Labor Department Announces January 1, 2025, Contract Minimum Wage Increases

Annually, two companion Executive Orders require the Department of Labor to set the minimum wage rates that must be paid to employees of federal contractors who work “on or in connection with” certain federal contracts. On September 30, 2024, the Department published in the Federal Register those two minimum wage rates, effective January 1, 2025.

For contractors whose contract(s) with the U.S. Government began, was renewed, or was extended prior to January 30, 2022, (the so-called “legacy” wage rate), the minimum wage for non-tipped work increases from $12.90/hour to $13.30/hour, a 3.1% increase over the 2024 level. Tipped workers must receive a “cash wage” of $9.30/hour, up from the current $9.05/hour.[1]

For contractors whose contract(s) with the U.S. Government began, was renewed, or was extended after January 30, 2022, the minimum wage for all workers, even including those who receive tips as part of their job, is set at $17.75/hour, a 3.2% increase over the 2024 level.[2]

However, two federal court cases have narrowed the applicability of earlier DoL rate increases and will likely constrain the applicability of the 2025 wage rate until these court cases have been resolved. Based on a September 26, 2023, order issued by the U.S. District Court for the Southern District of Texas, the current minimum wage requirements are not currently being enforced for contracts and subcontracts to which the states of Texas, Louisiana, or Mississippi are a part; but federal contractors in those states are still subject to the adjustment. In addition, based on an order from the U.S. Court of Appeals for the Tenth Circuit, the increase is not being applied to federal contracts with seasonal recreational services or seasonal recreational equipment rentals on federal lands.[3]

While caution must be exercised in applying the correct minimum wage to the right set of contracts for 2025, the Department noted that, with the passage of time, fewer and fewer contracts will be subject to the “legacy” wage rates that will be published in the next few years.

As a reminder, for contractors who work on contracts covered by the Service Contract Labor Standards (formerly the “Service Contract Act”), the prevailing wages included in the Wage Determination (WD) that is incorporated into the contract would override the minimum wage under the applicable executive order where the WD has a higher minimum wage than the executive order minimum wage. If the WD is lower, the applicable executive order rate must be paid.

In addition, some states or local jurisdictions have imposed minimum wage rate for certain employees; in those jurisdictions, the contractor is generally required to pay its employees the higher applicable rate.[4]

We can assist in parsing the contracts covered by the respective executive orders and assigning the correct wage rates. Contractors should begin now to identify the buckets of contracts that are subject to each executive order and to prepare to modify payroll systems to ensure that the proper wage rate is paid to covered employees on and after the January 1, 2025, effective date of the rules.

If you have any questions or need any additional information, please do not hesitate to contact the author at [email protected] or the Centre Law attorney with whom you normally work.

[1] Minimum Wage for Federal Contracts Covered by Executive Order 13658 (Feb 12, 2014), available at https://www.govinfo.gov/content/pkg/FR-2024-09-30/pdf/2024-22099.pdf (last viewed 10/22//24)

[2] Minimum Wage for Federal Contracts Covered by Executive Order 14026 (Apr 27, 2021), available at https://www.govinfo.gov/content/pkg/FR-2024-09-30/pdf/2024-22100.pdf (last viewed 10/22/24)

[3] A petition for review by the U.S. Supreme Court of this Tenth Circuit decision was filed on August 28, 2024.

[4] Caution, however, because the minimum wages established in these jurisdictions may not be fully reimbursable by the U.S. Government on covered federal contracts when the rate is higher than the wage determination included in the federal contract.