What Employers Need to Know About the Rollback of the Contractor Minimum Wage Mandate
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In a major policy reversal that has widespread implications for government contractors and their workforce, President Donald Trump has rescinded the 2021 executive order issued by former President Joe Biden that significantly raised the minimum wage for employees working on federal contracts. This move not only signals a shift in the federal government’s labor strategy but also reopens discussions around wage equity, contracting competitiveness, and administrative oversight in the federal contracting space.
Today’s article explores the history, implications, legal complexities, and strategic considerations surrounding this revocation. Employers, especially those holding federal contracts or planning to bid on them, must understand what this change means and how to prepare for the next phase of compliance.
The Policy Shift: What Happened?
President Trump’s executive action rescinded the 2021 order that increased the minimum wage for federal contractors to $15 per hour, with automatic annual adjustments. As of 2025, this wage had climbed to $17.75 per hour under the terms of the rescinded policy. With the rollback in effect, the minimum wage now reverts to $13.30 per hour under a 2014 executive order issued during the Obama administration, which remains intact.
Additionally, the Trump action restores a previously eliminated exemption for certain outdoor recreational businesses operating on federal lands. These businesses, which were removed from coverage by the Biden administration, are again exempt from federal contractor minimum wage requirements. For these employers, the standard federal minimum wage of $7.25 per hour now applies.
Executive Order Timeline: How We Got Here
To appreciate the scope of this shift, it is helpful to understand the progression of executive orders on federal contractor wages over the last decade:
This tug-of-war between administrations reveals the volatile nature of federal labor policy, especially when implemented through executive actions rather than permanent legislation. Each new administration may choose to maintain, amend, or reverse prior decisions, creating uncertainty for contractors who must plan wages, bids, and staffing well in advance.
What It Means for Employers Today
With this reversal in place, federal contractors must realign their wage practices with the new legal framework. While this may reduce labor costs for some, it introduces a host of legal and administrative challenges for organizations that must now assess contracts, adjust payroll systems, and manage employee relations.
1. Immediate Wage Reassessment
Organizations that were paying employees under the now-rescinded $17.75 per hour minimum wage must determine whether to maintain that wage voluntarily or reduce it to the new floor of $13.30 per hour. In many cases, employers may find it difficult to lower wages without negatively affecting morale, retention, or productivity — particularly if higher wages have already been in place for several years.
Best Practice: Conduct a wage impact analysis to weigh the cost savings of a rollback against the potential turnover, productivity losses, and reputational risks.
2. Contract Review and Compliance
Contract terms may be tied to specific executive orders, depending on when the contract was signed, renewed, or modified. Employers must carefully audit contract language to determine which executive order applies and whether wage adjustments are permissible mid-contract.
Best Practice: Engage procurement and legal counsel to review contracts for compliance and determine any obligations for notification or renegotiation with the government.
3. Impact on Competitive Bidding
The new wage standard may give some contractors a pricing advantage in future bids. However, lower labor costs can also reduce job quality and make it harder to attract skilled workers, particularly in technical or labor-intensive roles. Federal agencies may also take into account wage practices in their evaluation of bids, even if not required by law.
Best Practice: Evaluate whether to maintain higher wages as part of a value-based proposal, emphasizing workforce stability and performance.
4. Workforce Communication
If a contractor chooses to adjust wages downward, communication with employees must be handled with sensitivity and transparency. Employers should explain the reason for the change, how it aligns with federal directives, and what steps are being taken to support employee well-being.
Best Practice: Prepare a communication plan that emphasizes organizational values and outlines alternative benefits or incentives being maintained or enhanced.
Legal Gray Areas: The Rule Is Still on the Books
Although the executive order that authorized the contractor wage increase has been rescinded, the Department of Labor (DOL) rule that implemented it remains in place — at least for now. This creates a legal gray area.
The rule no longer has an enforceable foundation, as its authority has been nullified. However, without an immediate repeal or replacement, the rule remains part of the administrative code, creating potential confusion among contractors and federal agencies alike.
While the DOL is expected to issue a statement of non-enforcement and initiate rulemaking to revoke the regulation, contractors are in a state of limbo in the meantime. Enforcement is not expected, but formal legal clarity is still pending.
Best Practice: Monitor DOL communications closely and retain documentation of all compliance decisions made during this transitional period.
Legal Challenges and Jurisdictional Conflicts
This policy area has been subject to multiple legal battles, with different federal appeals courts arriving at conflicting conclusions about the scope of presidential authority under the Procurement Act.
One circuit court upheld the previous minimum wage increase as a valid exercise of presidential power. Another court, however, ruled that the executive branch had overstepped its authority. These conflicting rulings created a “circuit split,” which usually signals an eventual review by the Supreme Court — though with the executive order now revoked, these legal questions may become moot.
Despite this, the administration may continue defending the prior rule to preserve the broader principle that the President has authority to regulate labor standards in federal contracting.
Best Practice: While waiting for the legal dust to settle, document how compliance decisions were made in good faith, and ensure your internal legal team or outside counsel remains informed of the legal landscape.
Strategic Considerations: Beyond Compliance
While some contractors may view this rollback purely as an opportunity to cut labor costs, others may consider it an inflection point to revisit their broader human capital strategy.
1. Voluntary Wage Policies
Employers are not required to lower wages to $13.30 per hour simply because the mandate has changed. Many organizations will find strategic value in maintaining higher wages to attract and retain talent — especially in tight labor markets.
Recommendation: Assess your wage strategy against market conditions, employee expectations, and operational goals. Voluntary adherence to the higher wage could be a competitive advantage.
2. Culture and Reputation
Paying below the previously mandated rate could harm employer brand and employee engagement. Contractors working in visible, customer-facing roles — such as national parks or transportation hubs — may face public scrutiny.
Recommendation: Include wage policies in your broader ESG (Environmental, Social, and Governance) narrative if you choose to maintain higher standards.
3. Total Rewards Rebalancing
If wages are reduced or remain static, consider bolstering other components of the employee value proposition, such as health benefits, retirement plans, wellness programs, or flexible scheduling.
Recommendation: Reevaluate your total rewards strategy to ensure compensation reductions do not lead to disengagement or high turnover.
Preparing for What Comes Next
This reversal is a reminder of the volatility inherent in executive-order-driven labor policy. Organizations that operate in the federal contracting space must remain agile, compliance-focused, and prepared for future changes.
To that end, contractors should take a forward-looking approach:
The next administration could easily reinstate or revise the contractor minimum wage again, and organizations that have built resilient systems will be better positioned to adapt quickly and stay compliant.
How Axis HR Solutions Can Help
Federal wage policies are in constant motion — shifting with every administration, legal ruling, and regulatory directive. For employers, especially those with federal contracts, this constant flux can create uncertainty, operational challenges, and legal risks.
That is where Axis HR Solutions comes in.
Our team of employment law, compliance, and organizational development experts helps companies navigate complex federal contracting requirements with confidence. We offer:
Let us help your organization stay ahead of the curve — and fully compliant — in this ever-changing landscape. Visit axishrky.com to learn more and schedule a consultation today.