On April 27, 2021 the Biden-Harris administration issued an executive order raising the minimum wage for workers who are working on federal contracts to $15. The task of implementing and enforcing this Executive Order has been passed to the Department of Labor’s Wage and Hour Division and the Federal Acquisition and Regulatory Council. While the raise in minimum wage may come as a surprise, this order represents an opportunity when it comes to health and welfare benefits.
Understanding the Executive Order
This executive order will increase the hourly minimum wage for federal contractors to $15. Starting on January 30, 2022 all agencies will need to incorporate this increase into new contract solicitations. This move increases the current minimum wage by 37% and will continue to tie future increases to inflation. This will apply to employees working on Service Contract Act, Davis-Bacon Act, and similar federal laws and regulations. Additionally, this executive order ensures that tipped employees working on federal contracts will earn the same minimum wage as other employees on federal contracts, eliminating the tipped minimum wage by 2024.
The Implications for Government Contractors
An increase to the base wage of employees working under federal contracts could mean that employers are better equipped to give their workers the best of both worlds. Contractors have always had the option to pay the fringe amount determined by the Wage and Hour Division as cash to the employee or as a fringe benefit offering. While there are clear competitive advantages to offering fringe benefits, many employers have been hesitant to withhold cash from their minimum wage employees.
With this increase in minimum wage, employers can provide employees with compliant health and welfare benefits, with less impact to the wages in their employees’ pockets. The employee walks away with more cash and the security of benefits.
Health and Welfare Benefits and Their Advantage
The employer that offers health and welfare benefits through the fringe allotment is at a competitive financial advantage over their competitor that pays the fringe to employees in cash. Contractors save through payroll taxes, as well as reduced healthcare spending overall. Health and welfare benefits have been connected to reduced absenteeism, increased productivity, and, now more than ever, employees value healthcare.
This executive order and increase to the minimum wage present the perfect opportunity for employers to offer health and welfare benefits to their valued workforce. It’s a competitive edge for the contractor and a value to the worker that cannot be overstated.
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