Maui Waui (or "Wowie”): Lower Service Contract Act Health and Welfare Benefits May Apply In Hawaii

Man, what is in this sh__, man?

Mostly Maui Waui man, but it's got some Labrador in it.

 --Cheech Marin, Up in Smoke

We had a fire alarm at AWR last week, and the events in Maui weigh heavy on my mind. But, as is the case with many such events, there will be a flurry of emergency response contracting, so I thought I would review the special rules for fringe benefits for U.S. Government service contractors working in the State of Hawaii.  

On June 27, 2023, the Acting Administrator of the U.S. Department of Labor (“DOL”) Wage and Hour Division (“WHD” ) issued All Agency Memorandum (“AAM”) no. 243  which announced an increase in the H&W benefits to be included in wage determinations (“WDs”) for Service Contract Act (“SCA”) covered contracts. With respect to Hawaii, the AAM states:  

Under section 2(a)(2) of the SCA, fringe benefit payments required by state law may not be used to satisfy an employer’s fringe benefit obligations. Hawaii law, for example, requires that most employers provide health insurance coverage for their employees. Therefore, employer contributions that are made to satisfy an employer’s obligations under the Hawaii Prepaid Health Care Act (HPHCA) may not be credited toward the employer’s obligations under the SCA. The SCA WDs have addressed this issue in the past by excluding the health insurance portion of the nationwide health and welfare fringe benefit rate. 

Consistent with past practice, and in recognition that Hawaii law requires employers to provide health care coverage for most employees, the SCA WDs for Hawaii will continue to exclude the health insurance portion of the nationwide health and welfare fringe benefit rate for all employees on whose behalf the employer provides benefits pursuant to the HPHCA. Some Hawaii employers, however, are not required to make, and in fact do not make, contributions for certain employees under the HPHCA. In such circumstances, the reduced fringe benefit level is not appropriate.

The new 2023 rates for the State of Hawaii are either: 

(1)   $2.15, per hour, for all employees, for hours paid for up to 40 hours per week if the contract excludes the sick leave requirements of Executive Order (“EO”)  13706; or  

(2)   $1.74, per hour, for all employees, for hours paid for up to 40 hours per week if the contract includes the sick leave requirements of Executive Order (“EO”)  13706. 

Accordingly, whether we are talking about an odd or even numbered WD, in Hawaii contractors can pay a specified “reduced” H&W rate if they are making separate contributions under the state’s HPHCA. 

However, the standard rate national H&W rate is required for contractors not making such contributions. Accordingly, standard Hawaii WD lists two H&W rates, and the required rate for a particular contractor depends upon whether or not they are making the separate state HPHCA contributions. For employees not receiving mandated health care benefits under the HPHCA, the new health and welfare amount will be $4.98 per hour (or $4.57 per hour for employees performing work on contracts covered by EO 13706). 

Thus, the short explanation is that SCA-covered contracts in Hawaii have different rates because state law requires most employers to provide health insurance, so DOL traditionally sets lower SCA H&W rates to offset the state mandate.   

Note that the new Hawaii 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. See 29 C.F.R. 4.162(b).