DOL raises minimum wage for federal contractors, but there’s pushback

The cost of being a federal contractor is going up for 2024 due to a minimum wage increase. There’s legal pushback in some parts of the country, though.

The Department of Labor (DOL) released two notices on September 28, 2023, with rate changes that affect federal contractors and subcontractors alike.

But not everyone’s on board. In fact, a legal fight against raising the minimum wage started a couple years ago, and there are some recent developments with that.

Here’s what’s happening.

Minimum wage increasing for 2024

As the first DOL notice explains, under Executive Order (EO) 14026, people performing work on or in connection with covered federal contracts must be paid at least $17.20 per hour in 2024.

You may recall, President Biden issued the EO in 2021, setting a $15-per-hour minimum wage for new federal contracts, effective January 30, 2022. EO 14026 also stated the wage should be adjusted annually based on the Consumer Price Index. Also prescribed in the EO, the new rate can’t be less than the amount in effect on the date of the determination, and the rate should be rounded to the nearest multiple of $0.05. Accordingly, it went up to $16.20 on January 1, 2023.

Plus, the EO included a phase-out of the cash wage for tipped workers – from $10.50 per hour to $13.75 per hour, with no cash wage at all starting in 2024.

Meanwhile, legal challenges to the EO’s validity began shortly after Biden released it, as the states of Texas, Louisiana and Mississippi sued in a Texas federal court. They argued Biden lacked the authority to issue the EO. The court ruled in their favor on September 26, 2023, right before the DOL posted its notices. The ruling is likely to be appealed, but for now, the DOL won’t enforce the EO’s minimum wage requirements in Texas, Louisiana or Mississippi. It’s wait-and-see on some legal challenges pending in other jurisdictions as well.

The second notice DOL released on September 28, 2023, pertains to an earlier EO, issued under President Obama.

EO 13658 covers the same types of contracts as EO 14026. They are:

• procurement contracts for construction covered by the Davis-Bacon and Related Acts
• service contracts covered by the Service Contract Act
• concessions contracts, and
• certain contracts related to federal property or lands.

Notably, EO 13658 deals with contracts entered into, renewed or extended before January 30, 2022. Under this EO, the hourly minimum wage will increase from $12.15 to $12.90 in 2024. The rate for tipped employees will go up from $8.50 to $9.05 per hour.