It’s that time of the year again when the Department of Labor’s (DOL) Wage and Hour Division (WHD) issues new Service Contract Act (SCA) health and welfare (H&W) rates. In June 2023, WHD increased the prevailing H&W fringe benefits from a rate of $4.80 per hour to $4.98 per hour. Where a contractor is obligated to comply with Executive Order (EO) 13706 sick leave obligations, the rates have increased from $4.41 per hour to $4.57 per hour. Updated rates of $2.15 per hour (without the EO) and $1.74 (with the EO) also apply to employees in Hawaii covered by the Hawaii Prepaid Health Act. For government contractors with an existing SCA contract, obtaining a new SCA contract, renewing options, or modifying existing contracts with a new wage determination, PilieroMazza covers below what you need to know.
- Should I increase H&W rates on all of my SCA contracts now?
No. Although the new wage determinations have been issued by DOL, 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.
- When is the contracting officer required to incorporate the new wage determination?
Any new solicitation should include the new wage determinations, assuming the solicitation was issued 30 days after the wage determination was issued. 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.
- Am I entitled to a price adjustment once the wage determination is incorporated?
Likely 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. Be on the lookout for any contract clauses that try to work around this requirement or contracts that do not include this FAR provision and consult counsel.
- 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 $4.98 per hour at the time the contract is modified, there is no difference to recover.
- 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 that new wage determinations have been issued. As much as DOL tries, sometimes contracting officers are not aware of an updated wage determination, or it is forgotten. Alerting the contracting officer may help you avoid a disgruntled employee complaining to DOL. DOL ultimately has the authority to require that the contracting officer incorporate the new wage determination in a timely manner.
If you have questions about the incorporation or price adjustment process to ensure you are not compromising your ability to recover these increases, please contact Sarah Nash or Nichole Atallah, the authors of this client alert, or another member of PilieroMazza’s Labor & Employment Group.
Visit this link to check out the latest podcast episodes from “Clocking in with PilieroMazza: Labor & Employment News for Government Contractors.” We also encourage you to visit this link to view available training modules designed to help government contractors stay in compliance with their contract requirements.
