Businesses holding federal government contracts may soon face higher labor costs as the U.S. Department of Labor announced an increase in the minimum wage for certain federal contract workers.
.jpg)
According to a recent notice published in the Federal Register, the minimum wage for workers employed under covered federal contracts will increase to $13.65 per hour beginning May 11, 2026. The rule also raises the minimum cash wage for tipped employees to $9.55 per hour.
The wage adjustment applies to specific contracts covered under earlier federal executive orders governing wage standards for federal contractors.
The federal contractor minimum wage requirement originated from Executive Order 13658, signed in February 2014 by then-President Barack Obama. The order established a minimum wage of $10.10 per hour for workers on federal contracts that are primarily governed by the Davis-Bacon Act or the Service Contract Act.
Since its implementation, the order has faced several legal challenges. Recreational service companies operating on federal lands argued that the executive action exceeded presidential authority. Federal appellate courts were divided on the issue, with the Tenth Circuit and Fifth Circuit upholding the rule, while the Ninth Circuit ruled against it.
Despite expectations that the current administration might eliminate the policy, the wage requirement remains in place and continues to be updated annually.
The wage increase does not apply to every federal contract. Instead, it covers contracts governed by Executive Order 13658 that were:
Covered agreements generally include:
These contracts often involve work performed for federal agencies or services provided to federal employees and the public.
Businesses providing recreational services on federal lands could also be affected by the wage increase.
These services may include activities such as:
A previous executive order issued during the administration of Donald Trump created an exemption for seasonal recreational service providers. However, that exemption was later revoked by an order issued during the administration of Joe Biden.
Because the subsequent rule changes have not reinstated the exemption, employers offering recreational services under covered federal contracts are advised to assume that the minimum wage requirements apply.
The regulation also includes special rules for tipped workers such as restaurant servers and bartenders working on federal property.
Employers can apply a tip credit, allowing them to count a portion of tips toward the required minimum wage. However, businesses must still pay a guaranteed direct hourly wage.
.jpg)
Under the new rule:
If an employee’s tips combined with the cash wage do not meet the required minimum wage threshold, the employer must cover the difference.
Companies with federal contracts should begin preparing for the upcoming wage adjustment.
Key steps include:
Legal experts also advise employers to consult labor and employment counsel to ensure compliance with evolving federal wage regulations.
Originally reported by Perkins Coie.
