“It’s been a hard day’s night, and I’ve been working like a dog.

It’s been a hard day’s night, I should be sleeping like a log.”

– The Beatles

On July 16, 2021, the U.S. Department of Labor issued All Agency Memorandum (“AAM”) no. 237. The AAM posted new health and welfare (“H&W”) fringe benefit rates for Service Contract Act (“SCA”) covered contracts effective July 16, 2021.

For SCA-covered contracts awarded on or after August 1, 2017 and not subject to Executive Order 13706 (the “Sick Leave E.O.”), the new H&W benefit rates are as follows: (a) $4.60 per hour, $184.00 per week, or $793.33 per month, per employee, for hours paid for up to 40 hours per week; or (b) $4.60 per hour, based on the contractor’s average fringe benefit cost for hours actually worked by all employees on the contract, including overtime, but not leave time. The applicable wage determination (“WD”) will specify which formula applies. This is a small six cent increase from $4.54 an hour which had been frozen in place for two years. 

If a contract does require sick leave pursuant to the Sick Leave E.O. the applicable fringe benefit will be $4.23 per hour, $169.20 per week, $733.20 per month, except in Hawaii, where it will remain at $1.63 per hour, $65.20 per week, or $282.53 per month. The special H&W rates were meant to adjust for the new Sick Leave E.O. benefit costs separately imposed on contractors. This is a tiny one cent increase from the frozen two year 2019 – 2020 rate.

For the most part, the only SCA-covered contracts awarded after August 1, 2017 that will not be subject to the Sick Leave E.O. (and therefore will be subject to the H&W rates in the first paragraph above) will be unilateral exercises by the Government of pre-negotiated options to renew existing pre-2017 contracts. In addition, a task order under an IDIQ contract that is not covered by the E.O, either because the solicitation for the IDIQ contract was issued before January 1, 2017 or because the IDIQ contract was awarded outside the solicitation process before January 1, 2017, also would not be subject to the E.O. even if the task order was issued after January 1, 2017.  However, contracting officers may choose to apply the E.O to such task orders, in which case the H&W rates in the second paragraph above will apply. (In that event, contractors should be vigilant to preserve price adjustments and not waive any rights). Likewise, the Sick Leave E.O and the H&W rates in the second paragraph above will apply to “new contracts.”

For SCA-covered contracts in Hawaii, where state law requires most employers to provide health insurance and the U.S. Department of Labor (“DOL”) traditionally sets lower H&W rates to offset the state mandate, the H&W rate will remain $1.94 per hour, $77.60 per week, and $336.27 per month for all employees on whose behalf the employer provides benefits pursuant to the Hawaii Prepaid Health Care Act. That is no change from the prior two years. For those employees not receiving such benefits, the applicable rate is $4.60 per hour. See All Agency Memorandum No. 237, at https://www.dol.gov/sites/dolgov/files/WHD/AAM/AAM237.pdf

Note that the new benefit levels are not self-executing; they apply to a particular contract only if and when the contracting officer modifies the contract to require the new levels – typically, when an option is exercised, or when a new contract or extension is made, and not less often than every two years for multi-year funded contracts. See 29 C.F.R. 4.162(b).