Effective January 1, 2021, federal government contractors will be required to pay their employees working on or in connection with a government contract at least $10.95/hour – an increase of $0.15/hour over the 2020 minimum wage. 85 FR 53850 (Aug. 31, 2020). Fringe benefits paid to employees do not count towards the $10.95/hour.

Back in 2014, Executive Order 13658 raised the federal minimum wage for workers on covered government contracts to $10.10/hour effective on January 1, 2015. Executive Order 13658 provides for annual increases in the minimum wage based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The requirement to pay this minimum wage is implemented by FAR 52.222-55, Minimum Wage Under Executive Order 13658.

Executive Order 13658 applies to four major types of government contracts:

  1. Construction contracts covered by the Davis-Bacon Act;
  2. Service contracts covered by the Service Contract Act;
  3. Concession contracts (g., contracts to operate souvenir shops in national parks or restaurants in federal buildings); and
  4. Contracts in connection with federal property or land under which services are offered to federal employees, their dependents, or the general public.

It does not apply to manufacturing contracts subject to the Walsh Healey Act.

Executive Order 13658 applies to three main categories of workers performing on or in connection with covered contracts:

  1. Employees who are entitled to the Fair Labor Standards Act minimum wage.
  2. Laborers and mechanics (including apprentices and trainees) entitled to prevailing wages under the Davis-Bacon Act.
  3. Service employees entitled to prevailing wages under the Service Contract Act.

The Executive Order is not applicable to employees who are exempt from the Fair Labor Standards Act minimum wage and overtime requirements, including those employees employed in a bona fide executive, administrative, or professional capacity.

The federal minimum wage requirement is broader than those employees who are directly performing work on the contract (e.g., not limited to laborers and mechanics on construction projects). The requirement also applies to employees performing “in connection” with covered contracts. An employee is considered to be performing in connection with a covered contract if the employee performs duties necessary to the performance of the contract, but is not performing the specific contract work. These employees are subject to the minimum wage requirement if they spend 20% or more of their hours worked in a workweek performing work connected to a covered contract. Thus, employees such as receptionists, secretaries, administrative assistants, and document clerks could fall within the scope of the requirement.

Unlike prevailing wages, the federal minimum wage does not lock in at time of contract award. If the minimum wage goes up, the contractor has to pay covered employees any wage increase to satisfy the new minimum wage requirement. However, the contractor may request an equitable adjustment in that event.

Government contractors with current contracts that will continue into 2021 should review their payroll records to see if there are covered employees who earn less than $10.95/hour. If the contractor has covered employees earning less than $10.95/hour, the contractor will need to increase those employees’ rate of pay beginning January 1, 2021. The contractor should then submit a request for a price adjustment to the Contracting Officer. Contractors bidding on new government contracts should factor the increased minimum wage into their pricing.