Effective July 16, 2021, the Department of Labor (DOL) increased the prevailing health and welfare (HW) fringe rate under the McNamara-O’Hara Service Contract Act (SCA), or Service Contract Labor Standards (SCLS), to $4.60 an hour. The new rate is a $0.06 increase from the previous rate of $4.54 an hour. This rate applies to contracts that are not covered by Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors.
For contracts that are covered by EO 13706, the new wage determinations (WDs) establish an HW rate of $4.23 an hour, up from $4.22 an hour. This rate excludes the sick leave portion of HW, as sick leave required by the Executive Order may not be used to comply with the HW requirement. Be sure to look in your contracts for FAR Clause 52.222-62 to determine if the sick leave Executive Order applies to your contracts.
The updated WDs do not change the HW rate for contractors performing SCLS-covered contracts in Hawaii. The Hawaii Prepaid Healthcare Act (HPHCA) mandates that most employers provide health insurance coverage to their employees. Fringe benefit payments required by state law may not be used towards the HW requirement. Similar to the sick leave requirement, contractors performing work in Hawaii are subject to a reduced HW amount if they are providing state-required health insurance to their employees. This HW amount remains $1.94 an hour. For more information about HPHCA, please read our blog, “Have Service Contract Act Work? What to Expect in Future Wage Determinations.”
Before rushing to increase wages or benefits for workers on covered contracts, contractors should remember that the Contracting Officer (CO) must incorporate new WDs into the contract through an official modification before the updated rates impact the contract. Price adjustments may not be granted to service contractors that increase employee wages or health and welfare rates before the new WD is incorporated into the contract. For more information, see FAR 52.222-43, Fair Labor Standards Act and Service Contract Labor Standards—Price Adjustment.
COs should incorporate the most recent WD when exercising a contract option, extending a contract, or changing the scope of work in a way that significantly affects labor standards requirements – but not less than every two years. Service contractors should be proactive with the CO to request the most recent WD be incorporated into the contract. For more information, please see Department of Labor All Agency Memorandum 237.
If you need assistance identifying price increases resulting from these changes, we can help. For questions regarding SCLS compliance, please contact one of our government contracting consultants here.