“I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern shipbuilding has gone beyond that.”

- Edward Smith, Captain, RMS Titanic

There is a fundamental disconnect between the complicated world of fringe benefits plans and the simplistic requirements of the Service Contract Act (“SCA”). While many examples of this are possible, one of the most common problems is the timing of any necessary reconciliation of contractor health and welfare (“H&W”) benefits with the SCA timely payment requirements.

Most contractors reconcile their fringe benefits plans periodically – either monthly or quarterly is the most common practice. They calculate what fringe benefits were paid SCA covered workers, and if there were any underpayments, they true them up and pay a supplemental contribution or cash amount to cover the underage.

The default rule in the SCA, however, is that wages and fringe benefits should be furnished in the pay period in which they are due. The requirement to pay in the contemporaneous pay period is derived from the DOL regulations that can be found at 29 CFR 4.175(d) which states:

However, where the fringe benefit determinations contemplate a fixed contribution on behalf of each employee [i.e., the “odd” numbered WDs], and a contractor exercises his option to make hourly cash equivalent payments or differential payments, such payments must be made promptly on the regular pay day for wages. (See [section] 4.165).

However, the reference to section 4.165(a)(1) creates some ambiguity since it says monetary wages must be paid “promptly and in no event later than one pay period following the end of the pay period in which they are earned.”  

My interpretation is that an employer’s reconciliation can plainly lag the pay period for “even” numbered so-called average WDs, and even true up benefits on a quarterly basis, but an employer may end up in a dispute with DOL about the “odd” numbered WDs, although it has a good faith argument for lagging one pay period.

Of course, this confounds the popular dogma that all an employer has to do is reconcile their SCA plans quarterly and the ship will remain afloat