In 2025, the White House issued Executive Order 14173, a sweeping directive that reshapes hiring and employment rules for federal contractors across the United States.
Federal contractors employ millions of workers and represent nearly 10% of the U.S. labor force, meaning that changes in hiring policy ripple far beyond government agencies.
The Order builds on long-standing federal oversight of contractor labor practices but introduces new compliance requirements in areas such as pay transparency, diversity in recruitment, and worker classification.
The immediate question for contractors is clear: what does this mean for day-to-day hiring practices, compliance costs, and future workforce management? For workers, the Order could expand access to equal opportunity, fair pay, and stronger protections.
Background: Oversight of Federal Contractors
Federal contractors are not new to heightened regulation. Over the decades, executive orders have repeatedly been used to align contractor practices with broader federal policy goals. For example:
- EO 11246 (1965) – Prohibited discrimination by federal contractors based on race, color, religion, sex, or national origin.
- EO 13658 (2014) – Established a minimum wage for workers on federal contracts.
- EO 14055 (2021) – Required federal contractors to disclose greenhouse gas emissions and climate-related risks.
Executive Order 14173 continues this tradition by tightening hiring rules and modernizing contractor obligations in response to persistent labor challenges such as wage inequality, contractor misclassification, and lack of transparency in recruitment.
Key Provisions of Executive Order 14173
1. Pay Transparency and Wage Reporting
Contractors must now provide clear wage ranges in job postings and report pay data by race, gender, and job category to the Office of Federal Contract Compliance Programs (OFCCP). The goal is to reduce pay disparities and create greater accountability.
- Contractors with 100+ employees must file annual pay transparency reports.
- Job listings must include salary bands, similar to state-level laws already in effect in California, Colorado, and New York.
2. Strengthened Anti-Discrimination Standards
Building on EO 11246, EO 14173 expands the list of protected classes and sets stricter enforcement mechanisms:
- Prohibits discrimination based on sexual orientation, gender identity, and veteran status in all contractor hiring.
- Increases penalties for violations, including possible contract termination for repeated offenders.
3. Worker Classification Rules
To address the rise of subcontracting and gig-style work arrangements, contractors must demonstrate that workers are properly classified as employees rather than independent contractors when the nature of the work requires it.
Misclassification has long been a tool for avoiding overtime pay, benefits, and workplace protections.
4. Diversity and Recruitment Goals
The Order requires contractors to set measurable diversity goals in recruitment pipelines. For instance:
- Federal contracts valued over $10 million will require contractors to submit a “Workforce Inclusion Plan.”
- Contractors must document outreach to underrepresented communities and report hiring outcomes.
5. Compliance and Enforcement
The OFCCP and the Department of Labor will jointly monitor compliance. Contractors may face financial penalties, suspension, or loss of eligibility for future contracts if found in violation.
Impact on Federal Contractors
The Order creates both challenges and opportunities for contractors:
Compliance Costs
Contractors will need to invest in new reporting systems, HR training, and compliance officers. For large firms, these costs may be absorbed into existing compliance departments. For smaller firms, the burden may be significant, potentially discouraging bids on federal contracts.
Talent Acquisition
Mandatory pay ranges and stronger non-discrimination requirements may alter how contractors approach recruiting. Transparency could deter pay inequities but may also create competitive pressures if rivals adjust salaries upward to attract top talent.
Legal and Administrative Risks
Failure to comply with reporting, classification, or diversity goals could result in contract suspension. This creates heightened legal risk, particularly for firms operating across multiple states with varying labor laws.
Impact on Workers
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For the millions of people employed by federal contractors, Executive Order 14173 could reshape the workplace in ways that extend well beyond immediate compliance requirements. One of the most significant potential benefits is greater pay equity.
By requiring contractors to disclose pay ranges and submit detailed wage reports broken down by job category, gender, and race, the Order creates a new level of visibility into compensation practices. This transparency makes it harder for systemic disparities to go unnoticed and gives both employees and regulators clearer evidence when inequities persist.
Over time, such disclosure could help close long-standing gaps that disproportionately affect women and workers of color.
The Order also strengthens protections against discrimination. While federal contractors have long been prohibited from discriminating based on race, religion, and gender, EO 14173 explicitly extends protections to LGBTQ+ workers, veterans, and other vulnerable groups.
Importantly, it does more than reaffirm principles; it increases penalties for violations, meaning employers have more to lose if they fail to uphold nondiscriminatory practices. This shift could make workplaces safer and more inclusive, particularly in industries like defense and construction, where federal contractors employ large, diverse workforces.
Another key change involves hiring transparency. By mandating that job postings include salary ranges, the Order eliminates much of the guesswork and negotiation imbalance that has historically disadvantaged applicants.
Workers entering new roles will have clearer expectations about pay, reducing the likelihood that two people performing the same job will be offered significantly different salaries. This adjustment aligns federal contracting practices with trends already unfolding at the state level in California, Colorado, and New York, where pay range disclosure laws have been in place for several years.
EO 14173 also strengthens job security by cracking down on the misclassification of employees as independent contractors. Misclassification has allowed some employers to avoid paying overtime, withholding taxes, or offering benefits like health insurance and retirement contributions.
The new rules make it more difficult to misuse these arrangements, offering employees a stronger guarantee of full workplace protections.
Finally, workers may see expanded opportunities as contractors are required to set measurable diversity goals and broaden their recruitment pipelines. This means outreach to historically excluded groups – such as women in STEM fields, veterans seeking civilian roles, or workers from underrepresented communities—becomes part of the federal contracting framework.
Over time, this could diversify leadership pipelines and bring more balance to industries that have struggled with representation.
Economic and Social Implications
Executive Order 14173 could have lasting implications for DEI programs at public companies, even if it is ultimately struck down. Attorneys Briar McNutt, Lauri Rasnick, and Susan Gross Sholinsky outline how public companies can prepare.#EmpLaw #HR #DEIhttps://t.co/48wyOJvoJ6
— Epstein Becker Green (@ebglaw) February 11, 2025
The broader economic impact of Executive Order 14173 depends on how rigorously the rules are enforced and how well contractors adapt to the new landscape. If fully implemented, the Order has the potential to change wage dynamics, workforce composition, and even the competitive balance among federal contractors.
One of the most immediate effects could be wage growth. Pay transparency tends to create upward pressure on salaries, particularly in industries with historically wide disparities between demographic groups.
When employees know the pay ranges for their roles, they are better positioned to demand equitable compensation. Employers, in turn, face pressure to align pay practices across departments and job categories. This effect could be especially pronounced in technology, defense contracting, and administrative services, where pay gaps remain significant.
At the same time, the Order imposes an administrative burden that may disproportionately affect small and mid-sized contractors. Filing annual wage reports, maintaining compliance systems, and developing workforce inclusion plans will require time, staff, and financial resources.
Larger companies often have HR departments and compliance officers to absorb these responsibilities, but smaller firms may struggle to keep up. As a result, some critics worry the new rules could discourage smaller businesses – particularly minority-owned or women-owned enterprises – from bidding on federal contracts.
This dynamic could consolidate awards among larger firms, reducing competition in the federal marketplace.
The Order also has the potential to accelerate workforce diversity. By making recruitment outcomes more transparent and linking compliance to contract eligibility, EO 14173 creates both incentives and accountability for contractors to broaden their pipelines.
This could transform industries like defense, construction, and IT services, where federal contracts dominate hiring. Over time, the data collected under the Order will give policymakers a clearer picture of which contractors are meeting diversity benchmarks and which are falling short.
Criticism and Opposition
While labor advocates and civil rights organizations support EO 14173, critics argue that the new rules may backfire.
- Business Associations: Industry groups claim the compliance requirements add unnecessary bureaucracy and could limit contractor participation.
- Small Business Concerns: Smaller contractors, especially minority-owned firms, may struggle to meet reporting obligations without additional administrative support.
- Legal Challenges: Opponents may argue that the executive branch is overstepping its authority by imposing requirements not explicitly approved by Congress.
Some economists also caution that pay transparency could create wage compression, with less flexibility for employers to reward performance or experience.
Looking Ahead: What Contractors Should Expect
Executive Order 14173 is not the end of the conversation – it is the start of a new chapter in how the federal government regulates its contractors. Key developments to watch include:
- Implementation Guidance: The Department of Labor is expected to release detailed compliance manuals in mid-2025.
- Legal Challenges: Business groups are preparing potential lawsuits to challenge the Order’s scope.
- State-Level Alignment: States with similar pay transparency or diversity requirements may align their regulations with federal standards, creating consistency for multi-state contractors.
- Long-Term Culture Shift: If enforced consistently, EO 14173 could normalize wage transparency and diversity benchmarks across large sectors of the U.S. labor market.
Conclusion
Executive Order 14173 represents one of the most significant labor directives for federal contractors in recent years. By mandating pay transparency, expanding anti-discrimination protections, addressing worker misclassification, and requiring diversity goals, the Order aims to modernize federal employment practices and reduce inequities in the contractor workforce.
For contractors, the challenge will be adapting quickly to new compliance demands while remaining competitive in the federal marketplace. For workers, the Order promises stronger protections, clearer information about pay, and broader access to opportunity.
Whether EO 14173 ultimately fulfills its promise will depend on enforcement, industry adaptation, and the outcome of potential legal challenges. What is clear is that it signals a shift in how the federal government uses its contracting power – not only to procure services but also to shape the standards of employment in America.
