Federal Contractor Minimum Wage: A Complete Guide

If your business holds federal contracts, you're bound by specific wage requirements that differ from standard state or local minimums. The federal contractor minimum wage has changed dramatically in recent years, particularly through Executive Order 14026, which pushed rates higher. Then, in early 2025, new policy shifts changed the rules again, affecting how you calculate labor costs, bid on contracts, and stay compliant. 

For project-based contractors in construction, professional services, and similar industries working with government agencies, understanding these requirements directly impacts your profitability and helps you avoid penalties. This guide explains who's covered, what changed recently, and how to manage compliance without manual tracking headaches. Whether you're bidding on your first federal contract or managing multiple projects with complex labor requirements, you'll get a clear roadmap for staying compliant while protecting your margins.

Understanding Federal Contractor Minimum Wage Requirements

Federal contractor minimum wage rules create a distinct framework for businesses working on government contracts. These requirements exist separately from standard labor laws and have undergone significant changes due to recent policy shifts.

What Is the Federal Contractor Minimum Wage?

The federal contractor minimum wage establishes a specific pay floor for workers performing labor on or in connection with federal contracts. This rate differs from the standard federal minimum wage of $7.25 per hour and has historically been higher. Executive Order 14026, signed in 2021, set a baseline wage of $15.00 per hour for federal contractors with built-in annual increases tied to inflation.

Executive Order 14026 was rescinded in March 2025 through a White House executive action, fundamentally changing federal contractor wage requirements.

The federal contractor minimum wage works differently from the standard federal minimum. While the general minimum wage covers most private sector employees broadly, the contractor-specific wage applies only to particular contract situations. It covers new contracts, contract-like instruments, and solicitations issued after a specified effective date. The wage requirement extends to both direct labor (workers performing specific contract task) and indirect labor (such as security personnel working at a contract site who support overall contract performance).

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Who Qualifies as a Federal Contractor?

A federal contractor is any business or individual entering into a contract with the federal government to provide goods or services. This includes construction firms building federal facilities, professional service companies consulting for agencies, manufacturers supplying equipment, and maintenance companies servicing government properties. Qualification depends on having an active contractual agreement with a federal agency, regardless of business size or contract value.

Federal contractors operate across diverse industries. As just some examples, construction companies work on military bases, janitorial services maintain government offices, landscaping firms service federal parks, biotechnology companies conduct government-funded research, and professional services firms support agency operations. If your company has signed a contract with any federal agency, you're functioning as a federal contractor for that agreement's duration. Proper tracking of hours worked on these contracts is essential, and solutions for certified payroll can help ensure compliance.

Which Workers Are Covered Under These Rules?

Coverage extends to workers directly performing work on or in connection with covered federal contracts. This includes employees working at the contract site, those fabricating materials off-site that will be incorporated into contract work, and workers providing support services necessary for completing the contract. The determining factor is whether the employee's work directly relates to fulfilling contract obligations.

Certain exemptions apply; for example, workers covered under the Service Contract Act or Davis-Bacon Act already have prevailing wage requirements that may differ from the contractor minimum wage. Similarly, employees performing work unrelated to the federal contract aren't covered by federal contractor minimum wage requirements, even if they work for a company that holds federal contracts. For instance, administrative staff at a construction company working exclusively on private sector projects wouldn't fall under these rules, despite their employer's federal contract portfolio. Accurate job costing helps distinguish which hours apply to federal contracts versus other work.

Recent Changes to the Minimum Wage for Federal Contractors

Federal contractor minimum wage requirements have undergone significant changes between 2021 and 2025. If you hold government contracts, these shifts directly impact your labor budgets, compliance obligations, and bottom line. Executive Order 14026 initially raised wages substantially, but a 2025 policy reversal created a more complex environment for businesses working on federal projects.

Executive Order 14026 and the 2024 Rate Increase

On April 27, 2021, President Biden signed Executive Order 14026, setting a $15.00 per hour minimum wage for federal contract workers. This represented a major jump from the $10.95 baseline established under Executive Order 13658. The order built in automatic annual adjustments tied to inflation so that the rate would climb each year based on Consumer Price Index changes.

When January 1, 2024 arrived, the federal contractor minimum wage climbed to $17.20 per hour. The order also established a $12.15 per hour minimum for tipped workers on federal contracts, with that rate following the same annual adjustment pattern. These requirements kicked in for new contracts and renewals starting January 30, 2022. If you were bidding on federal work after that date, you needed to build these higher labor costs into your proposals from the start.

The Department of Labor's Wage and Hour Division handles enforcement through audits and complaint investigations. Noncompliance carries serious consequences: contract termination and potential debarment from future federal work.

The 2025 Policy Shift: What Changed

March 2025 brought a dramatic reversal. The executive branch rescinded Executive Order 14026, eliminating the $17.20 hourly requirement that had been in effect. For contractors operating under multi-year contracts signed when the higher wage was mandatory, this created immediate questions about their obligations.

The rescission of Executive Order 14026 left approximately 327,000 federal contractors earning under $15 per hour vulnerable to wage reductions on future contracts.

Here's what didn't change immediately: Existing contracts with the $17.20 minimum remained bound by their original terms until completion or renewal. The rescission affected new solicitations issued after March 2025. These no longer required contractors to meet the $15+ minimum, instead reverting to other applicable wage laws like the Service Contract Act or Davis-Bacon Act where those statutes applied.

This created a challenging compliance situation where you need to track which wage standards apply to which projects based on contract award dates and governing labor laws. Service contractors in janitorial, food service, and security roles felt the impact most directly, as these positions had benefited substantially from the higher wage floor.

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Current Minimum Wage Rates for Federal Contractors

After the 2025 policy change, there's no longer a single universal minimum wage for federal contractors. Which wage standard applies to your specific contract depends on when you won the award, what type of work you're performing, and whether other prevailing wage laws override general minimum wage requirements.

Federal Contractor Wage Standards by Contract Type

The table below breaks down which wage standards apply based on your contract characteristics and timing.

For contracts governed by the Service Contract Act or Davis-Bacon Act, prevailing wage determinations typically exceed both the standard federal minimum and the former Executive Order 14026 rates. These determinations reflect local market wages and shift based on geographic area and worker classification. You'll need to obtain the specific wage determination that applies to your project location and scope before submitting bids.

Tracking these different standards across multiple projects demands precise job costing. When labor rates vary based on contract award dates and applicable wage laws, manual tracking systems create opportunities for errors that can quickly erode your margins and put you at risk of compliance violations.

How the Federal Minimum Wage for Contractors Affects Your Business

Understanding wage requirements is just the beginning. The real work comes when you apply these rules to daily operations: tracking hours accurately, maintaining proper documentation, managing costs, and avoiding violations that could cost you far more than the wage difference itself. If you bid on federal work or currently manage government contracts, these requirements affect everything from your proposal calculations to your daily payroll processes.

Compliance Requirements and Record-Keeping

Federal contractor wage compliance demands careful documentation. You need to maintain payroll records showing the hours each employee worked on covered contracts, their pay rates, and any deductions. These records must remain accessible for at least three years. The Department of Labor can audit your payroll at any time, and incomplete or inaccurate records trigger penalties even if you actually paid workers correctly.

Your documentation must distinguish between hours worked on federal contracts and other projects. When an employee splits time between a covered federal contract and private work during the same week, you need records showing exactly which hours fall under which category. This is especially complex for supervisors, project managers, and support staff whose time gets divided across multiple projects.

Federal contractors must maintain detailed payroll records for a minimum of three years, with clear allocation of hours worked on covered contracts versus non-covered work.

The record-keeping extends beyond basic timesheets. You need contract numbers tied to employee hours, proof of wage rates paid, documentation of any applicable wage determinations (if the Service Contract Act or Davis-Bacon apply), and evidence that you posted required notices informing employees of their wage rights. Missing any component during an audit creates compliance gaps that investigators will flag. If you're managing multiple federal contracts simultaneously, certified payroll software can help track these requirements across projects.

Cost Implications for Project-Based Contractors

Wage requirements directly impact your bid calculations and project profitability. When the federal contractor minimum wage sat at $17.20 per hour, contractors faced labor costs significantly above what they paid on comparable private projects. Even after the March 2025 policy shift, Service Contract Act and Davis-Bacon prevailing wages often exceed $20-30 per hour for many positions and locations.

Consider a janitorial services contractor bidding on a federal building maintenance contract. On private contracts, you might pay cleaners $12-14 per hour. For the federal contract awarded before March 2025, you needed to budget $17.20 per hour minimum. For contracts subject to Service Contract Act wage determinations, rates might reach $18-22 per hour, depending on the locality. That difference compounds across payroll taxes, workers' compensation premiums, and benefits calculations.

Construction contractors face similar pressures under Davis-Bacon requirements. A laborer classification in a metropolitan area might carry a $25+ prevailing wage plus fringe benefits, compared to $18-20 for similar private sector work. When you're estimating projects with tight margins, these wage requirements can determine whether a contract turns a profit or loses money.

The challenge intensifies when policy changes mid-contract. You might simultaneously manage projects with $17.20 minimums, others with Service Contract Act rates, and newer awards with no contractor-specific minimum. Each requires separate tracking and distinct cost accounting.

Penalties for Noncompliance

Violations carry consequences that extend far beyond back wages. The Department of Labor can require you to pay affected workers the difference between what they received and what they should have earned, plus interest. For a crew of 10 workers underpaid by $2 per hour over six months, you're looking at roughly $20,000 in back wages before interest and penalties.

Contract termination represents the most severe immediate penalty. When investigators find willful violations or a pattern of noncompliance, contracting officers can terminate your current agreements for cause. You lose not just future revenue from those contracts but also the relationships and reputation that led to the awards.

Debarment creates long-term damage. Serious or repeated violations can result in your company being prohibited from receiving federal contracts for up to three years. According to the Federal News Network, contractors face increasing scrutiny during periods of fiscal uncertainty because agencies look more carefully at compliance issues. A debarment effectively removes you from the federal marketplace during the exclusion period, cutting off a revenue stream that many project-based businesses depend on for stability.

The administrative burden of violations adds to the financial cost. You'll spend time responding to investigations, producing documentation, potentially engaging legal counsel, and implementing corrective action plans. These activities pull resources away from business development and operations while generating zero revenue.

Managing Federal Contractor Wage Compliance Efficiently

Understanding the rules is one thing; applying them consistently across every project, payroll cycle, and worker is another challenge entirely. Federal contractor wage compliance demands systems that track hours with precision, apply the right rates based on contract terms, and generate documentation that holds up under scrutiny.

Businesses juggling multiple contracts with varying wage requirements find that manual processes create bottlenecks and increase error rates. This section walks through practical compliance steps, identifies the tracking challenges that cause the most problems, and shows how automation solves issues that spreadsheets simply can't handle.

A Step-by-Step Process for Ensuring Compliance

Building a reliable compliance process starts with knowing exactly which wage standards apply to each active contract. Here's how to establish control over your federal contractor wage obligations:

1. Identify applicable wage standards for each contract: Review contract documents to determine whether Executive Order 14026, Service Contract Act, Davis-Bacon Act, or the standard federal minimum wage applies. Pay attention to the contract award date, which determines the rules that govern your wage obligations. For contracts awarded before March 2025, Executive Order 14026's $17.20 minimum likely applies. For newer contracts, check whether prevailing wage determinations override general minimums.
2. Obtain wage determinations and maintain current rates: If your contract falls under Service Contract Act or Davis-Bacon requirements, request the specific wage determination from the contracting officer. These documents specify minimum rates by job classification and location. Wage determinations change periodically, so set up a system to track updates and apply new rates when required.
3. Configure payroll systems to apply the correct rates by project: Set up your payroll system to assign different wage rates based on which contract an employee works on during a given pay period. An electrician might earn $28 per hour on a Davis-Bacon construction project but $22 per hour on private work. Your system needs to distinguish between these and calculate pay accordingly.
4. Implement time tracking that captures project-level detail: Workers must log hours against specific contracts or cost codes. Time tracking at the employee level without project attribution makes compliance impossible. Use digital time tracking tools that require employees to select project codes when clocking in rather than relying on end-of-week recollection.
5. Generate and retain required documentation: Produce certified payroll reports for contracts requiring them, showing employee names, classifications, hours worked, rates paid, and deductions. Store these records for at least three years along with contracts, wage determinations, and correspondence with contracting officers. During audits, complete documentation is your primary defense.
6. Conduct internal audits before external reviews: Every quarter, review a sample of payroll records against contract requirements. Check that rates match wage determinations, hours are properly allocated to contracts, and documentation is complete. Finding errors internally gives you time to correct them before auditors arrive.

Federal contractors must retain detailed payroll records for three years minimum, with project-level hour allocation and wage rate documentation for every covered worker.

Common Challenges in Tracking Multi-Rate Labor

The theoretical compliance process sounds straightforward, but execution creates friction points that trip up even experienced contractors. The most persistent challenge involves workers who split time across multiple projects with different wage requirements during a single pay period.

Classification complexity makes the problem worse. Davis-Bacon and Service Contract Act determinations include dozens of job classifications, each with distinct wage rates. A “laborer" earns less than a “skilled laborer," who earns less than a “carpenter." Misclassifying an employee, even accidentally, creates underpayment violations. Workers performing multiple roles on the same project need separate time entries for each classification.

Change orders and contract modifications introduce mid-project adjustments. A construction contract might start under one set of wage determinations, then get modified six months later with updated rates. You need to track when the change became effective and ensure that you applied the new rates from that date forward. Manual tracking systems struggle to maintain this level of detail across multiple active contracts.

Fringe benefits add another layer of complexity. Some wage determinations specify hourly rates plus fringe benefits. You can pay fringes as cash added to wages, or you can credit bona fide benefits like health insurance toward the fringe obligation. Calculating what portion of your benefits package counts toward fringe requirements demands detailed recordkeeping that shows actual costs per employee. If your health insurance costs $400 per month per employee but the wage determination requires $5 per hour in fringes, you need documentation proving that your benefits meet or exceed that threshold for 173 hours per month.

How Automation Simplifies Federal Contractor Payroll

Manual compliance processes work for contractors managing one or two small federal contracts. Beyond that scale, spreadsheets and disconnected systems create risks that automation can eliminate. Automated job costing platforms connect time tracking, payroll, and accounting systems, ensuring that data flows consistently without the need for manual re-entry.

Dapt addresses federal contractor wage compliance by synchronizing payroll systems like ADP, Paychex, and Paycom with time-tracking tools such as QuickBooks Time. When employees clock in and select project codes, their hours automatically flow to payroll with the correct wage rates based on contract requirements. This eliminates the manual step of translating time entries into payroll inputs, reducing errors and saving hours of administrative work each pay period.

The platform handles complex labor rules that trip up manual systems. Multi-rate scenarios where workers shift between projects with different wage requirements get calculated automatically. Classification tracking ensures that employees working in different roles have separate time entries with appropriate rates. When contract modifications change wage requirements, you update rates once in the system and they apply consistently going forward.

Certified payroll reporting becomes a button click rather than a multi-hour exercise. Dapt generates reports in the formats contracting officers expect, pulling data directly from integrated payroll records. The system maintains the three-year documentation trail required for compliance, organizing records by contract and pay period so you can respond to audit requests within hours instead of days.

For project-based businesses managing multiple federal contracts alongside private work, automated job costing provides real-time visibility into how wage requirements affect profitability. You can see immediately whether a contract is meeting margin targets or whether labor costs are exceeding budgets. This insight helps you bid for future contracts more accurately and make informed decisions about which opportunities to pursue.

Managing federal contractor wage compliance doesn't require accepting administrative burden and compliance risk as unavoidable costs. If you're spending significant time reconciling payroll data, generating certified payroll reports, or worrying about audit readiness, automation can eliminate these friction points while improving accuracy. Contact us to see how Dapt connects your existing systems and automates compliance workflows without disrupting your current operations.

Staying Ahead of Federal Contractor Wage Changes

Federal contractor wage requirements have changed substantially since 2021, creating a compliance environment where different rules apply at the same time depending on contract award dates and applicable labor statutes. The March 2025 rescission of Executive Order 14026 added layers of complexity rather than simplification, as existing contracts retained their original wage obligations while new awards reverted to alternative standards. 

For contractors managing this environment, success depends on accurate time tracking, precise payroll calculations, and documentation that withstands audit scrutiny. Manual methods break down at this scale, introducing errors that erode margins and create compliance risks. Businesses that automate the connection between time tracking, payroll systems, and project accounting gain immediate visibility into which wage standards apply to each worker's hours, eliminate reconciliation work, and maintain audit-ready records without additional administrative burden. The contractors who thrive in this environment are those who treat compliance as an operational advantage rather than an administrative cost.

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FAQs

What is the current legal status of federal contractor minimum wage requirements?

Executive Order 14026, which established a $15 minimum rising to $17.20, was rescinded in March 2025, but contracts awarded before that date remain bound by their original wage terms until completion or renewal. New contracts now follow either the standard federal minimum wage of $7.25 per hour or prevailing wage laws like the Service Contract Act or Davis-Bacon Act where those statutes apply.

How does the OFPP reporting requirement help contractors recover back pay?

The Office of Federal Procurement Policy (OFPP) reporting requirements compel federal agencies to document wage violations and track remediation, creating an official record that contractors can reference when pursuing back wages owed to workers. This transparency mechanism makes it harder for agencies to overlook underpayment issues and provides workers with documented evidence to support their claims.

Can federal contractors pay different wages to the same employee working on multiple contracts?

Contractors must pay employees according to the specific wage requirements of each contract they work on, which means the same worker can earn different hourly rates during a single pay period based on which project they're assigned to. Accurate time tracking with project-level detail is essential to ensure proper payment and compliance across all active contracts.

Do federal contractor minimum wage rules apply to remote workers who never visit a contract site?

Federal contractor wage requirements cover employees performing work “on or in connection with" covered contracts, which includes remote workers whose labor directly supports contract performance even if they never physically visit a federal facility. The key factor is whether the employee's work contributes to fulfilling contract obligations, not their physical location.

What happens when a prevailing wage determination changes mid-contract?

When agencies issue updated wage determinations during an active contract, contractors typically must apply the new rates from the effective date forward and maintain documentation showing when the change occurred and how it was implemented. Contract modification clauses usually specify how wage determination updates affect existing agreements and whether contractors can seek equitable adjustments for increased labor costs.