Federal Contractors: The Minimum Wage Rises to $14.05 in January — Is Your Payroll Ready?

If your company holds an older federal contract, your lowest hourly wage is about to go up. The Department of Labor has announced that the federal contractor minimum wage under Executive Order 13658 will rise to $14.05 an hour, up from $13.65, and the tipped minimum will rise to $9.85 from $9.55.

HR Dive and Construction Dive reported the increase on October 7, 2026, with the notice set to publish in the Federal Register on Thursday, October 8. The new rates take effect 90 days after publication. Counting from October 8, that points to early January 2027, so owners should confirm the exact effective date in the notice itself.

The Numbers at a Glance

• Standard minimum: $14.05 per hour, up from $13.65, which took effect May 11.
• Tipped minimum: $9.85 per hour, up from $9.55.
• Effective date: 90 days after the notice is published in the Federal Register.

That is a 40-cent increase for most covered workers and 30 cents for tipped workers. It sounds small, but on a crew of 20 working full-time hours, 40 cents an hour adds up quickly, and payroll taxes ride on top of it. Run your own numbers rather than relying on a round figure.

Who Is Actually Covered

This is the part that trips up owners. The increase applies to certain contracts entered into between January 1, 2015, and January 29, 2022, that were not renewed or extended on or after January 30, 2022.

If your contract was signed, renewed, or extended on or after January 30, 2022, a different order governed it, and this notice may not be the rule that applies to you. The Labor Department's own notice says the number of contracts subject to Executive Order 13658 "has significantly decreased," though some existing contracts still fall under its wage requirements. In other words, fewer businesses are covered than in past years, but those that are covered have a hard compliance date.

Why There Are Two Different Rules

The history explains the confusion. In February 2014, President Obama signed Executive Order 13658, setting a $10.10 minimum starting January 1, 2015, with annual adjustments. In 2018, President Trump amended that order to exclude certain seasonal recreational service contractors on federal lands.

President Biden later set a $15 minimum, effective January 30, 2022, through a separate order that applied to new or renewed contracts from that date and superseded the earlier order for those contracts. President Trump revoked Biden's order on March 14, 2025. The Labor Department's notice says that, as a result, Executive Order 13658 remains in effect for the contracts it still covers.

The practical effect is that two groups of contractors can sit side by side, one covered by this older rule and one not. Which group you are in depends on your contract dates, not your industry.

Five Steps to Take Before the Rate Changes

1. Pull every federal contract and check its dates

List each contract's award date, any renewals, and any extensions. A modification or option exercised on or after January 30, 2022, may change which rule applies. If dates are unclear, ask your contracting officer in writing, or ask a government contracts attorney.

2. Identify the employees who work on covered contracts

The minimum applies to work on the covered contract, not necessarily to your whole workforce. Make a list of who charges time to each one and what each person earns today.

3. Compare current pay to $14.05 and $9.85

Flag anyone below the new rates. Tipped employees have their own threshold, so review how your payroll system handles them.

4. Update payroll settings and timekeeping early

Schedule the change in your payroll software before the effective date. Make sure timekeeping can separate hours on covered contracts from other work, since mixed hours can create errors.

5. Check your pricing and your margins

If a contract is fixed-price, a higher wage floor comes straight out of your profit unless the contract has an adjustment clause. Review the terms and ask your contracting officer whether any price adjustment applies. Build the new labor cost into your profit and loss statement so you can see the effect on your margin before it hits.

Worker Classification Matters Here

A wage floor only protects employees, which gives some businesses an incentive to treat workers as independent contractors. That is risky. Misclassifying workers can create separate liabilities, and the label on a contract does not control how the law treats the relationship. If you use 1099 labor on federal work, read our guide to independent contractor vs. employee and confirm the classification with a professional.

Keep Records You Can Defend

Federal work comes with audits and wage investigations. Keep payroll records, time records, and your contract paperwork organized in one place, and keep a note of how you decided which contracts were covered. If you ever have to explain a pay rate, a clear file is your best defense.

Review your coverage too. If a wage claim or contract dispute could land on your business, check what your business insurance policy does and does not cover.

Smaller Details Worth Knowing

The Labor Department's announcement keeps the rates tied to Executive Order 13658, so the figures here are separate from state minimum wages. If your state or city requires more than $14.05 an hour, you generally have to pay the higher rate. Confirm your local minimum alongside the federal contract rate, since the two are set by different authorities.

Also note the effective date is calculated from the Federal Register publication, so a delay in publication would shift it. Watch the Labor Department's website for the final notice and the exact date.

The Bottom Line

This increase is modest and applies to a shrinking group of contracts, but the cost of getting it wrong is real. Confirm whether your contracts fall under Executive Order 13658, compare each covered worker's pay to $14.05 and $9.85, update payroll before the effective date, and keep your records ready for review. If anything about your contracts is unclear, a short call with a government contracts attorney now is cheaper than back wages later.

Photo by Scott Blake on Unsplash