Does the Service Contract Act Apply to Your Company and Are You Compliant?

What is the Service Contract Labor Standards (SCLS)?

The McNamara-O’Hara Service Contract Act (41 U.S.C. §§ 351-358) (SCA) requires contractors and subcontractors performing services on prime contracts in excess of $2,500 to provide service employees certain minimum wage and fringe benefits when performing work on those awarded federal service contracts. The Department of Labor is responsible for enforcing SCLS.

When Does It Apply?

It applies to federal service contracts > $2,500 that are performed in the U.S., its territories and possessions as defined in the Act.

When Does It Not Apply (Exemptions)?

The SCA does not apply to certain types of contract services, generally including these exclusions:

• Construction, alteration, or repair, including painting and decorating of public buildings or public works (these fall under the Davis-Bacon Act);
• Work required in accordance with the provisions of the Walsh-Healey Public Contracts Act;
• Transporting freight or personnel where published tariff rates are in effect
• Furnishing services by radio, telephone, telegraph, or cable companies subject to the Communications Act of 1934;
• Public utility services;
• Employment regarding direct services to a federal agency by an individual or individuals;
• Operating postal contract stations for the U.S. Postal Service;
• Services performed outside the U.S. (except in territories administered by the U.S., as defined in the Act); and
• Any services subject to administrative exemptions granted by the Secretary of Labor in special circumstances because of the public interest or to avoid serious impairment of government business.

Does the Service Contract Act Apply to Your Company’s RFP/Contract?

Review the Federal Government RFP or Prime/Subcontract for incorporation of either of the following clauses:

• FAR 52.222-41
• 29 CFR Part 4, Section 4.6

Who is Covered Under SCA?

All service employees performing work on the covered contract, to include full-time, part-time, temporary, occasional (non-SCA-dedicated), and subcontractor employees are covered under SCA unless they meet a qualified exemption.

Who is NOT Covered Under SCA?

A service employee does not include persons employed in a bona fide executive, administrative or professional capacity as defined by the Fair Labor Standards Act in 29 CFR Part 541. Job titles alone do not make the determination of exemption and it is imperative to consider both the salary and duty requirements as set forth in the regulations.

Wage Determination Process and Labor Classification

• Wage Determinations (WD) – The Department of Labor issues WDs by geographic location. WDs include minimum wages, health and welfare, fringe benefits (i.e., vacation, holiday, sick) requirements. WD rates are based on prevailing wages in each locality or may be based on a collective bargaining agreement. When either of the above SCA clauses are included in the contract, make sure the applicable WD document(s) are attached or the WD numbers are incorporated by reference. Contractors SHOULD NOT obtain the WDs on their own, unless the WD has been provided by the ACO. The SCA requires Department of Labor to issue a WD if there are more than five service employees employed on the service contract. WDs are revised frequently. Typically, a new WD is to be modified into the contract upon Option Year, or in rare situations at least every two years.
• Identify service employees covered by SCA- Carefully consider FLSA exemption requirements when eliminating those who qualify for the executive, administrative, professional, or computer professional exemptions as defined by 29 CFR Part 541.
• Map SCA positions to the Directory of Occupations - Ensure SCA-covered contract labor categories are correctly mapped to those defined in the Department of Labor’s Directory of Occupations. Mapping should be based on duties to be performed rather than simply considering titles. The conformance process may be used to request DOL to add a new position to the WD if the work to be performed is not represented appropriately on the WD. (Conformance - If the WD does not list a “service employee” classification (labor category) required to perform the work on the contract, the awarded contractor must obtain DOL approval to add a new classification and have it incorporated into the contract.)

SCA Requirements, Ensure:

• Wage - Each SCA employee receives the correct hourly wage amount as listed on the applicable WD for the employee’s SCA labor category.
• Vacation - Each SCA employee receives the correct amount of vacation as stated on the applicable WD based on length of service. Length of service includes the whole span of continuous service with the present contractor or successor, wherever employed, and with the predecessor contractors in the performance of similar work.
• Holidays - Each SCA employee receives the correct amount of holidays as stated on the applicable WD. The WD lists the specific holidays each employee is entitled to receive, but a contractor may substitute for any of the named holidays another day off with pay in accordance with a plan communicated to the service employees involved. Be sure to have a plan in place that addresses the holiday policy regarding part-time employees with regular and irregular schedules. Part-time employees should receive a pro-rated share of holiday if work hour requirements are met.
• EO 13706 Paid Sick Leave - Each employee performing work on or in connection with the contract, to include service employees and those exempt from SCA coverage, are to receive up to 56 hours per year in Paid Sick Leave. This may be provided utilizing an accrual method of one hour for every 30 hours worked or as lump sum. Refer to EO 13706 for specifics.
• Health and Welfare (H&W) - Each SCA employee receives the correct hourly H&W amount as stated on the applicable WD. H&W may be provided as bona fide benefits as defined by the Act and/or as cash-in-lieu (if providing as cash-in-lieu, it must be identified as such separately on the pay stub).Complying with the H&W requirement is the most complicated of the four SCA requirements. Odd-numbered WDs require a contractor to use a fixed calculation with H&W to be provided on all hours paid each week (work time and paid leave time) up to a maximum of 40 hours each week. Even-numbered WDs require a contractor to use an average calculation with H&W to be provided on all hours worked each week, to include overtime but excluding paid leave (i.e., holiday, vacation, sick).

Most contractors believe they have very healthy and sufficient benefit plans that automatically meet the requirements of SCA, but employers need to ensure their H&W meets the “bona-fide” benefit definitions and meets or exceeds the monetary requirements. If a benefit is provided for the contractor’s convenience (incentive awards, relocation, etc.....), it does not qualify as H&W. Medical insurance premiums typically make up the largest component of an employer’s H&W, and if an employee “opts out” of the coverage, employers will likely not meet the l H&W requirements.

How to Ensure Compliance

Compliance is ongoing, beginning with the proposal phase and throughout the life of the contract! Prime contractors should ensure that you:

• Flow-down the SCA clause(s) to all applicable service subcontractors.
• Communicate with SCA employees, making certain they understand company policies and benefits.
• Maintain all required SCA employee documentation.
• Maintain compliant and accurate records pertaining to the calculation of H&W