An official website of the United States government
Here’s how you know
Official websites use .gov
A .gov website belongs to an official government organization in the United States.
Secure .gov websites use HTTPS
A lock
( )
or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.
MV-2021-08
March 7, 2022
MEMORANDUM FOR THE GSA ACQUISITION WORKFORCE
FROM AND DIGITALLY SIGNED BY: Jeffrey A. Koses, Senior Procurement Executive, Office of Acquisition Policy
SUBJECT: Adjusting wages to address wage compression caused by the federal minimum wage increase
On this page
As GSA contractors raise wages to comply with the increased minimum wage under Executive Order (E.O.) 14026, [1] some of them might ask for a price increase in order to raise wage rates for additional labor categories not covered in the E.O. This Acquisition Letter (AL) provides guidance on reviewing such requests.
On April 27, 2021, E.O. 14026 Increasing the Minimum Wage for Contractors was signed. The E.O. increased the minimum wages for certain workers performing tasks on or in connection with covered Federal contracts to $15.00 per hour. The increase in minimum wage was to begin on January 30, 2022; and January 1, 2023, and annually thereafter, to an amount determined by the Secretary of Labor.
On January 26, 2022, FAR Case 2021-014, Increasing the Minimum Wage for Contractors, was published as an Interim Rule. The FAR case made changes to the Federal Acquisition Regulation (FAR) to implement E.O. 14026.
Under the previous minimum wage, E.O.13658, a $10.10 minimum wage was established or $3 increase to the hourly wage and included an escalation process to address inflation which resulted in small increases in the minimum wage rate and had little effect on workers not covered by the E.O.
Under the new minimum wage, E.O 14026, the minimum hourly wage was increased to $15 and DOL will establish a new minimum wage annually. This large increase to the hourly wage has the potential to result in wage compression [2] for employees whose existing wage rates are close to or just over $15.00 per hour, such as certain supervisors or lead workers.
Contractors are entitled to an adjustment to ensure covered employees are paid the $15.00 per hour minimum wage. This AL does not address that issue.
This AL focuses on wage compression only, for contractor employees not covered by the E.O. It establishes parameters contracting officers can use in the decision making process, standard justification language, and pricing data for consideration when negotiating equitable adjustments to address wage compression.
This AL is effective immediately and remains in effect until rescinded or incorporated into the FAR or GSAM.
Not applicable.
This AL is issued under the authority of GSAM 501.370.
Acquisition Alert AA-2020-03 Adjusting contract prices for fixed price service contracts due to minimum wage or wage determination increases provides basic guidance on how to consider price increases on a fixed price service contract when there is an increase in the minimum wage rate.
This AL builds on AA-2020-03 by addressing the situation where the contractor requests an equitable adjustment to cover its cost as a result of wage compression for non- covered employees when implementing the increased Federal minimum wage rate.
Establishment of a new minimum wage nearly 40% higher than the previous minimum wage is fundamentally different from annual escalation of the minimum wage rate.
Contracting officers may receive requests for an equitable adjustment, to minimize wage compression, from some GSA contractors.
Because wage compression has the potential to negatively impact contract performance, contracting officers should consider and evaluate a contractor request for an equitable adjustment as a result of having to implement the new minimum wage.
If funding is available and if the contractor provides a sound justification, contracting officers have the authority, but are not required, to permit such equitable adjustments.
Contracting Officer Responsibility: Contracting officers should not invite contractors to submit a request for an equitable adjustment. It is up to the contractor to initiate such a request with a clear justification and with an appropriate authority cited.
Upon receipt of such a request, consider if the proposal is justified and such adjustment would be in the best interest of the Government. Take the following steps:
Step 1: Do nothing until and unless the contractor submits a request for an equitable adjustment citing the need to increase hourly wages for employees due to wage compression resulting from the new minimum wage requirement.
Step 2: Review the contract to confirm each of the following points:
Step 3: If the contracting officer concludes that there is funding available and a basis for an adjustment, then verify that the contractor-cited authority is appropriate for the request. The following is a list of contract clauses that may be applicable to this situation, however each contracting officer should review the specific cited clause and consult with legal counsel as needed:
Step 4: For guidance on how to negotiate new rates:
Step 5: Justify the new rates based on the terms or requirements of the applicable changes or equitable adjustment clause. Sample language is provided below, and should be included along with the CO’s documentation of the basis of the acceptance of the request.
Employees with Experience/Specialized Skills/Certifications:
“GSA contracting officer [name] is negotiating an equitable adjustment due to wage compression for [contract or contract-like agreement #] to existing employees with needed credentials for the achievement of successful contract performance who are experiencing an imbalance due to the implementation of E.O. 14026. This decision is based on the potential impact on contract performance, skills and experience of the employee and peers.”
Employees Performing Essential Functions:
“GSA contracting officer [name] is negotiating an equitable adjustment due to wage compression for [contract or contract-like agreement #] base pay increases for essential worker employees who are experiencing an imbalance due to the implementation of E.O. 14026. This decision is based on the nature of the services being provided on the contract, skills and experience of the employee and the potential impact on contractor performance, national security, or agency mission.”
Employees with Disparate Pay from Subordinates:
“GSA contracting officer [name] is negotiating an equitable adjustment due to wage compression for [contract or contract-like agreement #] base pay increases for contract supervisory employees based on internal wage compression between supervisor and employee. The contracting officer will increase the pay for contract supervisory employees to increase the pay differential between supervisor and subordinate. This decision is based on performance, skills and experience of the supervisor and the potential impact on contractor performance due to low employee morale, probability of employee turnover, and continuity of services.”
Any questions regarding this letter may be directed to GSARPolicy@gsa.gov.
[1] Executive Order 14026: Increasing the Minimum Wage for Federal Contractors
[2] Wage compression occurs when: 1) the pay of one or more employees is very close to the pay of more experienced employees in the same job; 2) employees in lower-level jobs are paid almost as much as their colleagues in higher-level jobs, including managerial positions; or 3) there’s little difference in pay between employees regardless of differences in their respective knowledge, skills, experience or abilities.
Error, The Per Diem API is not responding. Please try again later.
No results could be found for the location you've entered.
Rates for Alaska, Hawaii, and U.S. territories and possessions are set by the Department of Defense.
Rates for foreign countries are set by the Department of State.
Rates are available between 10/1/2022 and 09/30/2025.
The End Date of your trip can not occur before the Start Date.
Traveler reimbursement is based on the location of the work activities and not the accommodations, unless lodging is not available at the work activity, then the agency may authorize the rate where lodging is obtained.
Unless otherwise specified, the per diem locality is defined as "all locations within, or entirely surrounded by, the corporate limits of the key city, including independent entities located within those boundaries."
Per diem localities with county definitions shall include"all locations within, or entirely surrounded by, the corporate limits of the key city as well as the boundaries of the listed counties, including independent entities located within the boundaries of the key city and the listed counties (unless otherwise listed separately)."
When a military installation or Government - related facility(whether or not specifically named) is located partially within more than one city or county boundary, the applicable per diem rate for the entire installation or facility is the higher of the rates which apply to the cities and / or counties, even though part(s) of such activities may be located outside the defined per diem locality.
U.S. General Services Administration