The Federal Contractor Minimum Wage Is Rising Again, and Your Business May Be Affected

If your business holds a contract with the federal government, an upcoming minimum wage increase may affect your bottom line.

The U.S. Department of Labor (DOL) recently issued a Federal Register notice announcing updates to the minimum wage rate for workers on certain federal contracts. Beginning May 11, 2026, the minimum wage rate that generally must be paid to workers under covered contracts will increase to $13.65 per hour, while the required minimum cash wage for tipped employees will rise to $9.55 per hour. 

Understanding Executive Order 13658

The minimum wage obligations arose from an Obama-era executive order increasing the minimum wage for work primarily subject to the Davis-Bacon Act or the Service Contract Act. Executive Order (EO) 13658, signed on February 12, 2014, set a minimum wage specifically for workers on these federal contracts and set the hourly minimum wage rate at least $10.10. EO 13658 underwent many legal challenges chiefly brought by several recreational services companies operating on federal lands who alleged that the executive action exceeded the president’s authority among other legal claims. The litigation resulted in a circuit court split with the U.S. Courts of Appeals for the Tenth and Fifth Circuits upholding the executive action while the U.S. Court of Appeals for the Ninth Circuit struck down the measure. It was widely expected that the current administration would rescind the minimum wage obligations as a broad rejection of the priorities of progressive administrations. However, it remains on the books.

Which Contracts Are Covered?

This administration’s increase of minimum wage does not affect every federal contract. Rather, the rule applies to federal contracts covered by EO 13658. EO 13658 generally applies to contracts subject to the Davis-Bacon Act or the Service Contract Act awarded between January 1, 2015, and January 29, 2022, and not renewed or extended since January 30, 2022.

Covered contracts include:

1. Procurement contracts for services or construction
2. Contracts for services covered by the Service Contract Act
3. Concession contracts
4. Contracts entered into with the federal government in connection with federal property or lands and relating to offering services for federal employees, dependents, or the general public 

Recreational Services on Federal Lands

If your business provides seasonal recreational services on federal lands, such as river running, hunting, fishing, horseback riding, camping, mountaineering activities, recreational ski services, or youth camps, you may be wondering whether the minimum wage rules apply to you. Different administrations have complicated the picture based on subsequent actions. In 2018, the first Trump administration issued EO 13838, which carved out an exemption from EO 13658’s minimum wage requirements for these types of seasonal recreational services, though lodging and food services associated with those activities remained covered.

However, the Biden administration changed course by revoking the Trump action and issuing EO 14026, which took effect in January 2022. Now that EO 14026 has itself been revoked, there is no indication that the recreational services exemption has been reinstated. This means that employers providing seasonal recreational services on federal lands under covered contracts should assume the minimum wage requirements apply and plan accordingly.

What About Tipped Employees?

There are special rules for workers who regularly receive tips, such as servers or bartenders working at restaurants on federal property. Employers can count a portion of an employee’s tips toward the minimum wage requirement. This is called a “tip credit.” However, employers must still pay a guaranteed minimum amount in direct wages (called the “cash wage”), with tips making up the rest.

Since 2018, the required cash wage for tipped employees has been 70% of the full minimum wage. With the new $13.65 minimum wage, that means tipped employees must receive at least $9.55 per hour in direct wages. Importantly, if a tipped employee’s tips-plus-cash wage does not add up to at least $13.65 per hour, the employer must make up the difference.

Key Takeaways

• Check your contracts. Review your federal contracts to see if any were signed during the relevant period.
• Update your payroll. Starting May 11, 2026, any workers on covered contracts must be paid at least $13.65 per hour.
• Watch your tip credit math. If you employ tipped workers, make sure their cash wage ($9.55 per hour minimum) plus tips equals at least $13.65 per hour. 

Employers with questions should consult experienced legal counsel for questions and/or concerns.