DOL’s Annual Minimum Wage Increase for Certain Federal Contractors Leaves Compliance Uncertainty

Quick Hits

• Federal contractors must distinguish between contracts entered into before January 30, 2022 (subject to Executive Order (EO) 13658 and DOL’s annual indexed increases), and those entered into on or after that date, which were governed by EO 14026 prior to its revocation.
• Even though DOL is no longer enforcing EO 14026, contractors remain bound by existing contract clauses unless modified by the contracting officer and must comply with other applicable federal, state, and prevailing wage laws.
• The January 30, 2022, compliance date continues to determine which wage framework applies, whether DOL’s latest increase is triggered, and how legacy clauses and option exercises should be analyzed.

Since President Donald Trump revoked Executive Order 14026, which established a $15 per hour federal contractor minimum wage, contractors have faced uncertainty about minimum wage obligations. DOL’s recent annual minimum wage increase affecting certain federal contracts may add to the confusion. The key to understanding the current minimum wage landscape is recognizing that different rules apply depending on when a federal contract was entered into.

There have been two distinct federal contractor minimum wage regimes that affect contractors depending on the dates of their contracts: (1) an Obama-era contractor minimum wage rule, which remains in effect and is subject to annual inflation-based increases issued by DOL; and (2) the now-revoked Biden-era $15 minimum wage rule, which applied to contracts entered into on or after January 30, 2022.

Contracts Entered Into Before January 30, 2022

The federal contractor minimum wage did not originate with the Biden administration. An earlier executive order issued during the Obama administration (EO 13658) established a minimum wage for certain covered federal contracts and directed DOL to adjust that wage annually based on inflation. That executive order remains in effect today. Consistent with that directive, DOL recently issued its annual notice increasing the contractor minimum wage applicable to covered contracts entered into or extended via options before January 30, 2022. The DOL notice takes the position that post revocation of EO 14026, EO 13658 does not apply to contracts awarded, renewed, or extended after January 29, 2022. The increase took effect at the beginning of the calendar year and applies for the duration of covered contract performance. For contractors performing long-term or legacy federal contracts, this means the newly increased DOL minimum wage may still be mandatory, even though the Biden-era $15 rule has been revoked.

Contracts Entered Into on or After January 30, 2022

For contracts entered into on or after January 30, 2022, President Joe Biden’s Executive Order 14026 established a $15 per hour minimum wage for covered contractor employees, with annual indexing above that level. Importantly, EO 14026 provided that Executive Order 13658 “is superseded, as of January 30, 2022, to the extent it is inconsistent with this order.” For several years, EO 14026 was the controlling rule for new federal contracts and exercised options. But because EO 14026 has been revoked, it no longer establishes a federal contractor minimum wage for new contracts and the automatic $15-plus, inflation-indexed wage floor no longer applies by default to contracts entered into after January 30, 2022. However, the revocation does not mean that no minimum wage requirements apply to those contracts.

DOL has yet to issue clear guidance for contractors that are performing contracts subject to EO 14026 and whether they are no longer required to apply the $15-plus, inflation-indexed federal contractor minimum wage. Because the executive order was the sole legal authority for that wage floor, its revocation eliminates the policy basis for continued enforcement. The DOL’s website states that it “is no longer enforcing Executive Order 14026 or the implementing rule (29 CFR part 23) and will take steps, including rescinding 29 CFR part 23, to implement and effectuate the revocation of Executive Order 14026.” However, federal contractors generally must comply with the terms of their contracts, which may contain references to “FAR 52.222-55 Minimum Wages for Contractor Workers Under Executive Order 14026,” until those terms are modified by the contracting officer. Contractors may want to confirm with the contracting officer whether their agency has issued a class deviation or contract modification before making any wage adjustments from what is contractually required.

Remaining Minimum Wage Obligations

For contracts entered into on or after January 30, 2022, following the revocation of EO 14026, minimum wage obligations are determined by the express terms of the contract until modification by the contracting officer, and then existing federal labor statutes and applicable state law, rather than by a standalone executive order. In practice, this means contractors must look to the following sources:

• Fair Labor Standards Act (FLSA). At baseline, contractors must comply with the federal minimum wage under the FLSA, which currently remains $7.25 per hour, unless a higher wage is required by another law.
• Service Contract Labor Standards. For covered federal service contracts, the Service Contract Act (SCA) typically governs wages. Under the SCA employees must be paid at least the wage rates and fringe benefits specified in the applicable DOL wage determination. Those rates vary by locality and labor category and often exceed the EO 13658 minimum wage.
• Davis-Bacon Act. For covered construction contracts, the Davis-Bacon Act requires payment of prevailing wages set forth in DOL wage determinations, which are generally well above EO 13658 minimum wages.
• State and Local Wage Laws. Contractors must also comply with applicable state and local minimum wage laws, which frequently establish wage floors higher than the federal minimum and apply independently of federal contracting rules.

Why the January 30, 2022, Date Still Matters

Although the Biden-era $15 minimum wage rule has been revoked, January 30, 2022, remains a critical compliance marker because it determines whether DOL’s most recent annual contractor minimum wage increase applies (it applies only to contracts entered into before that date); and whether a contract was ever subject to Executive Order 14026, which may affect legacy clauses, option exercises, and agency enforcement positions.

As a result, many contractors continue to operate under multiple wage frameworks simultaneously, depending on contract vintage, contract type, and place of performance. For contractors with mixed portfolios, this remains a compliance and risk-management issue, not just a payroll issue. Careful contract-by-contract analysis remains critical to ensuring compliance and minimizing exposure under wage-and-hour laws and related enforcement regimes.

Ogletree Deakins’ Government Contracting and Reporting Practice Group will continue to monitor developments and will post updates on the Construction, Government Contracting and Reporting, and Wage and Hour blogs as additional information becomes available.

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