Best Practices for Accurate & Compliant Health and Welfare Management

Lindsey Karkos
Jun 3
3 min read

Updated: Jun 5

A team reviewing a Health and Welfare checklist

If you're managing Health & Welfare (H&W) manually under SCA or DBA contracts, the stakes are high. Every hour worked can shift the fringe amount owed—and even small missteps can lead to compliance issues or financial losses.

To support your process, we’ve outlined essential best practices to help ensure accuracy, consistency, and audit readiness—especially in fully manual environments!

Calculate Health & Welfare Every Payroll Cycle

Why? H&W fringe benefits are earned per hour worked, so they fluctuate each payroll cycle based on actual labor.

Even a small timesheet adjustment—like an extra hour on a covered contract—can change the amount owed.

Best Practice:

Weekly / Biweekly Payroll: Calculate H&W with each payroll run to match employee hours accurately.
Semi-Monthly/Monthly Payroll: Be extra careful. Longer pay periods mean more room for discrepancies. Fewer calculations increase the risk of having to make retroactive adjustments.

Compliance Benefit:

Keeping alert and proactive prevents underpayment or overpayment that could lead to DOL audits or penalties.

Use a Detailed Hours-to-Contract Mapping Sheet

Why? Employees often work across multiple labor categories with different H&W rates or benefit applications. A simple summary sheet can miss these variations.

Best Practice:

Create a granular mapping document that shows:

Job Classification
Contract number
Applicable wage determination
H&W Rate
Total hours per project/labor code

Compliance Benefit:

This approach helps make reconciliation easier and provides a clean audit trail if your numbers are ever reviewed.

Prorate Fringe Benefits when Hours are Split

Why? When employees split their hours between covered and non-covered work, or multiple contracts, you must prorate the H&W amount accordingly. This is often where manual errors creep in.

Best Practice:

Use consistent formulas for proration.
Cross-check against labor distribution reports or timesheets.
Round carefully—avoid rounding in favor of the employer or employee to remain compliant.

Track Cash-in-Lieu Separately

Why? Not every employee opts into a benefit plan. If H&W is paid as cash-in-lieu, it becomes taxable income and must be calculated and reported correctly.

Best Practice:

Use a dedicated payroll code for H&W cash payouts.
Keep a separate ledger to compare benefit eligibility vs. participation.
Reconcile quarterly to catch and inconsistencies before year-end.

Reconcile H&W Benefit Costs vs. Obligations

Why? If you’re applying H&W through bona fide benefits, you must ensure that the value of those benefits meets or exceeds the required fringe rate.

Best Practice:

Review plan invoices monthly
Match per-employee benefit value to required fringe amount
Track shortfalls or overages and adjust future contributions or cash payments accordingly.

Keep Records Organized and Audit-Ready

Why? DOL Audits often go back two years or more, you may need to show how H&W was calculated, applied, and reconciled.

Best Practice:

Retain all wage determinations tied to contract numbers.
Store fringe benefit calculation worksheets for each payroll cycle.
Document cash-in-lieu approvals and benefit waivers for each employee.

If you're managing H&W manually, following these steps can help reduce compliance risk and build confidence in your payroll process.

However, it's important to recognize that as your contract volume or workforce grows, these manual processes can become increasingly time-consuming and error-prone.