President Joe Biden’s administration says hundreds of thousands of workers could see bigger paychecks starting next year due to its new minimum wage for federal contractors.
The Labor Department said Monday that it had finalized a regulation that sets a $15 wage floor for workers under federal contracts. Firms providing services to the U.S. government will have to pay workers at least that much under contracts implemented or renewed starting Jan. 30, 2022.
The federal government already sets contractor minimums through prevailing wage law. But Jessica Looman, acting administrator for the Labor Department’s Wage and Hour Division, said on a press call Monday that there are 327,000 workers under federal contracts who are currently entitled to less than $15 per hour.
Officials expect many of those workers to get raises as a result of the new regulation. Looman said restaurant workers, child care workers and maintenance workers are some of the most likely to see pay boosts.
“The bottom line is we really want to make sure we are leveraging the purchasing power of the federal government to ensure fair wages for workers across the country,” Looman said.
Biden had signed an executive order directing the Labor Department to develop the regulation back in April.
The rule covers not just workers on federal properties but anyone who works under a service or construction contract with the government. It applies in all U.S. territories and states, many of which have local minimum wages well below $15 per hour. Workers in those areas are likely to see the most impact from the rule, Looman said.
After the initial bump to $15, the wage rate will be tied to an inflation index so that it increases with the cost of living, requiring firms to adjust their minimums each year. The rule will also eliminate the tipped minimum wage by 2024, requiring firms to pay the full minimum wage, not counting gratuities, at restaurants and other businesses under federal contracts.
“The bottom line is we really want to make sure we are leveraging the purchasing power of the federal government to ensure fair wages for workers across the country.”
The rule will have no direct bearing on the vast majority of workers whose jobs are not tied to federal contracts. However, Labor Secretary Marty Walsh said Monday that the administration hopes the rule will encourage higher wages at competing businesses.
“It’s a step in the right direction,” Walsh said. “It also ensures that the federal government leads by example when we talk about creating good jobs for workers all across this country.”
Using the procurement process to influence working conditions at private companies is nothing new. Presidents going back to Franklin Delano Roosevelt have used federal contracting rules to address discrimination and other workplace issues. Such rules have far less impact than an act of Congress that applies to the entire private sector, but proponents say they allow presidents to raise standards for at least some workers unilaterally.
The new minimum wage rule is essentially an update to an earlier rule issued by Barack Obama’s administration, which set $10.10 per hour as a minimum under federal contracts starting in 2015. Due to inflation adjustments, that minimum now sits at $10.95, meaning Biden’s change to $15 will amount to a large and sudden raise.
House Democrats have passed a bill that would enact a federal minimum wage of $15, but Democrats in the Senate haven’t managed to bring all of their colleagues on board and face universal opposition from Republicans. The federal minimum is still $7.25 per hour and hasn’t been raised in more than a decade.
The federal government does not keep great data on the pay of federal contractors, so it’s hard to know exactly how many workers will see a wage increase. Earlier this year, the Economic Policy Institute estimated that a hike to $15 would create direct raises for up to 390,000 workers, a potentially larger number than the Labor Department estimated. EPI said the average pay increase would be around $3,100 annually.
Employers will have to pay higher wages as a result of the rule, but they may bake those costs into their bids on contracts so that the government ends up footing the bill rather than private companies.
Walsh argued that raising wages for the lowest-paid contractors will ensure that work performed for the government “will be done better and faster.”