When a New SCA Health & Welfare Rate Actually Reaches Your Contract

A new Health & Welfare rate is good news you cannot act on yet. DOL publishes the number, your HR lead forwards the link, everyone agrees it is higher than last year, and your contract keeps paying the old rate as though nothing happened. That gap is not an oversight by anyone involved. It is how the mechanic is built, and the cost of it lands on you.

I sat down with Jenny Clark, GovCon CFO at Solvability, to trace what has to happen between a DOL announcement and a higher number on somebody's pay stub. This one is for contractors who already hold the work. If you are still pricing your first SCA bid, our first conversation on SCA fringe versus corporate fringe is the better starting point.

One note about timing, which turns out to be the whole point. We recorded this in July 2026, a few weeks before the new rates published. In the video I describe $5.55 and $5.09 as the rates as of July of last year, and I say a new one is coming soon. It came. AAM 252, dated August 7, 2026, set the standard rate at $5.92 per hour and the EO 13706 rate at $5.42, applicable to bids opened and contracts awarded on or after August 10. The sequence we describe in this conversation is the sequence that then played out in public, so I am using that real change as the worked example throughout.

The Rate Publishes in the Summer, and That Is the Easy Part

Every summer, DOL issues an All Agency Memorandum with the updated H&W rates. An AAM. The document is worth seeing once: it arrives as a scanned PDF and legitimately looks like someone typed it up on a typewriter, which is a quirky way to move millions of dollars across the federal services industry.

I asked Jenny who in a contracting shop is watching for it. The awareness is already there, in her experience. Everyone doing Service Contract Act work knows what is happening at DOL, usually whoever handles the bid or someone in HR already monitoring pay rates for Service Contract Act workers. What surprised her was the vocabulary. She had never run into the term AAM before we sat down.

The news itself is good. A higher rate means more to provide your employees, as benefits, as cash, or as some mix. Publication day just hands you nothing to do.

The New Rate Does Not Apply Automatically

The new rate does not attach to your contract when DOL publishes it. Your Contracting Officer, the KO, has to incorporate the revised Wage Determination into the contract through a contract modification, usually just called the mod. Until that mod is issued, your contract runs at the old rate, and running at the old rate is correct.

Jenny has lived the frustrating end of this. She would be running payroll, know from HR that a new rate existed, and ask the obvious question: "How come we can't do it right now? Because we know it. We can do it right now, right?" And the colleague handling contracts would tell her, "No, we have to wait for the modification from the contracting officer."

The reason the KO cannot move instantly makes the delay feel less arbitrary. The agency has to work out whether there is a funding impact and what has to be added to the contract, which varies with the size and type of contract. On cost plus you do not have to worry about whether the cost is covered, because it will be in your rates. You still have to watch for the mod.

Jenny's advice is the cheapest thing in this post: if you do not see the modification issued, check in. Did I miss that modification? Do I need to do something about it? That is one email.

Your Anniversary Date Might Be Eleven Months Away

I glossed over this in the conversation and it deserves its own heading.

You should not expect the modification until your contract anniversary date comes around. So the rate publishes in July, your anniversary is in June, and you wait eleven months before it is even time for the KO to modify the contract. Eleven months. That is not a late mod. That is the normal one.

Hold several contracts and they almost certainly carry different anniversary dates, so the new rate reaches each one on a different day.

Jenny added something from the field you will not find in a guidance document: agencies differ in practice. On NASA contracts, "the tendency was they would issue them pretty quickly as an interim mod. They wouldn't wait for the anniversary date." Others effectively say tough luck and you wait. She also flagged what the waiting costs at the far end, which is that settling up with employees a year later is a lot of work, with a lot of questions floating around by the time the fix arrives.

When the Mod Is Late, You Are the Bank

Separate from the anniversary wait is the case where the anniversary has passed and the mod still has not shown up. I have seen that run several months, and in some cases years. Contracting Officers are people too, and it does not always happen in a timely manner.

When the mod finally lands, it is retroactively effective back to the anniversary date. The obligation was always there. You just could not bill for it. So you carry the increased H&W cost from the anniversary until the mod is processed and the pricing adjustment is paid, which on a ten-person EO 13706 contract is roughly $6,864 a year of your cash sitting in the government's pocket.

There is a relationship dimension here that rarely gets written down. You can do everything in the world to maintain a good working relationship with your Contracting Officer, and they are still your customer. Politely persistent is fine. Coming across as nagging is not, and you will be working with that person again next year. So there are going to be situations where you wait, and then scramble when it lands.

What a Retroactive Adjustment Actually Takes

Jenny walked the process, which is short to describe and long to do. Go back through the payroll history and identify the H&W amounts. Take the difference between the old rate and the new rate. Work out what those hours and costs were charged to. Make the change and issue the payment.

Then the complications. Employees who have already terminated are still owed the differential, and you may not have their information anymore. Some payroll systems have a clean way to handle retroactive adjustments and some do not. The one piece of good news is that employees do not have to touch their timesheets. HR and payroll coordinate this between them, and payroll executes it.

The conversation with the employee is its own problem. As Jenny put it, "it's hard to explain to somebody that, yeah, you were supposed to get this rate a year ago, and it's not our fault." People enjoy a surprise lump sum, and it is still not a great look for the employer, because the natural assumption is that somebody dropped the ball when most of this was outside your control. Her point about speed is the right one: those employees work on the contract and they talk to each other.

The cash in lieu threshold nobody expects. This is the sharpest compliance trap in the whole conversation. If you provide benefits and pay any remaining obligation as cash, you have employees whose benefit elections covered the full H&W obligation at the old rate, so they were owed nothing in cash at all. When the higher rate applies, the obligation goes up and the cost of their benefits does not. Those employees are now owed a small amount of cash in lieu. They crossed a threshold they were not near before. A retroactive rate change does not simply scale up the cash in lieu payments you are already making, it creates cash in lieu obligations for people who never had one, and if your true-up only touches the employees who already showed a cash payment on their stub, you will miss them. The H&W explainer is worth a read if that mechanic is not already clear in your head.

Different rates, side by side. An employee can work next to someone on a different contract carrying a different H&W rate, which is entirely legitimate and demands enough communication that it does not read as unfair. A single employee can also work on two contracts with two different rates, which means tracking the obligation and crediting employer-paid benefit costs separately per contract. Jenny raised a third version from experience: sometimes someone in the corporate office goes over to help on the SCA contract because they meet the qualifications and a position is open for three or four weeks. Now you are juggling that person's corporate benefit plan against an H&W obligation for a short stint, and it is not a simple calculation.

Two Things That Actually Help

Build a rate escalation clause in at award. Most SCA contracts are multi-year, and call center type work in particular tends to come as five-year awards, so the rate is going to move underneath you more than once. The clause gets your billing rate updated when the mod is issued rather than months after. Jenny asked me to circle back to this one during the recording, which tells you how much it matters on the financial side. If you are standing up a new award, our compliance checklist for new SCA contractors covers what else belongs in that first week.

Track anniversary dates against publication dates. Know which of your contracts hit their anniversary in the window after each DOL publication, and have the retroactive differential calculated and ready to submit the day the mod arrives. The contractors who get hurt are the ones treating H&W as a one-time setup rather than something that moves every summer. This is also the specific job spreadsheets tend to fail at, because the number that has to change each year is buried in a formula nobody has opened since the person who wrote it left.

Whether Any of This Costs You Depends on Your Contract Type

We got here near the end of the recording, almost as an afterthought, and it is the most financially consequential thing either of us said.

SCA work is often on cost plus or cost reimbursable contracts. When that is the case, the increase is passed along to the government in your cost, because that is what cost plus means, and everything is covered. Jenny's warning is for everybody else: "if you're doing time and material contracts or fixed price, there's no increase coming to you, these costs come out of your profit."

Put the current numbers on it. From AAM 250 to AAM 252, the EO 13706 rate moved $0.33 per hour, from $5.09 to $5.42. At 2,080 hours that is $686 per full-time employee per year, or about $6,864 on a ten-person contract. On the standard rate the move is $0.37, which is $769.60 per employee and $7,696 across ten. On cost plus, those figures flow through and you are made whole. On fixed price, $6,864 comes out of your margin every year, on every contract you hold, and no modification is ever going to reimburse it.

Lots to keep track of. That is part of the game with government contracting, keeping all the ducks in a row.

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For the financial side, Jenny's team at Solvability works through what a rate change does to your wrap rate and your pricing, including whether your contract type lets you recover it at all. Connect with her at solvability.com or on LinkedIn.

For the compliance side, that is what SimpleFringe is built for: calculating a retroactive H&W differential across a full payroll history, catching the employees who crossed into a cash in lieu obligation they did not have before, and tracking the obligation per contract when someone works on more than one. If you are trying to work out what a late mod is costing you right now, email me at matt@simplefringe.com and I will help you put a number on it.