On March 14, 2025, President Donald Trump issued an executive order rescinding the federal contractor minimum wage mandate, a policy originally established under the Biden administration. This decision removes the requirement for federal contractors to pay workers at least $17.75 per hour, allowing wages to be set according to the federal minimum wage ($7.25 per hour) or applicable state and local wage laws.
This policy shift has significant implications for federal contractors, workers, and the broader business landscape. Here’s what you need to know.
Background: The Federal Contractor Minimum Wage Policy
In April 2021, President Joe Biden signed Executive Order 14026, which mandated a minimum wage of $15 per hour for federal contract workers. The order also allowed for annual adjustments based on inflation, raising the rate to $17.75 per hour as of January 1, 2025.
The intent behind this policy was to enhance worker earnings, reduce income inequality, and establish fair compensation for individuals working on federal contracts. However, with the recent rescission, employers under federal contracts are no longer bound by these wage requirements.
Key Implications of the Rescission
- Wage Adjustments for Federal Contract Workers
- The $17.75 per hour wage requirement is no longer in effect.
- Contractors can now set wages at the federal minimum wage ($7.25 per hour) or follow state/local laws.
- In states with higher minimum wages (e.g., California, New York), contractors must comply with state wage laws.
- Workers in states that follow the federal minimum wage could see wage reductions to as low as $7.25 per hour.
- Impact on Existing Contracts
- Contracts signed before January 30, 2022, under Obama-era policies, still require a minimum wage of $13.30 per hour.
- New contracts will no longer be subject to previous wage mandates.
- Elimination of Union & Workforce Policies
- The revocation also removes provisions related to project labor agreements, union neutrality, and workforce development incentives that were included in Biden’s executive order.
- Federal contractors may see fewer unionization requirements but could face new labor relations challenges.
Reactions from Key Stakeholders
Support from Business & Contractor Groups
- Many business organizations support the change, arguing that the previous mandate imposed financial burdens on federal contractors.
- Small and mid-sized businesses may find it easier to compete for federal contracts without the higher wage obligation.
Concerns from Labor & Worker Advocacy Groups
- Unions and worker advocacy organizations have criticized the move, warning that it could lead to lower earnings and reduced job security for thousands of federal contract workers.
- The policy change widens the wage gap between federal and private sector employees.
Guidance for Federal Contractors
With this significant policy shift, federal contractors must take proactive steps to ensure compliance while maintaining competitive compensation practices.
- Review Compensation Policies: Assess current wages and determine compliance with federal, state, and local wage laws.
- Communicate with Employees: Clearly inform workers about any wage adjustments and explain how this change impacts them.
- Evaluate Contractual Obligations: Review existing and future federal contracts to ensure wage policies align with contract terms.
- Monitor Legal & Policy Developments: Stay updated on potential legal challenges and future policy changes that could impact contractor wages.
Final Thoughts
The revocation of the federal contractor minimum wage mandate represents a significant shift in federal labor policy, impacting both businesses and workers. While contractors now have more flexibility in setting wages, this change raises concerns about worker earnings and broader labor market effects. Federal contractors must carefully assess their wage policies, compliance obligations, and workforce strategies in light of this policy change. Staying informed and proactive will be critical in navigating the evolving regulatory landscape.
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