Labor Department sets 2025 federal contractor minimum wages

The Labor Department on Monday took key steps to increasing the minimum wages for various federal contractors next January, effectively increasing the topline minimum wage for contract work to $17.75 per hour.

The news came from a pair of notices published in the Federal Register Monday. In 2021, President Biden signed an executive order expanding his $15 minimum wage for the federal workforce to the government’s contractor workforce, as well as creating a process for the Labor secretary to update that minimum wage annually, based on the annual change in the Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

But in practice, the process—and the actual minimum wage—is more convoluted than that. Biden’s executive order only applies to federal contracts that have been signed, renewed or otherwise extended after Jan. 30, 2022. For federal contracts that began prior to that date, a similar executive order signed by former President Obama controls contractors’ wages.

Beginning next January, federal contractors whose agreement with the government began, was renewed or extended after January 2022 must be paid a minimum wage of $17.75 per hour. That minimum wage applies regardless of whether those employees receive tips as part of their work. That amounts to a 3.2% increase to federal contractors’ wage floor. According to the Obama-era executive order, the tipped wage floor is set at 70% of the nontipped minimum wage, rounded to the nearest nickel.

For employees of federal contractors whose most recent deal with federal agencies was prior to Jan. 30, 2022, the minimum wage for employees engaged in non-tipped work will increase from the current $12.90 per hour to $13.30 per hour, a 3.1% increase. Tipped workers must be guaranteed a “cash wage” of $9.30 per hour, an increase of 25 cents from the current $9.05.

Though the current bifurcated minimum wage system is convoluted, Labor Department officials wrote that they anticipate that updating the minimum wage for contracts covered under the Obama-era executive order will not be necessary for much longer.

“The department anticipates that, in the relatively near future, essentially all covered contracts with the federal government will qualify as ‘new’ contracts under Executive Order 14026 and be subject to its higher minimum wage rate,” the department wrote. “Until such time, however, Executive Order 13658 and its regulations . . . must remain in place.”