Proposed Rule Creates $15 Minimum Wage for Federal Contractors

July 23, 2021

The Labor Department’s proposed rule would raise the minimum wage to $15 for workers and $10.95 for tipped employees working on or in connection with federal construction and service contracts starting January 1, 2022, substantially higher than the current $10.95 and $7.65 tipped wage levels.

The proposed rule includes broad interpretations of contract and worker:

  • It applies to contracts covered by the Service Contract Act, the Davis Bacon Act, concessions contracts, and contracts in connection with federal property or land and related to offering services for federal employees, their dependents, or the general public.  The rule does not cover contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the federal government (Walsh-Healey Public Contracts Act).

  • It defines “worker” as any person engaged in performing work on or in connection with a covered contract regardless of the contractual relationship alleged to exist between the individual and the employer.  However, the term excludes FLSA-exempt employees. 

Annual increases would begin January 1, 2023, indexed to the Consumer Price Index.

Employee expectations and wage compression:  The problem for contractors is not so much the cost of the increase, but internal issues related to employee expectations (those who are not covered) and the wage adjustments that will have to be made for employees earning just above the new minimum wage.

Outlook:  The short 30-day public comment period closes on August 23, 2021; a final rule is expected this fall.