Key Takeaway

Under odd-numbered wage determinations, SCA Health & Welfare is due for all hours paid — not just hours worked — capped at 40 hours per week (2,080/year). Since most contracts include Executive Order 13706 (Paid Sick Leave), the applicable H&W rate for the majority of contractors is $5.09/hour as of July 2025. Contractors can satisfy this through bona fide benefits, cash-in-lieu, or a combination of both.

Understanding Wage Determination Numbering

Before running any calculation, you need to know which type of wage determination (WD) is attached to your contract. Standard area-wide wage determinations are typically issued in pairs for each locality.

Odd-numbered wage determinations (e.g., 2015-2019) are the most common and require compliance with H&W benefits on a "fixed cost" per-employee basis — meaning each covered employee is owed the same hourly H&W rate regardless of the actual cost of benefits provided.

The Department of Labor is still issuing even-numbered wage determinations, but they are only used in rare and specific instances — specifically for successor contracts where the predecessor contract already used an "average cost" H&W methodology. This guide focuses on odd-numbered WDs since that's what the vast majority of contractors are working with.

Step-by-Step Calculation Guide

Step 1: Identify the Required Hourly Rate

Locate the H&W footnote in the wage determination incorporated into your specific contract.

As of July 7, 2025, there are two prevailing H&W rates. Since most federal service contracts include Executive Order 13706 (Paid Sick Leave), the rate that applies to the majority of contractors is $5.09 per hour — the cost of paid sick leave is statistically accounted for separately, which is why it's lower. For the smaller number of contracts not subject to EO 13706, the standard rate is $5.55 per hour.

An important nuance: you must use the rate specified in your contract's WD. New rates issued by the DOL are not effective until incorporated via a contract modification. Jumping ahead to the new rate before your contracting officer acts can actually create compliance problems (more on that in the pitfalls section below).

Step 2: Determine "Paid Hours" Subject to H&W

Under odd-numbered WDs, H&W is due for all hours paid for, not just hours worked. This distinction matters.

Included hours cover all straight-time hours worked, as well as paid leave such as vacation, holidays, and sick leave.

The cap is 40 hours per week per contract. Hours beyond 40 in a week are excluded from the H&W obligation — but there's an important caveat. In states with daily overtime laws (like California, where overtime kicks in after 8 hours in a single day), an employee can accumulate overtime hours that still fall within the 40-hour weekly cap. For example, an employee who works 10 hours on Monday and no other hours that week has 2 overtime hours — but all 10 hours count toward the H&W obligation because the weekly total is under 40. The exclusion applies to hours over 40 in a week, not to hours classified as "overtime" under state law.

Step 3: Select a Compliance Method

Employers have three primary ways to satisfy the H&W requirement:

Bona fide fringe benefits: Contributions made to insurance plans (medical, dental, vision, life, disability) or retirement plans (401k). These contributions must be made irrevocably to a third-party trustee or fund. Only the employer-paid portion counts — employee payroll deductions do not reduce your obligation. The DOL outlines specific criteria for what qualifies as bona fide.

Cash-in-lieu of benefits: Paying the H&W amount as a cash supplement on the employee's regular payday. This method increases the employer's payroll tax liability (FICA/unemployment) because the payments are treated as taxable wages.

Combination: Providing a portion in bona fide benefits and the remainder in cash to reach the total hourly requirement. In my experience at GSA National, this is the most common approach — most employers' benefit costs don't line up exactly with the required rate.

Step 4: Execute the Calculation

To find the total H&W obligation for a pay period:

Required Hourly H&W Rate × Total Compensated Hours (max 40/week) = Total H&W Contribution Due

Example — biweekly period: An employee works 80 hours on a contract subject to EO 13706, so the applicable rate is $5.09:

Total obligation: $5.09 × 80 hours = $407.20

If the employer pays $300.00 toward a health insurance premium for that period, they must pay the remaining $107.20 as a cash-in-lieu payment or contribution to another bona fide plan (like a 401k).

Step 5: Maintain Compliant Recordkeeping

You must keep payroll records that separately identify the amounts paid for basic wages and the amounts paid for fringe benefits. This is outlined in 29 CFR Part 4 and is one of the first things an auditor will look for.

Failure to segregate these amounts on pay stubs can result in the DOL presuming the entire amount was for wages — leaving the contractor liable for back-pay on the fringe benefits. Records must be maintained for three years after contract completion.

Critical Compliance Pitfalls to Avoid

No offsets from excess wages. You cannot satisfy an H&W deficiency by paying a higher base wage than required. The two requirements — prevailing wage and fringe benefits — are treated as entirely separate obligations.

No administrative deductions. Contractors cannot deduct their own internal administrative costs (e.g., payroll processing fees, TPA charges) from the H&W amount.

Voluntary overpayment risk. If you increase H&W rates voluntarily before the contracting officer incorporates the new WD, you may invalidate your eligibility for a price adjustment under FAR 52.222-43. Wait for the formal contract modification before updating your rates.

Part-time employees. All covered service employees — including part-time and temporary workers — are entitled to the full hourly H&W rate for the hours they work. There is no reduced rate for part-time status.

Why This Gets Complicated at Scale

The basic formula is straightforward for a single employee on a single contract. But real-world SCA compliance involves employees working across multiple contracts, each with different wage determinations, different anniversary dates, and different H&W rates. Pro-rating benefits across contracts, tracking rate changes at the right time, and keeping audit-ready records is where spreadsheets start to break down.

This is exactly why I built SimpleFringe — to handle the multi-contract pro-rating, rate change tracking, and compliant recordkeeping that manual processes can't manage reliably.

Next Steps

If you're managing SCA compliance manually, start by auditing your current H&W calculations against the formula above. Make sure you're tracking hours by contract (not just total hours), that you're using the correct rate for each contract's wage determination, and that your payroll records clearly segregate wages from fringe benefits.