2025 Federal Contractor Minimum Wage Rates Announced

The minimum wage for most employees working “on or in connection with” a qualifying federal contract is set to rise from $17.20 per hour to $17.75 per hour effective January 1, 2025.

That will be the minimum wage rate for both non-tipped and tipped workers because, as promised, the lower cash wage contractors could previously pay to tipped employees was eliminated on January 1, 2024.

For those paying close attention, there are actually two notices about this because there are two different Executive Orders regarding the minimum wage for federal contract employees.

In 2014 the Department of Labor implemented Executive Order 13658 establishing a minimum wage for employees working on or in connection with most types of federal contracts. It was incredibly complicated—likely by design to encourage federal contractor employers to establish a sufficient minimum wage for all their workers, whether they worked on a qualifying contract or not.

Then, in 2021, the Department implemented Executive Order 14026 which set an even higher minimum wage for employees working on or in connection with a qualifying contract. But that order only applied to contracts entered into (or modified or extended) after January 30, 2022.

So there may still be federal contracts that were originally subject to the earlier E.O. 13658 that are still in effect without having been modified, renewed, or extended. The Department of Labor is not sure that there are any, but there could be. If there are, employees working on those contracts are still subject to the lower E.O. 13658 minimum wage rates, which are going up as well.

If you know your organization holds one of these “gap” contracts, and if you are able to track employee work “on or in connection with” those qualifying contracts, and you want to pay them the minimum allowed by law, there are still rates for tipped and non-tipped workers. The rate for non-tipped workers will rise from $12.90 per hour to $13.30 per hour effective January 1, 2025. The rate for tipped workers will rise from $9.05 per hour to $9.30 per hour.

It is highly unlikely that your organization holds such a “gap” contract, though. Even if you do, it is even more unlikely that you have the infrastructure necessary to apply these lower minimum wages to employees’ work done on or in connection with such a contract. The higher E.O. 14026 wage rates would apply to any work performed on or in connection with any other qualifying federal contract. Most, if not all federal contractor employers simply raised their minimum wages to align with E.O. 14026.

E.O. 14026 applies to work performed on or in connection to contracts entered into, renewed, or extended on or after January 30, 2022 in the following four categories:

• Procurement contracts for construction covered by the Davis-Bacon Act;
• Service contracts covered by the Service Contract Act;
• Concessions contracts, including those excluded from the Service Contract Act; and
• Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.

If that seems daunting, you are not alone, and now you understand why most federal contractor employers simply raised their minimum wage across the board. Any savings those employers might see from only paying the minimum wage when required are likely to be eaten up in the administrative costs sure to come with tracking employee time and work closely enough.

If you have questions about this or any other federal contractor requirement, feel free to reach out to us at bai@berkshireassociates.com.