On April 27, President Biden issued an executive order requiring federal contractors and covered subcontractors to pay a $15 per hour minimum wage beginning January 30, 2022. The order also requires contractors to incorporate a clause mandating a $15 per hour minimum wage into lower-tier subcontracts. After January 30, 2023, the minimum wage will be automatically adjusted based on the Consumer Price Index for Urban Wage Earners and Clerical Workers.

The order also phases out the tipped minimum wage for federal contractors, which is currently $7.65 per hour. Beginning January 30, 2022 the tipped minimum wage increases to $10.50 per hour. By January 1, 2023, the tipped minimum wage must be no less than 85% of the non-tipped minimum wage and by January 1, 2024, the tipped minimum wage must be no less than 100% of the non-tipped minimum wage.

The immediate impact of this order will initially be felt by contractors with lower paid workers, such as concessions at national parks. However, this order will have implications for employers beyond traditional government contractors. Many businesses will likely face the decision between paying a $15 per hour minimum wage or losing out on lucrative government business. Businesses that provide goods or services for which the government is the ultimate end user should pay close attention to their subcontracts and purchase orders over the next six months. Such agreements often include banal “incorporation clauses” which create obligations like the new minimum wage.