EP 1180-1-1
1 Aug 01
When a WD is issued reflecting decreases in wage or benefit rates issued previously, a contract price
decrease is only warranted when the contractor voluntarily decreases the wages or benefits paid or
provided to the employees. WDs list minimum wage and benefit rates, and a contractor is not required to
decrease the wage or benefit of the employees in order to comply with a new WD. If a voluntary
decrease is made by the contractor, follow the same guideline as for an increase and reduce the contract
price.
c. Payroll taxes applicable to the wage adjustment. Employer payroll taxes which are calculated as a
percentage of wages paid (i.e., Social Security taxes, Federal or state unemployment taxes, and workers
compensation insurance) , are included in the wage differential calculation to the extent that these taxes
apply to the actual wage adjustment. Only the employer's share of the taxes is considered. In some
states, worker's compensation insurance (WCI) is expressed as an hourly rate and not a percentage of
wages. No adjustment would be allowable for such WCI inasmuch as the SCA wage increase would not
cause a related increase in the contractor's cost of WCI. No adjustment is allowed for tax rate increases.
However, the current tax rate applicable to the contractor for the time period being adjusted should be
used in computing the payroll tax portion of the adjustment.
(1) Social Security (FICA). If the FICA rate is scheduled to change during the period for which
adjustment is made, the adjustment should reflect both the current rate and the new rate. Estimate the
number of hours for each period and apply the applicable rate to determine the total FICA adjustment for
the period. As stated above, the appropriate FICA rate is adjusted only to the increase to wages, not the
total wage.
(2) Unemployment taxes. Federal Unemployment Taxes (FUT) and State Unemployment Taxes
(SUT) are not usually impacted by a WD revision. Unemployment taxes are paid by contractors on
wages up to a specific annual ceiling or cap. The current FUT rate of .8% is only paid on wages up to a
cap of ,000. SUT rates and caps may vary by state and by employer experience. Since annual
employee wages have usually exceeded the cap without regard to the new wage rates under revised
WDs, typically no additional FUT or SUT is required. Such taxes would not be allowable unless the
contractor documents their applicability to the wage increase. The contract price will not be adjusted
specifically for changes in the FUT or SUT rates. The CO verifies the applicable SUT tax rate by
contacting the contractor's state unemployment tax office, or requesting appropriate documentation (i.e.,
state-issued tax notices) from the contractor. If an adjustment is due, it is only for the SUT percent times
the wage rate differential.
9-5
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