U.S. Department of Labor Announces Rule to Increase Minimum Wage for Federal Contract Employees

By Abeer Sikder, Policy Analyst

On November 24, 2021, the U.S. Department of Labor published a final rule that increases the hourly minimum wage to $15 for federal contract employees beginning January 30, 2022, up from the current rate of $10.95 per hour. The rule also eliminates the exemption for federal contractors with disabilities to be paid less than the minimum wage.

Additionally, the rule eliminates the tipped minimum wage for federal contract employees by 2024, meaning federal contract employers will be required to pay the full minimum wage to employees – not counting tips – at restaurants and other businesses. The order also restores minimum wage protections to outfitters and guides operating on federal lands.

The Department’s ruling can lead to future pay increases (starting January 1, 2023), which will be determined by the Secretary of Labor based on rates of price increases throughout the economy. (The rule continues to index the federal contractor minimum wage in future years to inflation.)

The rule also implements Executive Order 14026, signed by President Biden on April 27, 2021. “Executive Order 14026 states that the Federal Government’s procurement interests in economy and efficiency are promoted when the Federal Government contracts with sources that adequately compensate their workers. The Executive Order raises the minimum wage paid by those contractors to workers performing work on or in connection with covered federal contracts to $15.00 per hour.” The EO applies to all new federal contracts, as well as renewals and extensions of existing federal contracts in all 50 states, Washington, D.C. and specified territories.

In recent years – and especially in response to the COVID-19 Pandemic – many Americans have called for increased pay to support essential workers, maintain standards of living and improve the economy for traditionally marginalized populations, such as the BIPOC population (black, indigenous and people of color) and individuals with disabilities.

The goals of the wage increase are to raise worker productivity, reduce employee turnover and absenteeism, and decrease recruiting and training costs. Secretary of Labor Marty Walsh stated that the adjustment to $15 per hour “improves the economic security of these workers and their families, many of whom are women and people of color” and “ensures that the federal government leads by example” in creating good jobs across the country.

The U.S. Department of Labor estimates this new increase will provide a wage boost for hundreds of thousands of employees working under federal contracts, and annual pay increases of thousands of dollars for low wage federal contractors. It comes after movements in states and localities throughout the nation to increase the minimum wage.

The rule also clarifies that workers with disabilities whose wages are governed by special certificates issued under section 14(c) of the Fair Labor Standards Act (subminimum wages) must receive no less than $15 minimum wage for work on federal contracts, effective January 30, 2022. Section 14(c) does not apply unless the disability actually impairs the worker’s earning or productive capacity for the work being performed. The fact that a worker may have a disability is not in and of itself sufficient to warrant the payment of a subminimum wage.

It should be noted that fourteen states have prohibited or are phasing out subminimum wages for employees with disabilities through legislation or executive order. In 2018, Alaska eliminated subminimum wages for workers with disabilities. Earlier this year, Hawaii repealed the “disability subminimum wage” for employees in the state. Minnesota recently established a task force on eliminating subminimum wages by August 2025.

Review these links for more information about the new minimum wage increase:

Review these links for minimum wage guidance for workers with disabilities:

Review these links for examples of states increasing their minimum wage:

Review these links for background information about minimum wage: