What Is H&W Pay? A Plain-English Guide

If you've ever looked at a pay stub and seen a line item labeled "H&W," "Health & Welfare," or "fringe," you probably had questions. What is this? Why is it separate from my regular wages? Is my employer required to pay it?

The short answer: H&W pay is a federally mandated fringe benefit under the Service Contract Act (SCA). Your employer doesn't pay it because they want to. They pay it because, by law, they have to.

This guide explains what H&W pay actually is, how it shows up for employees, and what employers need to know to stay compliant.

What Does H&W Mean on a Paycheck?

When "H&W" or "Health & Welfare" appears as a separate line on your paycheck, it represents a fringe benefit payment required by the Service Contract Act. The SCA requires employers on covered federal service contracts to provide Health & Welfare benefits to every covered employee at a rate set by the Department of Labor.

Employers can satisfy this requirement in three ways: by providing bona fide benefits (like health insurance, dental, vision, life insurance, or retirement contributions), by paying the H&W amount directly as additional cash wages (called "cash-in-lieu"), or through a combination of both.

If you see H&W as a cash amount on your pay stub, it means your employer's benefits package doesn't fully cover the required H&W rate for every hour you worked, so they're making up the difference in cash. This is completely normal and is one of the most common compliance approaches used by small government contractors.

What Is the Service Contract Act?

The Service Contract Act (SCA) is a federal law that applies to contracts over $2,500 where the government hires private companies to perform services like janitorial work, security, food service, IT support, or facilities maintenance. If you work on one of these contracts, you're likely an "SCA-covered employee."

The SCA requires your employer to pay you at least the prevailing wage for your job classification in your area, plus provide Health & Welfare fringe benefits at the rate specified in the contract's Wage Determination. These two obligations, wages and fringe benefits, are entirely separate. Your employer cannot make up for a shortfall in one by overpaying on the other.

How Much Is the H&W Rate?

As of July 2025, there are two H&W rates depending on your contract:

$5.09 per hour for contracts subject to Executive Order 13706 (Paid Sick Leave). This applies to the majority of federal service contracts, since most contracts entered into or renewed after January 2017 include EO 13706.

$5.55 per hour for contracts not subject to EO 13706.

Under odd-numbered Wage Determinations, which cover the vast majority of SCA contracts, the rate applies to all compensated hours (hours worked plus paid leave like vacation, holidays, and sick time), capped at 40 hours per week. So if you work a standard 40-hour week on a contract with the $5.09 rate, your employer's H&W obligation for that week is $5.09 x 40 = $203.60.

For the full calculation methodology, including how overtime and multi-contract situations are handled, see our step-by-step H&W calculation guide.

What Counts Toward the H&W Obligation?

Only employer-paid benefits count. If your employer contributes $400 per month toward your health insurance premium, that amount counts toward their H&W obligation. But the portion you pay out of your own paycheck (your employee contribution) does not.

Benefits that typically count include the employer-paid portions of medical/health insurance, dental insurance, vision insurance, life insurance, short-term and long-term disability, retirement or 401(k) employer contributions, HRA employer contributions, and HSA employer contributions.

If your employer's total benefit contributions meet or exceed the required H&W rate for your hours, they're compliant. If the contributions fall short, they owe you the difference, either as cash-in-lieu or as additional contributions to a qualifying benefit plan.

Why Would I Receive H&W as Cash?

There are several common scenarios where employees receive H&W as a cash payment on their paycheck:

You declined health insurance. Even if you waive coverage (because you're on a spouse's plan, for example), your employer still owes you the full H&W amount. They can satisfy it through other benefits like retirement contributions, or pay the balance as cash.

Your employer's benefits don't cover the full rate. If your employer pays $3.50/hour worth of benefits for you but the required rate is $5.09/hour, they owe you the remaining $1.59/hour as cash-in-lieu or through additional benefit contributions.

You're part-time or your hours vary. The H&W obligation is calculated hourly, so it fluctuates with your hours. Benefits are often a fixed monthly cost, which means the math doesn't always line up perfectly, especially for part-time employees.

Cash-in-lieu payments are taxable wages (subject to FICA, federal, and state income tax), so they'll show up on your pay stub and your W-2 just like regular pay, but they should be listed separately.

What If I Think My Employer Isn't Paying H&W Correctly?

If you work on a federal service contract and you're not receiving H&W benefits, or you believe the amount is wrong, there are a few things you can do.

Check your contract's Wage Determination. Your employer is required to post the applicable Wage Determination at the worksite. This document specifies the H&W rate they're required to pay. You can also look up Wage Determinations on SAM.gov.

Review your pay stubs. Your employer is required to separately identify the amounts paid for wages versus fringe benefits. If everything is lumped together with no breakdown, that's a recordkeeping issue.

Contact the Department of Labor. The DOL's Wage and Hour Division investigates SCA complaints. You can file a complaint confidentially. Retaliation for filing a complaint is illegal under federal law.

What Do Employers Need to Know?

If you're a government contractor, H&W compliance requires more than just writing a check. The obligation changes as Wage Determinations are revised, as employees change benefits during open enrollment or qualifying life events, and as employees move between contracts with different benefit structures. Every change means the employer-paid benefits amount needs updating with the correct effective date.

For contractors managing multiple SCA contracts, tracking H&W obligations in spreadsheets becomes increasingly risky as the number of employees, contracts, and benefit variations grows. A missed rate update or a stale benefits figure can create compliance gaps that only surface during a DOL audit.

The consequences of getting it wrong are significant. According to a GAO report, 68% of SCA cases result in violations, with penalties ranging from back-pay liability to contract termination and even debarment from federal contracting.

H&W Pay Is Not Optional

Whether you're an employee trying to understand your paycheck or a contractor trying to stay compliant, the core principle is the same: H&W is a legally required fringe benefit, not a bonus or a perk. The SCA mandates it, the DOL enforces it, and the penalties for non-compliance are real.

For employees, knowing what H&W means helps you verify that you're getting what you're owed. For employers, treating H&W compliance as a serious, ongoing obligation (rather than a set-it-and-forget-it spreadsheet exercise) is the best way to avoid costly surprises.

If you're a government contractor looking for a better way to track H&W obligations across your contracts, SimpleFringe is purpose-built compliance software that handles the calculations, tracks Wage Determination updates, and gives you a clear picture of where you stand.