President Joe Biden’s administration says hundreds of thousands of workers could see bigger paychecks from next year because of its new minimum wage for federal contractors.
The Department of Labor said Monday it had finalized a regulation setting a wage cap of $ 15 for workers under federal contracts. Companies providing services to the U.S. government must pay workers at least as much under contracts implemented or renewed as of January 30, 2022.
The federal government is already setting the contractor minimum through applicable wage law. But Jessica Looman, acting administrator of the Department of Labor’s payroll and hourly division, said in a news release Monday that there are 327,000 workers under federal contracts who are currently entitled to less than $ 15 an hour.
Officials expect many of these workers to receive pay 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 wage increases.
“The bottom line is that we really want to make sure we harness the purchasing power of the federal government to ensure fair wages for workers across the country,” Looman said.
Biden had signed an executive order instructs the Ministry of Labor to develop the regulation back in April.
The rule covers not only workers on federal properties, but anyone working under a service or construction contract with the government. This is true in all U.S. territories and states, many of which have local minimum wages well below $ 15 an hour. Workers in these areas are likely to see the greatest 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 companies to adjust their minimum requirements each year. The rule will also remove the tipped minimum wage by 2024, requiring companies to pay the full minimum wage, without gratuity, at restaurants and other businesses under federal contracts.
“The bottom line is that we really want to make sure we harness the purchasing power of the federal government to ensure fair wages for workers across the country.”
– Jessica Looman, acting administrator of the payroll and hourly division
The rule will have no direct bearing on the vast majority of workers whose jobs are not bound by federal contracts. However, Labor Minister Marty Walsh said on Monday that the administration hopes the rule will encourage higher wages at competing companies.
“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 across this country.”
Using the procurement process to influence working conditions in private companies is nothing new. Presidents dating back to Franklin Delano Roosevelt have used federal contract rules to address discrimination and other issues in the workplace. Such rules have far less impact than a congressional act that applies to the entire private sector, but supporters say they allow presidents to raise standards for at least some workers unilaterally.
The new minimum wage rule is essentially an update of a previous rule issued by the Barack Obama administration, which set $ 10.10 per hour as a minimum under federal contracts starting in 2015. Due to inflation adjustments, the minimum is now 10.95 USD, meaning Biden’s change to $ 15 will equate to a large and sudden raise.
House Democrats have passed a bill that would pass a federal minimum wage of $ 15, but Democrats in the Senate have failed to bring all of their colleagues on board and face universal opposition from Republicans. The federal minimum is still $ 7.25 an hour and has not been raised for more than a decade.
The federal government does not store big data on wages for federal contractors, so it is difficult to know exactly how many workers will see a wage increase. Earlier this year, the Economic Policy Institute estimated that an increase to $ 15 would create direct increases for up to 390,000 workers, a potentially larger number than the Ministry of Labor estimated. The EPI said the average wage increase would be around $ 3,100 annually.
Employers will have to pay higher wages as a result of the rule, but they can bake these costs into their bids for contracts so that the government ends up paying the bill rather than private companies.
Walsh argued that raising wages for the lowest paid contractors would ensure that work done for the government “will be done better and faster.”