Service Contract Labor Standards and Davis-Bacon Act
Government contractors are subject to many rules and regulations, and many contractors don’t always pay attention to the labor standards requirements incorporated into their contracts. Employers often worry about ensuring employees are properly being paid overtime and classified as exempt or non-exempt, but is your company really paying the appropriate pay rate and benefits that may be part of your contracts? Odds are if your company is performing services under a federally funded government contract, the Service Contract Labor Standards (SCLS), Davis Bacon Act (DBA), and/or Collective Bargaining Agreements (CBA) are likely part of your contracts.
Service Contract Labor Standards
SCLS (formerly The McNamara–O'Hara Service Contract Act of 1965 (SCA)), requires general contractors and subcontractors performing services on prime contracts in excess of $2,500 to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality as determined by the U.S. Department of Labor (DOL), or the rates contained in a predecessor contractor's collective bargaining agreement. This is also known as the prevailing wage. The agency responsible for collecting and disseminating the prevailing wage data is the Wage and Hour Division (WHD) of DOL.
The government is required to pass the SCLS clause down to contractors and the prime contractor is responsible for ensuring it is passed down to it’s subcontractors. Contractors should not obtain the wages determinations (WD) on their own, contracting officers are required to incorporate the appropriate WD(s) into the contract, and prime contractors are required to incorporate them into their respective subcontracts. However, the burden of responsibility rests with the prime and subcontractor for the administration and compliance of properly paying employees, tracking data, and reporting. If the government initially failed to incorporate the SCA into a contract, but the work falls within the scope of the SCA, the DOL can retroactively incorporate the SCA into a contract and force the contractor to pay any shortfall in wages and benefits. If you think your contract should be subject to SCA, talk with your contracting officer or prime contractor.
The Davis–Bacon Act of 1931 is a U.S. federal law which established the requirement for paying the local prevailing wages on public works projects for laborers and mechanics. It applies to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for construction, alteration, or repair (including painting and decorating) of public buildings or public works.
The Act covers four main areas of construction: residential, heavy, buildings, and highway. Within these areas are further classifications, including craft positions such as plumber, carpenter, cement mason/concrete finisher, electrician, insulator, laborer, lather, painter, power equipment operator, roofer, sheet metal worker, truck driver, and welder.
Employers must maintain accurate records regarding hours worked and bona fide benefits provided to employees, such as medical, dental, vison and vacation or their cash equivalents. DBA does not require that health and welfare be separated from pay rate.
How to Determine Which Employees are Subject to SCA and DBA
Part-time, full-time, temporary and independent contractors are all subject to SCA and DBA requirements. It is the contractor’s responsibility to properly map contract labor categories to the appropriate labor classification in the respective contract wage determination (WD). DBA employees are paid based work performed (i.e. painting, plumbing, etc.). Contractors should do the following to ensure they have determined employees are properly categorized:
- Match the Statement of Work (SOW) actual job duties with SCA Directory of Occupations – don’t rely on job descriptions alone;
- Map internal labor positions to the SCA determined labor position;
- If position does not map to WD, then position must be conformed as follows:
- Employers must propose rates “reasonable relationship” to WD rates;
- General Schedule (GS) rates are often used to help determine and support proposed rates (rates can be obtained from Office of Personnel Management (OPM) or the Wage Grade (WG, WL and WS) from DOD);
- Must provide job description, federal wage rate equivalent and proposed rate rationale;
- Employer prepares SF 1444 form and submits to contracting officer no later than 30 days after affected employees begin work;
- Contracting Officer reviews, makes recommendation and submits to DOL
- Employer should pay affected employees at proposed rate until approval or disapproval from DOL;
- If DOL disapproves rate, employer must provide back pay based on DOL’s determination of labor category;
- DBA covers apprentices, helpers and guards/watchmen (when the contract is covered by the Contract Work Hours and Safety Standards Act (CWHSSA)).
Common Mistakes that Lead to Audit Findings
- Failing to pay accurate prevailing wages, including fringe benefits;
- Inadequate recordkeeping, such as not counting all hours worked or not recording hours worked by an individual in two or more classifications during a day;
- Failing to submit certified payrolls weekly;
- Not posting the applicable posters and wage determination at a prominent and accessible place at the worksite;
- Not separating the Health & Welfare fringe amount from the prevailing wage on the employees’ pay stub (SCA only);
- Misclassifying SCA employees as independent contractors or as salaried, exempt
(and therefore SCA exempt);
- Not paying required vacation and holiday pay or calculating it incorrectly; and
- Failing to implement wage or fringe increases of newly revised wage determinations.
Contractors who violate the SCA and DBA are required to make aggrieved employees “whole,” which can include back payments for unpaid (or underpaid) wages and fringe benefits. Other possible penalties include:
- Civil penalties;
- Withholding contract payments on active federal contracts;
- Contract termination and subsequent payment for any government reprocurement costs;
- Personal liability assessed against company officials;
- Debarment of the company from all government contracts for up to three years;
- False Claims Act Liability
SCA vs DBA Comparison
SCA and DBA can apply to the same contract and labor descriptions may be similar. SCA work is typically defined as something that is routine or regular maintenance. Examples include: custodial service, HVAC routine maintenance, and snow removal. DBA work is typically a one-time repair; something is broken, construction, restoration, alteration or replacement. Examples include: structural repair of buildings, remodeling, road work, or painting.
Recent Changes that Contractors Should Review
Contractors should also take note that in May 2016, the DOL changed the minimum salary for an employee to be considered “exempt” to $913 per week, starting on December 1, 2016, which equates to $47,476 per year for a full-time worker. That’s a little more than double the current amount. Anyone who earns less than $913 per week will no longer qualify for the Executive, Administrative or Professional exemption starting December. DOL estimates that 5 million workers will be affected acts. Additionally, under the so-called Fair Pay and Safe Workplace Executive Order (13373), contractors who violate the SCA or DBA could be required to disclose those violations when bidding on Government solicitations (note: this EO is currently under legal challenge in Federal District Court in Texas).