On April 27, 2021, President Biden signed Executive Order (E.O.) 14026, which raised the minimum wage paid by government contractors to workers performing work “on or in connection with” covered federal contracts. As of January 1, 2023, workers covered by E.O. 14026 must be paid a minimum wage of $16.20 per hour to be compliant with the executive order.
If you are a government contractor, you may be asking yourself:
1. Does E.O. 14026 apply to all federal contracts?
The minimum wage law applies to the following federal contracts:
- Procurement contracts for construction covered by the Davis-Bacon Act (DBA);
- Service contracts covered by the Services Contract Act (SCA);
- Concessions contracts, including any concessions contract excluded from the SCA by the Department’s regulations at 29 CFR 4.133(b); and
- Contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.
The $16.20 federal minimum wage also only applies to new contracts or contracts being renewed after January 30, 2022. Otherwise, the contract is governed by E.O. 13658, which requires a minimum wage of $12.15 per hour for 2023.
- For contracts that were entered into prior to January 30, 2022, the $16.20 minimum wage requirement applies prospectively as of the date that such contract is renewed or extended (pursuant to an exercised option or otherwise) on or after January 30, 2022, and not the date that the contract was originally entered into.
- A key difference between E.O. 13658 and E.O. 14026 is that if the Federal Government decides to renew or extend an existing contract (including by exercising an option) on or after January 30, 2022, the contract will be subject to the requirements of E.O. 14026.
2. Which employees are subject to the increased minimum wage under E.O. 14026?
The increased minimum wage applies to the following workers who are working “on or in connection with” a covered federal contract:
- Employees who are entitled to the $7.25 federal minimum wage under the Fair Labor Standards Act (FLSA) section 6(a)(1);
- Employees whose wages are calculated pursuant to certificates issued under FLSA section 14(c) (wages to employees with disabilities);
- Tipped employees under FLSA section 3(t);
- Service employees who are entitled to prevailing wages under the SCA; and
- Laborers and mechanics who are entitled to prevailing wages under the DBA.
3. Which employees are considered working “on or in connection with” a covered federal contract?
The FAQ to E.O. 14026 makes the following distinction between individuals working “on” a federal contract and individuals working “in connection with” a federal contract:
A worker who performs “on” a covered contract is any worker who directly performs the specific services called for by the contract’s terms. For example, a nurse or nurse’s aide at an assisted living facility who performs the specific medical services for veterans called for by an SCA contract is a worker that performs “on” the SCA contract. Workers such as the nurse or aide who perform “on” covered contracts are entitled to be paid at least the E.O. 14026 minimum wage for all hours they spend performing on those contracts, regardless of how much time in a particular workweek they spend performing such work.
A worker who performs “in connection with” a covered contract is any worker who performs work activities that, although are not the specific services called for by the contract’s terms, are necessary to the performance of those specific services. For example, an FLSA-covered worker who washes laundry for all of the patients at the assisted living facility mentioned above is performing “in connection” with the SCA contract even though her specific services are not called for by the SCA contract itself. However, an important exclusion may apply to such workers.
4. Are there any exceptions to the above rules?
- Workers covered by the FLSA who work “in connection with” a covered federal contract and who spend less than 20% of their overall hours in a particular workweek working in connection with the federal contract are not entitled to the increased minimum wage under E.O. 14026.
- Note that this 20% exception does not apply to workers working “on” a federal contract. Workers who work “on” covered contracts are entitled to be paid at least the E.O. 14026 minimum wage for all hours they spend performing on those contracts, regardless of how much time they spend performing such work in a particular workweek.
- Except for workers whose wages are calculated pursuant to certificates issued under FLSA section 14(c) and workers who the SCA or DBA otherwise covers, employees who are exempt from the minimum wage protections of the FLSA are similarly not entitled to the minimum wage protections of E.O. 14026.
- For example, DOL’s final rule provides that learners, apprentices, messengers, and full-time students employed under certificates pursuant to FLSA sections 14(a) and (b) are not entitled to the E.O. minimum wage.
- Similarly, individuals employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in 29 CFR part 541, are exempt from coverage of the E.O. pursuant to the Department’s final rule.
For more guidance on E.O. 14026, you can visit the DOL’s FAQ page.
For specific questions on which of your organization’s workers may be covered by the E.O., reach out to Katie
or a member of the HSB Employment Law