SCA fringe benefits, and how to price them
Fringe is where most Service Contract Act pricing goes wrong. It sits on top of the hourly wage, it is stated in more than one format, and getting the format wrong can overstate your cost by three times.
Fringe is on top, not inside
The single most important thing: the fringe benefit obligation is in addition to the hourly wage rate, not part of it. If a determination lists a rate of $18.42 and health & welfare of $5.36 per hour, your minimum labor cost is $23.78 per hour before you have added a single payroll tax.
You may discharge the obligation by providing bona fide benefits, by paying the equivalent in cash, or by a combination. What you cannot do is treat it as already included in the wage.
The three components
Health & welfare
A flat per-hour amount, stated directly on the determination. It is the simplest component and usually the largest. Two wrinkles worth knowing:
- Some determinations carry a separate, lower rate where Executive Order 13706 paid sick leave applies, because part of the obligation is met by the leave itself.
- Hawaii determinations often list two rates — one for employees covered by the state Prepaid Health Care Act and one for those who are not. If you cannot establish that HPHCA coverage applies, price the higher, not-covered rate. Understating here produces a bid that is cheap and non-compliant.
Vacation
Usually stated as accrued time — “two weeks paid vacation after one year of service” — and typically escalating with length of service. To price it you convert the accrued time into a per-hour cost against the employee’s base rate.
Holidays
Normally a count of named paid holidays, commonly ten or eleven. Same idea: convert days into a per-hour equivalent.
The mistake that costs you the bid
Some determinations — Fast Food determinations in particular — state vacation and holidays as a flat dollar amount per hour rather than as accrued time. For instance: “VACATION: $0.27 per hour” and “HOLIDAYS: $0.13 per hour”.
When a determination states a per-hour dollar figure, that figure is the obligation. Do not re-derive it from the base rate and assumed days off. On a $13.40 base, deriving the number yields roughly $1.37 per hour against a stated $0.40 — about three and a half times too much. Price that bid and you will lose it, having done nothing wrong except read the determination the wrong way.
The pricer on this site branches on which form the determination uses, so the two paths cannot be confused.
What fringe is not
Fringe is not your payroll taxes. FICA, FUTA and SUTA, workers’ compensation and general liability are employer costs you carry regardless, and they do not count toward discharging the fringe obligation. They sit on top again, along with overhead, G&A and fee, when you build a bid price.
Putting it together
A fully burdened hourly cost is roughly:
- the higher of the determination rate and any applicable Executive Order minimum
- plus health & welfare
- plus vacation and holidays, in whichever form the determination states them
- plus payroll taxes and insurance
- plus overhead, G&A and fee
Getting that arithmetic right for one occupation is straightforward. Getting it right for twenty, across a determination that revised last month, is what the free pricer is for.
Informational only, and not legal advice. The wage determination incorporated into your solicitation governs, and coverage turns on the facts of your particular contract. When real money rides on the answer, confirm it with the contracting officer or counsel.