Service Contract Act: Cheers to 2020 and Getting it Right!

Lately, we seem to be constantly reminded of the necessity of accurately identifying contracts which are (or should be) covered by the Service Contract Act (SCA) (aka Service Labor Contract Standards (SCLS)) and the subsequent labor category mapping.  Unfortunately, these reminders tend to come at quite a cost, not only financially but also as an extreme burden on your staff.  With this in mind, we decided to share some common issues and suggestions, in hopes of encouraging you to kick off the New Year with a resolution to be proactive in your compliance efforts.

Scenario #1

You receive a solicitation with work to be performed by predominantly non-exempt labor but surprisingly, there’s no mention of SCA (FAR 52.222-41) and no Wage Determinations (WDs) are included.  What do you do? Likely, you celebrate with another glass of champagne…but NO, this is not what we suggest. Instead, ask the question (inquire with the prime, if you’re the sub, or with the Contracting Officer, if you’re the prime) as to whether this contract will be covered by SCA, and keep all documentation related to your inquiry and any response received. This documentation may assist you in a successful Request for Equitable Adjustment if the Department of Labor (DOL) later determines that the contract should have been covered by SCA and retroactively modifies the contract accordingly (and finding that you owe back wages pursuant to this modification).

FACT:  The SCA is applicable to every contract entered into by the US or District of Columbia for which the principal purpose of which is to furnish services to the US through the use of service employees. (We note that there are some very limited exceptions.)

What Does “Principal Purpose” Mean?

This is a great question and unfortunately, there is not a definitive answer.  Certainly not one that seems reasonable, as the word “principal” usually makes us think of what’s of greatest importance or perhaps the majority (over 50%) of the work.   However, pursuant to various cases and DOL, the unwritten rule of thumb is that if between 10 – 20% of the contract workforce would qualify as “service employees,” DOL’s Wage and Hour Division looks at the “totality of contract circumstances” to determine whether the contract is covered by SCA.  When considering the percentage of work to be performed by service employees, we suggest contemplating not only the number of service employees to be employed but also the contract value for the work to be performed by those individuals.

Who is a “Service Employee”?

A service employee is defined by the regulation as “…any person engaged in performance of contract, except employees who qualify for exemption as bona fide executive, administrative or professional employees under the Fair Labor Standards Act (FLSA) (29 C.F.R. Part 541)."  So, bottom line, service employees are your non-exempt employees performing work on the covered contract. 

Scenario #2:

You are awarded a contract and begin the process of determining or confirming the appropriate SCA labor categories as found on the Wage Determination (WD). This is understandably a confusing process.   After all, you have contract labor category titles, perhaps you have proposed SCA labor categories and you likely have internal job titles as well.  It makes sense to consider those titles and then find the title that sounds like the closest match to those on the WD, right?  Unfortunately, that’s probably not the best approach! 

FACT:  The duties which an employee actually performs govern the classification and the rate of pay to which the employee is entitled under the applicable wage determination. (29 Part 4.152(b)).  Except in extremely rare circumstances, it is the responsibility of the contractor, not the contracting agency, to classify service employees.

What’s a Good Process for Classifying Service Employees?

The first step is determining who your service employees are (i.e. who is performing work on the contract and is non-exempt per FLSA?).  The next step is gaining a very clear understanding of the duties being performed.  For obvious reasons, you want to have a good idea of the anticipated duties during the solicitation phase.  Once awarded, confirmation of the duties will likely involve conversations with direct supervisors and potentially the employees themselves.  Once there’s a clear understanding of the duties, reference the SCA Directory of Occupations where you will find a summary of all positions listed on the WD.  Careful consideration of these descriptions will assist in appropriate labor category mapping.  

Scenario #3:

You are awarded a contract and several of your positions are not listed on the Wage Determination.  What do you do?  Unfortunately, we often see that contractors consider these employees to be non-service employees and treat them as exempt personnel.  Instead, we encourage you to be diligent in the process of determining if they are service employees.  Do they truly meet the exemption criteria as described in the FLSA?  If not, you need to consider the conformance process.  We have recent experience with a client who made good faith efforts to accurately classify several positions as exempt, only to be informed by DOL that, in their opinion, the employees did not meet the duties test and are therefore service employees - retroactively to the start of the contract.  Several years of efforts resulted in approved conformances and over $15 million in back-wages due to these employees.

FACT:  Any class of service employee not listed in the wage determination must be classified by the contractor to provide a reasonable relationship (i.e. appropriate level of skill comparison) between the unlisted classifications and the classifications listed in the wage determination.

How Does a Conformance Work?

This is a process!  It is initiated by the contractor, submitted to the contracting officer and then provided to the Wage and Hour Division of DOL. The contractor identifies and describes the duties of the position along with a suggested rate of pay to align with the applicable WD/s.  DOL makes the decision as to if the position is approved and thus added to the WD. As you would imagine, there are certain expectations and guidelines of DOL to consider when conforming a position.  If you are in need of a conformance, we suggest you research this thoroughly or seek assistance. We are happy to help!

Based on the above scenarios and many others we have encountered, we strongly encourage you to kick-off this new decade with proactive steps toward SCA compliance.  Here are a few suggestions to get you started:

• Review your contracts and be diligent in evaluating solicitations so that you know whether the SCA applies at the time you submit your bid.
• Examine your GSA Schedules, keeping in mind that DOL has been busy reviewing GSA Schedule solicitations over the last few years, resulting in a slew of Refresh Modifications and a push to remind and educate contractors and contracting officers that SCA does apply to GSA Schedules.
• Assess your employees’ duties to ensure they are correctly classified per FLSA, especially in light of the updated salary threshold.
• Ensure that the benefits being provided to SCA employees to meet the Health and Welfare requirements are bona fide.
• Ensure you are providing the requisite amount of vacation, holidays and sick leave (if Executive Order 13706 applies) to your SCA employees.
• Review your policies, recordkeeping and notices relevant to SCA.

As always, our team of experts is here to assist and offer guidance.  We wish you a happy and prosperous 2020!