Government Contracts Intelligence Briefing

Contracts issued subject to the Service Contract Act (“SCA”—also known as the Service Contract Labor Standards) require contractors and subcontractors to, among other things, pay an hourly health and welfare benefit specified in an applicable Wage Determination (“WD”). The Department of Labor (“DOL”) issues an updated health and welfare benefit amount annually, which is subsequently incorporated into revised WDs.

Most recently, on July 7, 2025, DOL issued All-Agency Memorandum No. 250 (the “AAM”) establishing a new H&W rate for contractors. The AAM specified the following:

• the health and welfare fringe benefit for workers on contracts that do not have a sick leave requirement under Executive Order 13706 is now $5.55, and
• the health and welfare fringe benefit for workers on contracts that also have a sick leave requirement under Executive Order 13706 is now $5.09.

There are some important things to keep in mind. First, if a company has a state or local sick leave requirement, but not one under Executive Order 13706, they must still provide the higher health and welfare benefit. Second, the requirement to pay this higher amount does not attach until a new WD is issued with this amount and that new WD is incorporated into a contract. If a company pays this higher amount early, they may not be able to recover the difference through a price adjustment with the contracting agency. Third, this requirement is only for non-exempt workers that are performing the work on the contract. Corporate or exempt employees, for example, are not subject to this requirement.

As a reminder, the health and welfare benefit can be provided in a number of ways, which each have their own benefits and drawbacks including, but not limited to, cash, health benefits, and retirement plans. Health and welfare payments by the contractor must be irrevocable unless permission is received by DOL.

The provision of health and welfare is just part of the larger compliance requirements under the SCA. SCA contractors must also pay the wages specified in a WD in addition to providing vacation time and holidays, keeping adequate records, and properly informing SCA-covered employees of their status. In addition, employees may be entitled to a higher minimum wage under Executive Order 13658 and sick leave under Executive Order 13706.

While the concept of Service Contract Act compliance is simple, the execution of these requirements is often not. It is important to keep abreast of these requirements and seek counsel when needed. Failure to comply can result in a three-year debarment.