2018 Federal Contractors Minimum Wage Increase

The U.S. Department of Labor’s Wage and Hour Division (WHD) has announced that the minimum wage rate for federal contractors will increase from $10.20 per hour to $10.35 per hour, effective January 1, 2018.

Background Information

On February 12, 2014, President Obama signed Executive Order 13658 which established a minimum wage rate for federal contractors. The executive order required parties who contract with the federal government to pay workers performing work on or in connection with covered federal contracts at least:

  • $10.10 per hour beginning January 1, 2015; and
  • An amount determined by the Secretary of Labor in accordance with the methodology in the executive order, beginning January 1, 2016, and annually thereafter. The rate was increased to $10.15 per hour, effective January 1, 2016 and $10.20, effective January 1, 2017.

Tipped Employees

The executive order also requires annual adjustments to the minimum cash wage rate for tipped federal contract employees. The WHD has announced that the minimum cash wage for tipped employees performing work on or in connection with a federal contract will increase from $6.80 per hour to $7.25 per hour, effective January 1, 2018.

The contractor must increase the cash wage paid to a tipped employee to make up the difference if a worker’s tips combined with the required cash wage of at least $7.25 per hour don’t equal the hourly minimum wage rate for contractors as noted above. Certain other conditions must also be met.

Minimum Wage for Other Employees

The minimum wage amount listed above is only for federal contractor employees. Under the Fair Labor Standards Act (FLSA), the federal minimum wage for covered non-exempt employees who aren’t employed by federal contractors is $7.25 per hour. Many states and municipalities also have their own minimum wage laws. If your business operates in a state or municipality that has a higher minimum wage than the federal level, your employees are entitled to the highest rate.

What Employers in Some States Must Pay

Some examples of states with minimum wage per-hour rates currently higher than the federal rate are Washington ($11.00), Massachusetts ($11.00), Oregon ($10.25), Connecticut ($10.10), Vermont ($10.00), Arizona ($10.00), Rhode Island ($9.60), New York ($9.70), Colorado ($9.30), Maryland ($9.25), Maine ($9.00), Michigan ($8.90), West Virginia ($8.75),South Dakota ($8.65), New Jersey ($8.44), Illinois ($8.25), Florida ($8.10) and New Mexico ($7.50).

Some states have different minimum wage rates for large and small employers and impose other requirements. For example:

  • In California, the minimum wage is $10.00 for employers with less than 25 employees and $10.50 for those with 26 or more.
  • Large employers in Minnesota (defined as enterprises with annual receipts of $500,000 or more) have a minimum wage rate of $9.50 per hour while small employers (enterprises with annual receipts of less than $500,000) have a minimum wage rate of $7.75 per hour.
  • In Ohio, employers with annual gross receipts of $299,000 or more must pay $8.15 per hour and those with annual gross receipts under $299,000 must pay $7.25 per hour.
  • In Nebraska, employers with four or more employees have a minimum wage of $9.00 per hour.
  • Nevada requires employers that provide no health insurance benefits to pay $8.25 per hour and employers that do provide health insurance benefits to pay $7.25 per hour.

Federal and State Tipped Employee Rules

An employer of a tipped employee is required to pay $2.13 an hour in direct wages if:

  • That amount plus the tips received equals at least the federal minimum wage,
  • The employee retains all tips and the employee customarily, and
  • The employee regularly receives more than $30 a month in tips.

Many states also have their own laws related to tipped employees. Again, if an employee is subject to both federal and state laws, he or she is entitled to the law that provides the greater benefits. Some states (including California, Oregon, Nevada, Montana, Minnesota and Alaska) require employees to pay tipped employees the full state minimum wage.

Contact your payroll advisor if you have questions about minimum wage issues in your situation.