The minimum wage for employees of federal contractors will increase 8 percent on Jan. 1, the U.S. Department of Labor announced.

The new hourly rate adjusted for inflation will be $16.20, up from the minimum of $15 set by President Joe Biden’s executive order in April 2021.

That initial order, and the department’s Final Rule implementing it, provided for annual increases of minimum wage rates for contracts entered into on or after Jan. 1, 2023. And those rates are set by the Secretary of Labor, according to Fisher Phillips, a management law firm.

Many workers — especially those on federal service contracts — have been vocal about wages failing to keep pace with inflation, rising health care costs aggravated by the coronavirus and surging prices of consumer goods. Often times, these wages lag behind both private sector pay and what economists consider a “livable” wage.

The Department of Labor calculates the annual percentage increase in the CPI-W, as published by the Bureau of Labor Statistics, to determine the new minimum wage rate. The CPI-W is a monthly measure of the average change over time in prices paid by wage earners for a “basket” of consumer goods and services.

This figure increased 8.7 percent over the last year, according to BLS.

For tipped employees, the new required minimum cash wage will be $13.75 per hour.

How much does government spend on federal contracts?

On February 12, 2014, then-President Barack Obama signed Executive Order 13658, which said that the federal government’s procurement interests in economy and efficiency are “promoted when the federal government contracts with sources that adequately compensate their workers.”

The federal government spends, on average, about half a trillion dollars annually on contracts.

Generally, the goals of wage increases are to “raise worker productivity, reduce employee turnover and absenteeism, and decrease recruiting and training costs,” according to a blog post by The Council of State Governments, a forum for public policy.

Molly Weisner is a staff reporter for Federal Times where she covers labor, policy and contracting pertaining to the government workforce. She made previous stops at USA Today and McClatchy as a digital producer, and worked at The New York Times as a copy editor. Molly majored in journalism at the University of North Carolina at Chapel Hill.

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