Executive Order Increases Minimum Wage for Federal Contractors (not Grantees)

On April 27, 2021, President Biden issued an executive order raising the minimum wage for federal contractors from $10.95 to $15.00 an hour starting on January 30, 2022. The minimum wage will further increase on January 1, 2023, and each year after, to an amount determined by the U.S. Department of Labor (DOL) and published at least 90 days prior to taking effect. Most CAAs and Community Action Network organizations are federal grantees rather than federal contractors, and the requirements in this executive order do not apply to federal grants.

The order applies to new contracts, subcontracts, and contract extensions or renewals entered into with the federal government on or after January 30, 2022. Federal agencies must include a provision in such contracts requiring that individuals working under these contracts be paid at least $15 per hour, adjusted for inflation. The contracts will also require the federal contractor to incorporate the $15 per hour minimum wage into lower-tier subcontracts.

Biden’s order is similar to a 2014 executive order that raised the minimum wage for federal contractors to $10.10 per hour. As we have noted in the past, because CAAs are federal grantees, rather than federal contractors, they are not required to comply with rules imposed on federal contractors. The federal government distinguishes between those vendors from which it buys products or services to be used by the government (i.e., contractors), and those entities to which it provides funds to benefit the public at large (i.e., grants or federal assistance). The Uniform Guidance notes that the substance of the relationship is more important than the form of the agreement. It lists the characteristics used to determine whether the relationship created is that of a contractor or grant recipient. 2 C.F.R. §200.331.

Even though CAAs may have an agreement called a “contract” for the award, this does not automatically mean that the CAA is a federal contractor. For example, federal funds that are passed through by a state do not make a CAA a federal contractor, even if the state refers to the CAA as a “contractor”. Terms such as “financial assistance award,” “notice of grant award,” “grant agreement,” “grant award,” “loan” or “cooperative agreement” often indicate that the CAA has a grant or other federal assistance, and not a contract. If the CAA's agreement contains language such as "order for supplies and services", this may indicate a contractor relationship.

Since the executive order states that it applies to contracts where the wages of workers are governed by the Davis-Bacon Act, CAAs that administer Head Start grants may wonder whether the order applies to construction contracts on their Head Start facilities. The Head Start Act requires that laborers and mechanics employed by contractors or subcontractors in the construction or renovation of facilities to be used to carry out Head Start programs must be paid wages at not less than those prevailing on similar construction in the locality under the Davis-Bacon Act. However, the executive order only binds executive departments and agencies. Thus, Head Start contracts that are subject to the Davis-Bacon Act are likely not covered by this executive order.

The executive order directs the DOL to issue regulations implementing this minimum wage increase by November 24, 2021. CAPLAW will monitor ongoing developments and issue additional updates, as necessary.

This News Flash is part of the Community Services Block Grant (CSBG) Legal Training and Technical Assistance (T/TA) Center. It was created by Community Action Program Legal Services, Inc. (CAPLAW) in the performance of the U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services Cooperative Agreement – Grant Award Number 90ET0482-01. Any opinion, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.

The contents of this news flash are intended to convey general information only and do not constitute legal advice. Any communication through this publication or through CAPLAW’s website does not constitute or create an attorney-client relationship. If you need legal advice, please contact CAPLAW or another attorney directly.