Have Service Contract Act Work? What to Expect in Future Wage Determinations

Service Contract Act (SCA) wage determinations (WD) contain several new changes that will make a difficult topic even more complex. These changes, highlighted below, will impact your contract and require action:

• Changes to WD geographic regions
• Increased health and welfare (HW) amount
• NEW HW amount for sick leave requirement
• NEW Hawaii HW amount and Hawaii sick leave HW

New WD Geographic Regions:

Due to the Department of Labor’s changes to the primary source for updating WDs, several hundred additional WDs were issued that cover different and smaller geographical areas. These WDs contain different WD numbers beginning with a “2015” prefix. As a result, more WDs may be incorporated into SCA contracts to cover the work performance location, and several wage rates may now apply. For example, the previous WD 2005-2103 covering 12 counties in DC, MD, and VA was replaced by 4 WDs that contain smaller geographic regions (2015-4269, 2015-4279, 2015-4281, 2015-4329).

Increased HW Amount:

Effective August 1, 2017, the prevailing HW rate under SCA is $4.41 an hour. The new rate is a $.14 increase from the previous rate of $4.27 an hour. However, lower HW rates may apply, see below.

New HW Amount for Recent Sick Leave Requirement:

The updated wage determinations (WD) incorporate an alternative HW rate for contracts that are covered by Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors (EO 13706). EO 13706 requires employers to provide employees on covered contracts with up to 56 hours (seven days) of sick leave a year. Sick leave that is provided to comply with the executive order cannot be used to satisfy SCA requirements. As a result, a lesser HW amount that excludes the sick leave portion of fringe benefits is applicable when the sick leave requirement is incorporated into the contract. The HW amount for contracts covered by EO 13706 is $4.13. See application of the new HW rate under the Complexities section below.

New Hawaii HW & Hawaii Sick Leave HW:

The Hawaii Prepaid Healthcare Act (HPHCA) mandates that most employers provide health insurance coverage to their employees. Under Section 2(a)(2) of SCA, fringe benefit payments that are required by state law may not be used towards the HW requirement. As a result, contractors performing work in Hawaii are subject to a reduced HW amount if they are providing the required health insurance to their employees. Contractors performing SCA-covered contracts in Hawaii should note the following changes to the HW requirement.

Effective August 1, 2017:

• For contractors providing benefits to comply with HPHCA, the HW amount increased to $1.91 from $1.78.
• For contractors providing benefits to comply with HPHCA and sick leave to comply with EO 13706, the HW amount is $1.63.

Complexities:

The incorporation of alternative HW amounts can add to the complexity of compliance with SCA. There is a greater chance that contractors will be required to provide different HW amounts across their government contracts. Sick Leave EO 13706 should be incorporated into contracts with solicitations that are issued after January 1, 2017. Several HW scenarios are likely to occur:

• SCA contracts awarded before January 1, 2017, would not have the sick leave requirement in them, and the $4.41 hourly HW rate would apply when the new WD is incorporated into those contracts.
• SCA contracts awarded after January 1, 2017, and containing sick leave clause 52.222-62 are subject to the $4.13 HW rate.
• COs are only required to update WDs every two years on multiyear contracts. Therefore contractors may have active contracts with HW rates of $4.41, $4.27, and $4.13.

It is imperative that contractors pay close attention to the specific clauses and applicable HW amounts in their SCA contracts. Now more than ever, it is critical that contractors monitor SCA compliance on a contract by contract basis, as the following variables may come into play:

1. Odd-numbered WDs (2015-4269) requiring HW be provided, on an employee by employee basis, on all hours paid each week up to a maximum 40 hours per week.

2. Even-numbered WDs (2015-4270) requiring a benefits contribution costing an average of the HW rate for all hours worked (including OT hours) by service employees on the contract.

3. Old, larger WD regions.

4. New, smaller WD regions.

5a. Old HW amount ($4.27)

5b. Hawaii old HW amount ($1.78)

6a. New, increased HW amount ($4.41)

6b. Hawaii new, increased HW amount ($1.91)

7a. Sick leave-based reduced HW ($4.13)

7b. Hawaii sick leave-based reduced HW ($1.63)

Actions:

For multi-year contracts, COs should incorporate the most recent WD at the time a contract option is exercised, a contract is extended, or the scope of work is changed (but only in a way that significantly affects labor standards requirements), but not less than every two years. Service contractors should be proactive with the CO to request the most recent WD be incorporated into the contract. Current service contracts will be impacted after the new WDs containing the updated HW rate has been incorporated into the contract via official modification from the Contracting Officer (CO).

• Verify that the newly aligned WDs are correct for the work performance locations. DOL provided this crosswalk tool to show the realignment.
• Notify SCA employees about the new WD number applicable to the contract.
• Once a new WD is incorporated into the contract, evaluate the need for a price increase adjustment and submit a modification if needed.
• Price adjustments may not be granted to service contractors that increase employee wages or health and welfare rates before the new WD is incorporated into the contract (See FAR 52.222-43 Fair Labor Standards Act and Service Contract Labor Standards—Price Adjustment). Ensure you do not provide increased wages or HW until the new WD has been officially incorporated into your contract via modification.

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