Living Wage Requirements

Living wage requirements in government contracting mandate that employees performing work on certain federal contracts receive a minimum hourly wage above the statutory FLSA federal minimum, typically set by presidential executive order or local ordinances, to ensure that contract workers earn wages sufficient to cover basic living expenses.

What are Living Wage Requirements in Contracting?

The most significant federal living wage requirement is established by Executive Order 14026, which requires federal contractors to pay a minimum of $15.00 per hour (with annual adjustments for inflation) to workers on new or renewed covered contracts, well above the statutory FLSA minimum of $7.25. This EO extends to tipped employees as well, with a separate minimum wage floor for service employees in tipped occupations. State and local living wage requirements add additional layers: many cities and counties that have enacted living wage ordinances apply them to contractors doing business with the locality, often at rates well above both the federal minimum and the EO 14026 floor. For contractors with national workforces, navigating the matrix of federal, state, and local living wage requirements is a compliance challenge that must be reflected in contract pricing. The Service Contract Act prevailing wages (which set rates for many federal service contractor workers by locality) often exceed living wage thresholds but must be reconciled with living wage requirements where both apply.

Why living wage requirements matter for government contractors

Living wage mandates directly affect labor cost models for service contracts. Contractors who price based on statutory minimums without accounting for EO 14026 or applicable local living wage requirements will underprice contracts, create compliance violations, and face back pay liability. Accurate labor cost modeling requires research into all applicable wage requirements at every performance location.

Example

A janitorial services contractor bids on a federal building maintenance contract in Washington, DC. DC's living wage law requires $17.50/hour for employees working on contracts with the city. The federal EO 14026 requires $15.00/hour. The Service Contract Act prevailing wage for the applicable occupation in DC is $18.20/hour. The contractor prices labor at the highest applicable rate ($18.20 SCA wage) to ensure compliance with all three overlapping requirements.

Frequently Asked Questions

Does EO 14026 apply to all federal contractors?

EO 14026 applies to contractors and subcontractors working on covered federal contracts, including procurement contracts for services or construction and concession contracts. It does not apply to all commercial purchases or to contracts below applicable thresholds. The FAR clause 52.222-55 incorporates the EO into covered contracts.

What happens when local living wage laws exceed federal requirements?

Contractors must comply with the highest applicable wage requirement at each work location. If a local ordinance requires $17.50/hour but federal requirements are $15.00/hour, the local rate controls. The FAR's contractor responsibility requirements extend to compliance with all applicable labor laws, including state and local wage laws.

Are tipped employees covered by EO 14026?

Yes. EO 14026 also establishes minimum wage floors for tipped employees performing on covered contracts, with a higher minimum than previous requirements. Federal contractors with tipped service workers (such as restaurant workers in federal facilities) must track these rates separately from standard employee minimum wages.

Do living wage requirements apply to subcontractors?

Yes. Executive orders and SCA requirements flow down to subcontractors performing work on covered federal contracts. Prime contractors must include appropriate wage clauses in their subcontracts and are responsible for ensuring their subcontractors comply with applicable wage requirements.