Federal Contractors See Hike in SCA Health & Welfare Rates


Executive Summary:  On July 22, 2014, the U.S. Department of Labor (DOL) issued its annual memorandum announcing that, pursuant to 29 C.F.R. Section 4.52, the prevailing hourly health and welfare fringe benefit rates under the McNamara-O'Hara Service Contract Act (SCA) were increasing from $3.81 per hour to $4.02 per hour.  The increase took effect immediately, and the new rate is posted on the DOL's Wage Determinations (www.wdol.gov) and Wage and Hour Division (www.dol.gov/whd) websites. A special reduced rate of $1.66 per hour will apply to Hawaii because, under state law, most Hawaii employers are already obligated to provide their employees with health insurance.  The new benefit rate was derived from the latest Bureau of Labor Statistics Employment Cost Index, summary of Employer Cost for Employee Compensation.

The new rates will affect SCA covered contracts in three major ways.  First, all invitations for bids opened or other SCA covered contracts that are awarded after July 22 must include the new fringe benefit rate memorialized in an updated wage determination.  Second, for contracts that begin after July 22, contracting agencies are required to change, by hand, the wage determinations received for contracts that do not contain the updated fringe benefit rate.  And thirdly, for all other contracts (i.e., those ongoing contracts not awarded or beginning after July 22) the new rate will go into effect on either the contract's anniversary date or option renewal/modification date, depending on the requirements of the particular contracting agency.

Employers' Bottom Line:  The obligation to pay current prevailing wages and benefits under the SCA falls to the employer (whether a prime or a subcontractor).  Contracting agencies are required to utilize the correct wage determinations, including the most current fringe benefit rates.  However, contractors should not simply take the contracting agency's word for it, but should instead be proactive in evaluating whether the wage determinations being used by the agency reflect not only the current wage rates, but also the current health and welfare rates.  Subcontractors should pay particular attention to this issue, because while prime contractors are supposed to provide their subcontractors with the current, correct SCA wage determinations, as a practical matter this is an issue that sometimes gets overlooked – particularly when recent changes have taken effect.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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