Government Contractors Take Notice: Increase in Health & Welfare Fringe Benefit Rates Under the Service Contract Labor Standards

On July 16, 2024, the U.S. Department of Labor announced updated wage determinations, which reflect increased health and welfare fringe benefit rates under the Service Contract Labor Standards.  As explained in Government Contracts: Service Contract Labor Standards Compliance, the Service Contract Labor Standards apply to contracts issued by the federal government in an amount exceeding $2,500, when the principal purpose of the contract is to furnish services to the federal government in the United States using service employees.  This requirement flows down to subcontracts at all tiers for services performed in the United States using service employees.

Under the updated wage determinations, government contractors will be required to, on an individual employee basis:

• Contribute $4.93 per hour of work for health and welfare benefits on contracts subject to Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors, in addition to the contractor’s paid sick leave obligations (i.e., up to 56 hours (7 days) of paid sick leave annually);
• Pay prevailing health and welfare fringe benefits at a rate of $5.36 per hour of work on contracts not subject to Executive Order 13706;
• Pay health and welfare fringe benefits at a rate of $1.93 per hour of work on contracts subject to Executive Order 13706 in Hawaii, where employees receive mandated health care benefits; and
• Pay health and welfare fringe benefits at a rate of $2.36 per hour of work on contracts not subject to Executive Order 13706 in Hawaii, where employees receive mandated health care benefits.

While previously the Department of Labor permitted payment on an “average-cost” basis for some contracts, the Department of Labor has now eliminated the average fringe benefit wage determination and instead will only permit the payment of fringe benefits on an individual employee basis.

 Which Government Contractors Must Comply with the New Wage Determinations?

Government contractors bidding on solicitations issued after July 16, 2024, and/or receiving contract awards after July 16, 2024 subject to the Service Contract Labor Standards, must comply with the new wage determinations containing these increased health and welfare fringe benefit rates.

When Must Government Contractors Comply with the New Wage Determinations?

Government contractors must comply with the new wage determinations upon receipt of a contract award after July 16, 2024, or upon receipt of a contract modification which incorporates the new wage determinations.  Additionally, government contractors with Service Contract Labor Standards-covered contracts that have terms longer than one year must also comply with the new wage determination when next required to adjust their wage and fringe benefits rates in accordance with Federal Acquisition Regulation (“FAR”) clause 52.222-41(c)(3).

Am I Entitled to a Price Adjustment on My Contract as a Result of the New Wage Determinations?

Contractors receiving a new wage determination that increases the prevailing wages or fringe benefits owed by a government contractor may seek an equitable adjustment to their contract if their contract contains FAR clauses 52.222-43 or 52.222-44.  To seek an equitable adjustment, the government contractor must notify the Contracting Officer within thirty days of receiving the new wage determination of any claimed increase in wages or fringe benefits and the resulting changes in hourly rates or the contract price.

Foley has created a multi-disciplinary and multi-jurisdictional team, which has prepared a wealth of topical client resources and is prepared to help our clients meet the legal and business challenges created by the new wage determinations.  To discuss how the new wage determinations may impact your business, contact Erin L. Toomey ([email protected]), Jeffrey S. Kopp ([email protected]), or Megan Chester ([email protected]).  The updated health and welfare fringe benefit requirements will also be discussed at Foley & Lardner LLP’s upcoming annual Government Contracts Webinar on Wednesday, October 9, 2024, from 9 am – 12 pm ET.  Please register here for the webinar.