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Notice to all Government Contractors

If you have a SCA-Covered contract, this message relates to you. The Department of Labor announced that effective June 27, 2023, the Health and Welfare Fringe Benefit Rates have increased for those Service Contract Act wage determinations. The low-level service employee’s increased benefit is $4.98 per hour, or $199.20 per week, or $863.20 per month.

fringe benefit rate increase

 What is the SCA?

It stands for the Service Contract Act, or McNamara-O’Hara Service Contract Act. This Act is a federal statute that controls all aspects of service contracts including fringe benefits. Any contracts between individuals, companies, and the federal Government including DC. A service employee excludes executives, administrative and exempt professional employees. The employee must be actively working in performance of a service contract covered under the SCA.

The statute was established in 1966 and is managed by the Department of Labor. More specifically, the Wage and Hour division has control. This Act ensures all service employees are paid as much as the typical rates in the location for the same kind of work.


What are employee rights under the SCA?

All service employees have the right to be paid minimum wage, determined by the Department of Labor based on average rates for similar work in the private industry in the same location. Contractors must also pay their service employees a specified rate for fringe benefits. The current amount of $4.98 per hour ensures service employes get major medical insurance coverage. They are not required to offer insurance if they pay out this additional rate.

The additional fringe compensation is to be paid for all hours including working hours, paid leave and holidays. Taxes are to be paid on the additional compensation as well. If the contractors want to benefit from pre-tax to reduce the tax cost, the contractor must pay an insurer or participate in a group health plan. This additional wage benefit is required to be paid to all temporary and part-time, as well as full-time employees.


Does your business need to comply with the SCA?

The first thing to ask yourself is “Is this contract covered by the SCA?” You can figure that out by checking the solicitation or request for bid. These usually state whether the SCA applies to the contract. If it does not specifically stated, you can still determine if the SCA is applicable by answering a few questions. If the answer to any is yes to the following questions, your business must comply with the SCA requirements of fringe benefit rates.


  • Was the contract awarded by the District of Columbia or the US Government?
  • Will the service contract primarily be fulfilled by non-exempt service employees?
  • Does the contract exceed $2500 in payments?
  • Will the work be performed in the US or a foreign US territory?
Fringe Benefit Rate Increase 3

What does this mean for your bidding process?

Be sure you account for the additional wage requirements for the contract. You don’t want to underbid the contract and be stuck paying wages out of your profit. When you are bidding your contract opportunity, be sure to consider the following:

  • Strategy for pricing services and products including all cost of goods and services and operating costs to ensure you are pricing aggressively but still covering costs.
  • Understand the DOL wage determinations or collective bargaining agreements
  • Account for all fringe benefits required to be paid under the SCA
  • Allowable deductions and adjustments to employee wages, contract prices, and costs.

What if your business fails to comply with SCA requirements?

The penalties for non-compliance can be stiff. Failure to comply can result in terminating service contracts with payments of the cost of termination being owed back to the Federal Government. This means if the Government incurs costs while terminating the agreement (i.e. lawyer fees, etc.), you will pay the Government the total amount.

The Government may also withhold payments due to you to compensate your service employees for their underpayment. They will ensure your employees get the money they are owed for services rendered. This money will come out of the compensation you have received or be owed as repayment to the Government.


Can your business be barred from contracting with the Government?

Absolutely it can and it will. After finding a violation and investigating it properly, if you are found to be in breach of the SCA the DOL will bar you from future service contracts. This period of disbarment can be a maximum of 3 years time. The judgement can go through an appeals process with the final decision going to the Federal courts.


What can Select GCR do for you?

We help in all areas of Government contracting. Our Government Procurement Advisors and Federal Business Development Advisors stay current on regulations and requirements. Everyone here is here to help your business achieve its government contracting goals. Contact us for a ready assessment and to get on your way to increased revenue today!