Federal Contract Minimum Wage to Hit $25 by Year Five Under New Living Wage Proposal

The Living Wage for Federal Contractors Act sets a clear, escalating floor for pay on any project funded by the federal government. Starting three months after it becomes law, the minimum wage for these workers jumps to $17.00 per hour. From there, it climbs by $2.00 every year—hitting $19, $21, and $23—until it reaches $25.00 per hour in the fifth year. After that, the rate isn't fixed; it will be tied to the Consumer Price Index (CPI-W), meaning if the cost of groceries and gas goes up, the wage floor follows suit to keep pace with inflation (Sec. 2).

The End of the Tip Credit

For folks working service jobs on federal property—like servers in a cafeteria at a national park or a federal building—the bill makes a massive shift in how they get paid. Currently, many tipped workers rely on a lower base pay supplemented by tips. This bill phases that out entirely. Tipped workers will start at a $13.00 cash wage in year one, climbing aggressively until year five, when they must be paid the full $25.00 minimum wage directly by their employer, regardless of tips (Sec. 2). This essentially levels the playing field between back-of-house and front-of-house staff on federal contracts, ensuring a predictable paycheck that doesn't fluctuate with a customer's mood.

High Stakes for Employers

This isn't just a suggestion; the bill puts some serious teeth into enforcement. If a contractor is caught underpaying staff, the government can pull the plug on the contract immediately and hire someone else to finish the job, with the original contractor footing the bill for the swap. Even more significant for the workers: if you are underpaid, the contractor is liable for double the amount of those unpaid wages (Sec. 2). To make sure the money actually reaches the employees, the government can withhold payments from the contractor’s other federal projects to cover the debt. For those who repeatedly break the rules, there’s a 'three strikes' style penalty: they can be barred from winning any federal contracts for three years (Sec. 2).

Broad Impact Across Industries

Because this bill amends long-standing laws like the Davis-Bacon Act (which covers construction) and the Service Contract Act (which covers everything from janitorial to IT services), its reach is wide (Sec. 3 & 4). Whether you’re a laborer on a federal highway project or a clerk in a government office, the floor is the same. While this is a win for workers’ bank accounts, it creates a new reality for business owners who bid on these contracts. They’ll need to account for these rising labor costs in their long-term bids, as the bill explicitly states that accepting a lower wage isn't a valid defense for a contractor—the law mandates the pay regardless of what an employee might have agreed to in a pinch.