U.S. DEPARTMENT OF LABOR
EMPLOYMENT STANDARDS ADMINISTRATION
WASHINGTON, D.C. 20210
February 1, 1973
MEMORANDUM #111
TO: All Government Contracting Agencies of the Federal
Government and the District of Columbia
SUBJECT: Amendments of Service Contract Act of 1965 - Section
2(a)(5) (Wage rates and fringe benefits that "would
be paid" if service employees were direct hires)
Section 2(a)(5) of the amended Service Contract Act requires the
contracting agency to include in the service contract; "A state-
ment of the rates that would be paid by the Federal agency to the
various classes of service employees if section 5341 of Title 5,
United States Code were applicable to them." The amended Act
requires the Secretary of Labor to give "due consideration" to such
rates in making "the wage and fringe benefit determinations." The
provisions of Department of Labor Regulations 29 CFR 4.6(j).(2) and
29 CFR 4.4(b)(2) were promulgated to give effect to the two statutory
requirements.
At the general conference with the contracting agencies held on
December 14, 1972, questions were raised on the appropriate method
of deciding what wage rates and fringe benefits "would be paid."
At that time it was suggested that the Department of Labor consider
Issuance of guidelines to put all agencies on the same basis to 
avoid waste of time. We have completed our study on this matter
and have arrived at the conclusions stated below. The Department
of Labor welcomes any suggestion or question an agency may have
about the procedure outlined.
BASIC HOURLY RATE
With respect to the proper hourly wage rate to be shown on the con-
tract "statement," the Department of Labor will accept for nonsuper-
visory employees whose wages, if Federally employed, would be paid
pursuant to 5 United States Code 5341, the wage rate that would be
paid to the particular class of employees pursuant to Step 2 of the



2.
supervisory employees. This wage board pay information is usually
available at the personnel office of each contracting agency. It
will, of course, be necessary for the contracting agency to compare
particular service contract jobs to wage board jobs.
FRINGE BENEFITS
The Bureau of Labor Statistics conducts (every two years) a study
of fringe benefits paid in private industry as compared to those
paid to employees of the Federal Government, It was decided to
use the applicable portions of this Bureau of Labor Statistics
publication as the basis for reflecting the cost to the Government
of paying various health and insurance program benefits. These
health and insurance program benefits, as set out in the latest
Bureau of Labor Statistics report, which include life, accident and
health insurance, and sick leave programs, amounted to 5.1 percent
of the basic hourly rate. This figure will be acceptable to the
Department of Labor for purposes of showing in the contract "state-
ment" the cost to the Government of these fringe benefits that
"would be paid" for service employees who would be paid pursuant to
5 United States Code 5341 if hired directly by the contracting
agency. This should be expressed in the contract "statement" as:
"Life, accident and health insurance, and sick leave programs, 5.1
percent of basic hourly rate."
A new Bureau of Labor Statistics survey comparing private and Federal
fringe benefits payments is now being made. It is expected that
this will be published about January 1, 1974. Any change in the
percentage (now 5.1 percent of the basic hourly rate) paid by the
Government for various health and insurance programs will be reflected
in a further memorandum to all contracting agencies.
With respect to holiday fringe benefits, those holidays provided by
law should be shown in the contract "statement" as:
1. New Year's Day
2. Washington's Birthday
3. Memorial Day
4. Independence Day
5. Labor Day
6. Columbus Day
7. Veterans Day
8. Thanksgiving Day
9. Christmas Day



3.
Vacations or paid leave provided by law should be shown in the
contract "statement" as:
1. 2 hours of annual leave each week for an employee
with less than three years of service.
2. 3 hours of annual leave each week for an employee
with three but less than fifteen years of service.
3. 4 hours of annual leave each week for an employee
with fifteen or more years of service.
By law the Federal Government is required to contribute 7 percent
of a Federal employee's base pay for retirement. Accordingly, it
will suffice for the contract "statement" to show only: "Retire-
ment, 7 percent of basic hourly rate."
CONTRACT STATEMENT
It would thus be appropriate to show in the contract "statement"
five separate pay components for those service employees whose
wages, if Federally employed, would be paid as provided in 5 United
States Code 5341:
1. The basic hourly rate that would be paid to Federal
wage board employees by the contracting agency.
2. The percentage (currently 5.1 percent) of the basic
hourly rate that would be paid for Federal wage
board employees by the contracting agency to cover
various health and insurance programs.
3. The paid holidays that would be given by law to
Federal wage board employees by the contracting
agency.
4. The amount of paid vacation that would be given
by law to Federal wage board employees.
5. The percentage (currently 7 percent by law) of the
basic hourly rate that would be contributed for
Federal wage board employees by the contracting
Agency for retirement.




STANDARD FORM 98
In submitting Standard Form 98 to the Department of Labor, only
the basic hourly wage rate that would be paid to comparable
wage board employees need be shown. It is unnecessary to include
fringe benefits as the Department of Labor will use the figures
set out herein for purposes of "due consideration." This in no
way affects the requirement to include such fringe benefits as
part of the contract "statement."
A revised Standard Form 98 is being prepared which will take into
account the recent amendments to the Service Contract Act and
simplify submission. This will be available in about 90 days.
Warren D. Landis
Assistant Administrator