The U.S. Department of Labor has released its annual memorandum with the rate increase for Service Contract Act (SCA) Health and Welfare (H&W) Fringe Benefits. The new rate of $4.41 per hour (up from the 2015-2016 rate of $4.27 per hour) is required in all government contract bids or other service contracts awarded on or after August 1, 2017.

A special rate of $1.91 per hour is set for Hawaii, which takes into account that state’s mandatory health insurance coverage. However, an employer may use this lower rate only if it actually makes contributions for employees under the Hawaii Prepaid Health Care Act.

Rates under Executive Order

DOL officials indicated earlier this year that the rates set for 2017 would account for contracts subject to Executive Order 13706, which applies to new contracts that result from solicitations issued on or after January 1, 2017, or that are awarded outside the solicitation process on or after that date. The EO requires covered contractors to provide employees up to 56 hours of paid leave sick leave annually. (For details of the EO, see our article, Labor Department Issues Final Rule Implementing Executive Order on Government Contractor Paid Sick Leave.) Under the Executive Order, the cost of this sick leave cannot be credited toward meeting the SCA H&W requirement. Therefore, DOL has now set a new H&W rate of $4.13 ($1.63 in Hawaii) for contracts covered by EO 13706. This is welcome news to employers with contracts covered by the SCA and the paid sick leave requirement.

Solicitations/Contracts Affected

  • All invitations for bids opened or other service contracts awarded on or after August 1, 2017, must include the new H&W rates with an updated Wage Determination (WD).
  • For contracts beginning on or after August 1, 2017, contracting agencies are directed to make pen-and-ink changes to the current WD received for the contract for which the updated fringe benefit rate was not included.
  • For all other contracts (except those awarded or starting after August 1, 2017), revised WDs reflecting the new fringe benefit rate will be available at the Wage Determination OnLine website on or soon after August 1, 2017. However, the new rate does not go into effect automatically for existing contracts; rather, it goes into effect only when a contracting agency modifies an SCA covered contract with an updated WD. Generally, the new rate will go into effect on the anniversary date (annually, or every two years for non-appropriated funds contracts) or option renewal/modification date of these contracts — whichever date for a particular contract triggers incorporation of a new WD by the contracting agency.

The obligation to pay employees prevailing wages and benefits in compliance with the SCA requirements falls to contractors and subcontractors, who are jointly and severally liable for any violations. However, it is the contracting agency’s legal obligation to provide correct and updated WDs to the prime contractor, and the prime contractor’s responsibility to flow-down updated WDs to their subcontractors.

Next Steps

Government contractors should check routinely to determine if new WDs have been provided to them by contracting agencies (or, in the case of subcontractors, by their prime contractor) by incorporation into their contracts. If the agency has not provided an updated WD as required, contractors should request that the agency do so and be sure to document their compliance efforts.