H&W is Increasing and Includes Offsets for Mandated Sick Leave. What Now?

August 3, 2017

By Nichole D. Atallah

Effective August 1, 2017, the Service Contract Act (“SCA”) health and welfare (“H&W”) benefit amount increased from $4.27 per hour to $4.41 per hour. See, Department of Labor (“DOL”) All Agency Memorandum Number 225, issued on July 25, 2017.  

A different H&W rate of $4.13 per hour is now applicable to employees performing work on contracts covered by Executive Order 13706 (“EO”). This EO mandated that certain federal contractors provide up to 56 hours of sick leave to employees. The second rate takes into account that the EO does not permit employers to count sick leave provided against the H&W benefit. For employers in Hawaii that provide health care coverage pursuant to the Hawaii Prepaid Health Care Act, the effective H&W contribution will be $1.91 per hour. Also, if the employer is providing benefits pursuant to the EO, the health and welfare contribution will be $1.63 per hour.

Each time the H&W rate increases, we get a number of questions regarding how to implement these new rates. It does not take long for word to spread that employees may be entitled to additional benefit monies. The most frequently asked questions are answered below.

1. Should I Increase H&W rates on all of my SCA contracts on August 1?
No. Although the new wage determinations will be issued by the DOL dated August 1st, the only H&W rate that is applicable to your contract is the rate that is on the wage determination incorporated into the government contract on which the employees are working. These new wage determinations are not effective until one is incorporated into your contract by modification.

2. When is the contracting officer required to incorporate the new wage determination?
Any new solicitation should include the new wage determinations effective August 1st. For pre-existing government contracts, the contracting officer should incorporate the new wage determination into your contract at the option year through the contract modification process. The contracting officer could choose to incorporate the new wage determination earlier, but this is rare.

3. Am I entitled to a price adjustment once the wage determination is incorporated?
Yes. FAR 52.222-43 should be included in your contract and entitles you to the difference between what you currently pay employees and what you will have to pay employees once the new wage determination becomes a part of your contract. You can also request any associated tax or insurance costs that increase.

4. Can I increase the rate now and get a price adjustment later when the correct wage determination is issued?

This is not advisable. Many employers are sympathetic to employees who might complain that they are getting paid less than others in H&W. While contractors may go ahead and provide the increases, any increase you provide to employees prior to incorporation of the wage determination may invalidate eligibility for a price adjustment. Again, contractors may only recover the actual difference between what is paid to employees and what the new wage determination requires, not the difference between wage determinations. Therefore, if you are already paying employees $4.41 per hour at the time the contract is modified, there is no difference to recover.

5. We have not received a new wage determination in several years. What should we do?
Although it is not a contractor’s responsibility to alert the contracting officer that a new wage determination should be applied, there are times where it may be prudent to remind the contracting officer. As much as the DOL tries, sometimes contracting officers are not aware of updated wage determinations or it is forgotten. Alerting the contracting officer may help you avoid a disgruntled employee complaining to the DOL. The DOL ultimately has the authority to require the contracting officer update the new wage determination in a timely manner.

If you have any questions about the incorporation or price adjustment process, please make sure to call us or seek counsel to ensure you are not compromising your ability to recover these increases.

About the Author: Nichole Atallah is a partner and heads the Labor & Employment Law Group. She may be reached at natallah@pilieromazza.com, or at (202) 857-1000.
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