supporting such contracts are covered under the "in connection with" provision.
What Contracts Does This Apply To?
- New contracts entered on or after January 30, 2022.
- Current contracts extended or renewed on or after January 30, 2022.
- Procurement contracts for construction covered by the Davis-Bacon Act.
- Service contracts covered by the Service Contract Act.
- Concessions contracts.
- Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the public.
The federal contractor minimum wage rate supersedes any lower job classification rates specified in SCA or DBA wage determinations or within collective bargaining agreements.
The EO 14026 wage increase applies to all federal contracts and subcontracts except those involving Texas, Louisiana, and Mississippi, where the respective states are parties. However, a U.S. District Court Judge's temporary injunction in these states may impact the ruling. Contractors should stay informed about potential developments.
Executive Orders 14026 and 13658
EO 14026 went into effect on January 30, 2022, and increased the minimum wage rate to $15.00 per hour. It also established that beginning January 1, 2023, the hourly minimum wage rate would be adjusted annually for inflation by the Secretary of Labor. EO 14026 generally covers contracts entered into, renewed, or extended on or after January 30, 2022.
The first adjustment of the minimum wage rate under EO 14026 was effective January 1, 2023, and raised the minimum wage rate to $16.20 per hour. Effective January 1, 2024, the minimum wage rate has increased again to $17.20 per hour. Federal contractors should note that the wage rate adjustments are based on the Consumer Purchasing Index for Urban Wage Earners and Clerical Workers. Adjustments in successive years will generally increase the minimum wage rate. As such, federal contractors are encouraged to meet with their finance team or external advisors to discuss the impact of increasing minimum wage rates on their annual forecasts.
EO 13658 was the previous executive order that went into effect on January 1, 2015, with a minimum hourly rate of $10.10. This rate was adjusted for inflation annually and reached $11.25 in 2022. Contracts awarded on or between January 1, 2015, and January 29, 2022, that are not renewed or extended on or after January 30, 2022, will generally be covered by EO 13658.
Contractors interested in the differences between the two EOs are encouraged to reference this table published by the WHD for further comparison: Side-by-Side Comparison of EO 13658 and EO 14026
Tipped Employees
Federal contractors should note that on January 1, 2024, contractors may no longer credit employee tips toward EO 14026 minimum wage requirements, and tipped employees covered by EO 14026 will be entitled to a cash wage of at least $17.20 per hour. Covered contractors must ensure that workers receive no less than the minimum wage rates in effect during each calendar year in which a covered contract is carried out.
Preparing for the Changes
Contractors and subcontractors should take the following steps to prepare for the impending changes:
- Scrutinize contracts/flow-downs for compliance with EO 14026 / 13658.
- Review your contracts – understand which contracts and employees are covered by the final rule.
- Perform an internal audit once coverage is determined – does the company currently comply with minimum wage regulations?
- Identify any contracts or labor categories related to contracts where employees are being paid wages below the revised minimum wage.
- Assess if any existing, covered contracts contain options or extensions that may occur in the future.
- Analyze the financial impact this will have on contracts in terms of increased labor costs
- Incorporate revised wage standards into contract pricing, bids, and proposals going forward.
- Stay updated on annual CPI adjustments to minimum wage and update forecasts accordingly.
- Maintain comprehensive records regarding employee wages and hours worked on covered contracts.
- Prepare requests for price adjustments reflecting actual increased wages to meet the new mandatory hourly rate and associated labor costs.
Given the evolving legal landscape, contractors should stay informed about any legal challenges or appeals related to the temporary injunction, which might affect the implementation of these new wage rates in Texas, Louisiana, and Mississippi.
For expert guidance and assistance in government contracting compliance, contact Ryan & Wetmore today.
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