In January of this year, an increase in the minimum wage for government contractor workers went into effect. It’s essential to understand how this can affect your business and broader implications beyond government contracts. So what do you need to know about this minimum wage increase and what it means for the future? Let’s take a closer look.
Effective January 1, 2021, the federal minimum wage for government contract workers is $10.95 per hour. This is a $0.15 per hour increase over the 2020 minimum wage. It affects government contract workers, and it’s recommended that government contractors with currently covered contracts lasting into this year should review payroll to ensure that every current employee is making over $10.95.
While the pay increase is required by federal contractors, it is possible to recoup some of all of the increased costs. A provision provides that a contractor can request an adjustment to the contract price if the labor costs increase due to the annual increase to the federal minimum wage. These associated labor costs may include changes in social security, unemployment taxes, and workers’ compensation insurance. It excludes general and administrative expenses, overhead, or profit.
Contractors and Sub-Contractors
Contractors are also responsible for the compliance of their subcontractors. A contractor can be held financially liable for any underpayments made by their subcontractors. Now is an excellent time to reinforce and remind all subcontractors of the increase and their obligation to pay the 2021 federal minimum wage. This is also a chance to review subcontractor payroll data.
If you live in a place where the state-mandated minimum wage is more than the federal, you need to comply with the state requirements. If that is the case, contractors cannot seek price adjustments based on the state minimum wage. For any conflicting wage data, the onus is on the contractor to pay the highest minimum wage in their location and for the specific work conducted.
Do you want to know how this change affects your business?
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