What Counts as a Bona Fide Fringe Benefit Under the SCA?

Fringe benefits are easy to get wrong on a government contract, and mistakes can cost real money. The Service Contract Act (SCA) has strict rules about what counts. Here is the plain answer.

The Short Answer

A bona fide fringe benefit is a real benefit, set up the right way, that helps workers with things like health care, retirement, illness, or injury. If it passes the rules, you can count it toward what the SCA requires. If it does not, it does not count, even if you paid for it.

A benefit has to pass five tests:

1. It is in writing, and workers are told about it in writing.

2. It is a legal duty. A promise is not enough.

3. Its main purpose is to pay workers benefits for things like death, disability, illness, retirement, or medical costs.

4. It has a set formula for what you pay in and what workers get out.

5. Your money goes in for good. It goes to a trustee or a third party, and you cannot take it back.

What Usually Counts

• Group health and medical plans. These cover medical care and hospital costs.

• Life and disability insurance. These pay when a worker dies or cannot work.

• Retirement and pension plans. These must be funded through a trustee or third party.

• Paid vacation and paid holidays. Many SCA wage determinations list these, and they are the one kind of plan you can generally run yourself without a trustee.

Your contract's wage determination lists exactly what you owe. Always start there.

What Usually Does Not Count

• Costs the law already requires. Workers' compensation, unemployment insurance, and Social Security.

• Business costs. Moving, travel, and transportation costs, uniforms, and tools.

• Your own office costs. Payroll processing and recordkeeping.

• Social extras. Parties, flowers, cards, gifts, magazine subscriptions, and club or association dues.

• Self-funded plans. These are generally not allowed, except for vacation and holidays. You need Department of Labor approval first.

How the Money Math Works

Every SCA contract comes with a wage determination. It lists a health and welfare (H&W) rate per hour. For 2026, the Department of Labor set the standard rate at $5.92 per hour, starting August 10, 2026.[3] Your contract may list a different rate, so check your own wage determination.

• The rate applies to every paid hour, including vacation and sick leave. It stops at 40 hours a week and 2,080 hours a year.

• Figure it for each worker. Do not average across your staff.

• Keep wages and fringe benefits as two separate lines in your records. A higher wage rate does not replace the fringe benefit.

• Vacation benefits start after the service time listed in the wage determination, usually one year. Holiday benefits go to any worker who does any work in a week that includes a named holiday.

Example at the $5.92 rate: $5.92 x 40 hours = $236.80 per week. Over a full year of 2,080 hours, that is $12,313.60 per worker.

Not sure if you can pay cash instead of a benefit on your contract? Ask before you do it.

Three Common Mistakes

1. Counting what the law already requires. Workers' compensation, unemployment insurance, and Social Security do not count.

2. Keeping the money in your own account. If you can take the contributions back, the plan is not bona fide.

3. Averaging the rate across workers. The rate is figured one worker at a time.

How Williamson Financial Group Can Help

We help contractors get fringe benefits right under New York prevailing wage law and the federal Service Contract Act. We handle fringe benefit calculations, enrollment coordination, vendor management, and the paperwork. We support your payroll and HR teams, not replace them.

Prime contractors: we welcome teaming and subcontracting on New York and federal projects.

Ready to talk? Call (917) 780-6519 or book a 30-minute call: https://zcal.co/williamson25/30min

This post is general information, not legal advice. Check your own contract and wage determination.

Sources

1. U.S. Department of Labor, Wage and Hour Division. "Fact Sheet #67B: Meeting Requirements for Service Contract Act (SCA) Fringe Benefits." October 2024. https://www.dol.gov/agencies/whd/fact-sheets/67b-meeting-requirements-sca.

2. "Bona Fide Fringe Benefits." 29 C.F.R. § 4.171. https://www.law.cornell.edu/cfr/text/29/4.171.

3. Boon Group. "DOL Announces Updated SCA Health & Welfare Rates for 2026." 2026. https://www.boongroup.com/Blogs/Blog/2026/DOL-Announces-Updated-SCA-Health-and-Welfare-Rates-for-2026.