Starting early next year, hundreds of thousands of employees working on contracts for the federal government will see their minimum wage increased to $15 per hour, thanks to an executive order signed by President Joe Biden in April.

At a press briefing following the executive order signing, White House Press Secretary Jen Psaki said the change would be far-reaching and impact the lives of people who do important, but often thankless, work to keep government agencies running smoothly.

"These workers are critical to the functioning of federal government—from cleaning professionals and maintenance workers, to nursing assistants who care for the nation's veterans, to cafeteria and other food-service workers who ensure we all have healthy and nutritious food to eat, to the laborers who build and repair federal infrastructure,” Psaki said.

The minimum executive order follows on the heels of the Biden Administration executive order to promote collective bargaining and fully implement standards set by the 1935 National Labor Relations Act. President Biden has also signed executive orders aimed at increasing worker safety and promoting racial and gender equality.

Improving conditions for America’s workers was a central part of Biden’s campaign platform, and political analysts say these executive orders are an effort to make good on those campaign promises to the extent that he can without the help of Congress.

What Will Change?

Implementing a change like this sounds easy on its face but is much more complicated in a large organization like the federal government with its web of agencies and contracts. The government is giving its agencies until January 30, 2022, to incorporate the $15 wage into existing contracts and until March 30, 2022, to make it part of new contract solicitations or contract extensions.

The minimum wage for federal contractors is currently $10.95 per hour for non-tipped workers and $7.65 per hour for tipped workers; the last major increase came under the Obama administration in 2014.

Raising the minimum up to $15 brings the federal government in line with cities and states across the country that have already implemented similar increases. It also gets the administration closer to a national $15 minimum that has long been a goal for progressives.

Similar to the 2014 increase, the federal minimum wage will be indexed to inflation every year after 2022. How much further could that push up wages? For context, the minimum signed by President Obama in 2014 was $10.10 per hour, which increased to $10.95 per hour by 2021.

Biden’s executive order also calls for eliminating the wage differential for tipped workers by 2024 so that all federally-contracted employees will be paid the same, regardless of whether or not they receive tips. The measure also guarantees a $15 minimum wage for federal workers with disabilities, who were previously exempt from minimum wage requirements, in what the administration describes as an effort to increase equity in the nation’s workforce.

What Does It Mean?

Taken together, these changes mean that workers on a federal contract will see their annual incomes increase from $21,900 per year to approximately $30,000 per year, according to the U.S. Department of Labor.

The companies impacted by the new minimum wage requirements span industries and sectors and employ everyone from food workers and nursing assistants to IT technicians and security guards. Because minimum wage is set at the state level, the new rules could create disparities between workers who are government contractors and those who are not — within the same community or even the same organization.

In Pennsylvania, for example, where the minimum wage is $7.25 per hour, an employee on a federal contract will earn more than double what another worker earns doing the same tasks for a private company or other entity not on a federal contract.

At the federal level, the new mandate might also have ripple effects on the wages of workers who were already earning $15 per hour. It’s unclear whether those higher-paid employees would be eligible for raises under the scope of Biden’s executive order.

The Biden administration originally tried to pass a national $15 minimum wage as part of the $1.9 trillion COVID-19 relief bill passed in March but did not have the votes in Congress to keep it in the final version of the bill. The administration hopes that raising wages for government contractors, who are spread throughout the country, will help increase pressure on Congress to adjust the Fair Labor Standards Act, which controls the national minimum wage. The federal minimum wage is currently $7.25 per hour and was last updated in 2007.

Finally, the executive order will change dynamics for recruiting and retaining qualified workers, particularly in areas that employ a lot of government contractors. It will become more difficult for businesses without government contracts, particularly small businesses, to increase wages without eliminating positions or reducing hours for existing staff.

The U.S. Department of Labor will release additional guidance on how to implement the executive order by November 24, 2021. More information about the executive order and the forthcoming changes to wages for government contractors is available in a fact sheet from the White House.