Wage and Hour Division Announces New Service Contract Act Health and Welfare Rates
On July 7, 2025, the U.S. Department of Labor (“DOL”) Wage and Hour Division (“WHD”) issued its annual All Agency Memorandum (“AAM”) that sets the health and welfare (“H&W”) fringe benefit rates for Service Contract Act (“SCA”) covered contracts. The update went into effect upon its issuance and has been incorporated into DOL Wage Determinations (“WDs”).
Before you panic that your company’s fringe benefits don’t pass muster, read your contract. The new benefit levels apply to a particular contract only if and when the contracting officer modifies a contract to add an updated WD that requires the new levels. This typically occurs when an option is exercised, or when a new contract or extension is made, or, for multi-year funded contracts, not less often than every two years for multi-year funded contracts. See 29 C.F.R. 4.162(b).
So here are the new rates:
For contracts requiring sick leave under Executive Order 13706, the rate is $5.09 per hour, which on a 40-hour workweek basis works out to $203.60 per week or $882.27 per month
For contracts not covered by the sick leave requirement $5.55 per hour, which on a 40-hour workweek basis works out to $222.00 per week or $962.00 per month.
For contracts that have WDs for employees covered by the Hawaii Prepaid Healthcare Act, the rate is $2.42 per hour (or $96.80 per week, or $419.47 per month for employees who work 40 hours per week).
For contracts that have WDs for employees covered by the Hawaii Prepaid Healthcare Act and are subject to the EO 13706 sick leave requirements, the rate is $1.96 per hour (or $78.40 per week, or $339.73 per month for employees who work 40 hours per week).
How do you know which rate applies? The rate that will be applicable to the lion’s share of contracts is the $5.09 rate. This is because many contracts have been awarded, extended or options exercised since the sick Leave requirements of EO 13706 went into effect for new awards, options, etc. on or after January 1, 2017. The lower rate gives employers credit for providing the mandated sick leave, which they previously were able to take credit to satisfy the H&W requirement.
Bear in mind that all WDs list both H&W rates and make reference to the EO 13706 sick leave mandate. So don’t just look at your WD—read your contract. The sick leave mandate only applies if the contract contains FAR Clause 52.222-62 Paid Sick Leave Under Executive Order 13706. If that clause is not in your original contract or it hasn’t been added in a later contract modification, you’re not required to provide paid sick leave and the $4.80 rate will apply.
Now that you’ve figured out what rate applies to you, a contractor’s obligation, in the vast majority of cases, is to furnish fringe benefits (or a cash equivalent) to each employee in an amount that’s equal to or greater than the applicable hourly (or weekly or monthly) rate for all hours paid (including leave) to each employee up to 40 hours per week. In a few cases, a contractor will be required to provide benefits at the hourly rate based on its average fringe benefit cost for hours actually worked by all employees on the contract, including overtime, but not leave time. The applicable WD will specify which formula applies.
The Hawaii rates apply to contracts where services are performed by workers in Hawaii. There, state law requires most employers to provide health insurance and DOL sets lower H&W rates to offset the state mandate. The requirements are applied in the same manner; only the rates are different.
We find that many contractors, even seasoned contractors, stumble in trying to comply with the various fringe benefit requirements of the SCA and recent Executive Orders. If you find yourself confused (or if you’re simply assuming your benefits are ok), you may be about to trip. We encourage you to seek guidance—we’re here to help.