Federal contractor minimum wage vs state and local rates which applies?
When a company works under a federal contract, the minimum wage that applies is the highest of the federal contractor rate, the federal statutory minimum, and any state or local minimum wage. This means state and local rates do apply, but only if they are higher than the federal contractor minimum wage, which is currently $17.20 per hour for most contracts covered by Executive Order 14026.
Background: The Federal Contractor Minimum Wage
The federal contractor minimum wage is set by Executive Order, not by the Fair Labor Standards Act (FLSA). Executive Order 14026, signed in 2021, raised the minimum wage for workers on covered federal contracts to $15.00 per hour, with annual adjustments tied to inflation. As of January 1, 2025, that rate is $17.20 per hour. A separate, older Executive Order 13658 set a lower rate ($12.90 in 2025) that applies only to contracts entered into before January 30, 2022, and that are not renewed or extended.
The key point is that the federal contractor minimum wage is a floor, not a ceiling. It does not preempt state or local minimum wage laws. Instead, the law generally requires an employer to pay the highest applicable rate. This is a common principle in wage law: when multiple minimum wage standards apply, the one that gives the worker the most money wins.
How the Three-Tier System Works
For a worker on a federal contract, three different minimum wage rates could potentially apply:
- Federal statutory minimum wage – $7.25 per hour under the FLSA, unchanged since 2009.
- Federal contractor minimum wage – $17.20 per hour under EO 14026 (or $12.90 under EO 13658 for older contracts).
- State or local minimum wage – varies widely, from as low as $7.25 in states that follow the federal rate to over $18 per hour in some cities.
The employer must pay whichever of these three is the highest. For example, a worker on a federal contract in Seattle, where the city minimum wage is over $20 per hour for large employers, must be paid at least the Seattle rate, not the federal contractor rate. Conversely, a worker in a state with a minimum wage of $10.00 per hour on a federal contract must be paid $17.20, not $10.00.
Which Contracts Are Covered?
Not every federal contract triggers the EO 14026 rate. The executive order applies to new contracts and renewals that are:
- Procurement contracts for services or construction.
- Service contracts covered by the Service Contract Act (SCA).
- Concession contracts with the federal government.
- Contracts in connection with federal property or lands and related to offering services to federal employees, dependents, or the general public.
Contracts for the manufacturing of goods are generally not covered by EO 14026, though they may still be subject to the Walsh-Healey Public Contracts Act, which requires payment of the federal statutory minimum wage. Also, grants and cooperative agreements are not contracts, so they are not covered by the executive order.
How to Determine the Applicable Rate
To figure out which minimum wage applies to a specific worker, follow these steps:
- Confirm the worker is performing work on a covered federal contract (check the contract language or the agency’s determination).
- Identify which executive order applies: EO 14026 for contracts entered into on or after January 30, 2022, or EO 13658 for older contracts that have not been renewed.
- Look up the current federal contractor minimum wage (published annually by the Department of Labor).
- Look up the state and local minimum wage for the location where the work is performed. Note that some states have different rates for different sizes of employers, and some cities have their own rates.
- Compare all applicable rates and pay the highest one. If the state or local rate is higher than the federal contractor rate, the state or local rate governs.
Common Misconceptions and Pitfalls
One frequent misconception is that federal contractor minimum wage preempts state law. It does not. The FLSA explicitly states that it does not supersede state or local laws that provide greater protections. Executive orders also generally do not preempt state law unless they explicitly say so, and EO 14026 does not.
Another pitfall is assuming that the federal contractor rate applies to all employees of a contractor, even those not working on the federal contract. The executive order applies only to workers performing work on or in connection with a covered contract. If a contractor has both federal and non-federal projects, only the workers on the federal side are entitled to the EO rate. However, the contractor must be careful to properly allocate time for workers who split their time between federal and non-federal work.
A third issue is the interaction with the Service Contract Act and Davis-Bacon Act. These laws require certain wage rates and fringe benefits based on the locality. The EO 14026 minimum wage is a floor; if the SCA or Davis-Bacon wage determination is higher, the employer must pay that higher rate. The Department of Labor has stated that the EO rate is incorporated into wage determinations.
State and Local Rates That Exceed the Federal Contractor Rate
As of 2025, many states and cities have minimum wages that exceed the $17.20 federal contractor rate. Examples include:
- California: $16.50 per hour for most employers, with some cities like Los Angeles and San Francisco above $18.
- Washington state: $16.66 per hour, with Seattle and SeaTac over $20.
- New York: $15.00 to $16.50 depending on region and employer size, with New York City at $16.00.
- Colorado: $14.81 per hour, with Denver at $18.29.
In these locations, a federal contractor must pay the local rate, not the federal contractor rate, because the local rate is higher. This can create administrative complexity for contractors operating in multiple jurisdictions, as they must track the highest rate in each location where they have workers.
Frequently Asked Questions
Does the federal contractor minimum wage override a lower state minimum wage?
Yes. If the federal contractor rate is higher than the state minimum wage, the contractor must pay the federal contractor rate. The federal contractor rate acts as a floor that is higher than the federal statutory minimum, and it applies regardless of state law.
Can a state or local minimum wage be lower than the federal contractor rate?
Yes, many states have minimum wages below $17.20, such as Texas ($7.25) and Georgia ($7.25). In those states, the federal contractor rate applies because it is the highest of the three.
What happens if a state raises its minimum wage after the contract is signed?
The contractor must pay the new, higher state rate as soon as it takes effect, even if the contract was signed earlier. Minimum wage laws are not frozen by contract terms; employers must comply with current law. The contract may include an adjustment clause, but the legal obligation is to pay the higher rate.
Do tipped workers on federal contracts get the same minimum wage?
Tipped workers on covered federal contracts must receive the full federal contractor minimum wage as a cash wage, not a lower tipped minimum. EO 14026 explicitly eliminates the tip credit for workers on covered contracts, meaning the employer must pay the full $17.20 per hour in cash, and tips are on top of that.
Are subcontractors on a federal contract also required to pay the EO rate?
Yes, the executive order applies to subcontractors at any tier that are performing work on a covered federal contract. The prime contractor is responsible for flowing down the requirement in subcontracts and for ensuring compliance.
What should a worker do if they believe they are being paid below the applicable rate?
A worker should first confirm which rate applies by checking the contract number and the wage determination. They can file a complaint with the U.S. Department of Labor’s Wage and Hour Division, which enforces the executive order. They may also contact their state labor department if the state rate is higher.
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