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Service Contract Act – Frequent Asked Questions (FAQ)

Service Contract Act (SCA) – Frequently Asked Questions

Understand the basics of the Service Contract Act, managing compliant contracts and how to support SCA covered employees.

 

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Answer a few questions to see if you are correctly and efficiently handling your SCA employees.

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What Is the Service Contract Act (SCA)?

The SCA applies to contracts entered into by federal government and District of Columbia agencies in which the principal purpose of the contract is to furnish services in the U.S. through the use of service employees. The definition of "service employee" includes any employee engaged in performing services on a covered contract other than a bona fide executive, administrative or professional employee who meets the exemption criteria set forth in 29 C.F.R. §541 .

Service Contract Act (SCA) requirements outline how contractors and subcontractors performing services on prime contracts more than $2,500 must pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor's collective bargaining agreement. The DOL issues wage determinations on a contract-by-contract basis in response to specific requests from contracting agencies. These determinations are incorporated into the contract.

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For contracts equal to or less than $2,500, contractors are required to pay the current federal minimum wage and overtime pay for all hours worked over 40 in a workweek as provided in the Fair Labor Standards Act (FLSA) and the Contract Work Hours and Safety Standards Act (CWHSSA). The SCA provides covered service workers on federal service contracts the right to receive at least the locally prevailing wage rate and fringe benefits, as determined by the DOL, for the type of work performed.

Employers must notify employees working in connection with the contract of the compensation due them under the wage and fringe benefits provisions of the contract.

Learn More: What Is the Service Contract Act (SCA) - What You Need to Know

Where can you find other information on Service Contract Act (SCA) requirements and regulations?

The actual text of the SCA and the regulations implementing it can be found at:

  • SCA -Requires payment of prevailing wage rates and fringe benefits to service employees employed on contracts to provide services to the federal government.
  • 29 C.F.R. §4 -Regulations describing the labor standards for federal service contracts.
  • 29 C.F.R. §6 -Regulations describing the rules of practice for administrative proceedings enforcing labor standards in federal and federally assisted construction contracts and federal service contracts.
  • 29 C.F.R. §8 -Regulations describing practice before the Administrative Review Board regarding federal service contracts.

Who is exempt from the Service Contract Act (SCA)?

The SCA does not apply to certain types of contractual services. These statutory exemptions include:

  • Contracts for construction, alteration, and/or repair of public buildings or public works, including painting and decorating (those covered by the Davis-Bacon Act).
  • Work required in accordance with the provisions of the Walsh-Healey Public Contracts Act.
  • Contracts for transporting freight or personnel where published tariff rates are in effect.
  • Contracts for furnishing services by radio, telephone, telegraph, or cable companies subject to the Communications Act of 1934.
  • Contracts for public utility services.
  • Employment contracts providing for direct services to a federal agency by an individual.
  • Contracts with the United States Postal Service, the principal purpose of which is the operation of postal contract stations.
  • Services performed outside the U.S. (except in territories administered by the U.S., as defined in the Act).
  • Contracts administratively exempted by the Secretary of Labor in special circumstances because of the public interest or to avoid serious impairment of government business."

What occupations are covered under the Service Contract Act (SCA) contract?

DOL maintains a list of all the occupations covered under the SCA. The SCA Directory of Occupations provides the occupational titles and describes the scope of duties for each occupation listed. It is available by use of a link on the WDOL website . Each SCA-covered employee assigned to a contract must be mapped to the appropriate SCA occupation based on their duties.

Where can you find information on SCA Contract Wage Determination?

SCA Contract Wage Determination Frequently Asked QuestionsThe U.S. Government's Wage Determinations website provides a single location for federal contracting officers to use in obtaining appropriate SCA and Davis-Bacon Act (DBA) wage determinations for each official contract action.

If a contracting officer cannot obtain an appropriate SCA wage determination within the Wage Determinations database for use in an official contract action, the contracting officer must request an official SCA wage determinations from the DOL by completing Form 98 . Most requests are processed immediately. Some requests will require research, and the DOL may need additional time to respond. See SCA Conformances and Frequently Asked Questions Pertaining to the Issuance of Wage Determinations .

The DOL provides an automated method of accurately calculating SCA price adjustments that are specifically designed to streamline the price adjustment process and timeline. The application is called Price Adjustment Calculation Tool (PACT) . "It consists of a format for contractors to submit their price adjustment proposals (the CSF) and a government component that calculates and helps contract specialists to analyze the proposals for accuracy, allowability and consistency." PACT is an award-winning streamlined program developed by the Navy and implemented on WDOL through the Integrated Acquisition Environment; an e-business initiative under the Office of Management and Budget. Naval Research Laboratories has filed a patent application (publication number: 2010-0179898) and all rights are delegated to the Secretary of the Navy.

The SCA, like the FLSA, allows an employer to pay employees who have disabilities for the work to be performed a special minimum wage less than the prevailing wage required by the wage determination. Regulation 29 C.F.R. §4.6(o) instructs the employer to follow the same "conditions and procedures" required for the employment of workers with disabilities under §14(c) of the FLSA. However, this exception is from the prevailing wage only.

Employers are still required to pay service employees who have disabilities the full fringe benefits, or the equivalent dollar cash payment in lieu of providing the benefits, for the work performed. See Fact Sheet #39F: The Payment of Special Minimum Wages to Workers with Disabilities Who Are Employed on Federal Service Contracts Subject to the McNamara-O'Hara Service Contract Act

What wage rates must be paid to SCA contract employees?

Every service employee performing any of the contract work under a service contract in excess of $2,500 must be paid not less than the monetary wages and be furnished the fringe benefits which the Secretary of Labor has determined to be prevailing in the locality for the classification of work being performed, or the wage rates and fringe benefits (including any accrued or prospective wage rates and fringe benefits) contained in a predecessor contractor's collective bargaining agreement. The wage rates and fringe benefits required will be specified in the SCA wage determination included in the contract. If no wage determination has been made applicable to the contract, employees performing work under the contract must be paid not less than the minimum wage provided in section 6(a)(1) of the Fair Labor Standards Act (FLSA).

Service contracts that do not exceed $2,500 are not subject to wage and fringe benefit determinations or to the safety and health requirements of the SCA. However, the SCA does require that employees performing work on such contracts be paid not less than the minimum wage rate provided by section 6(a)(1) of the Fair Labor Standards Act.

What is the difference between an SCA Even and Odd Wage Determination?

The Department of Labor (DOL) issues two wage determinations for each locality that are identical except for compliance with fringe benefit requirements.

  • The even-numbered wage determination requires the contract to have a fringe benefit plan requiring compliance on an "average cost" basis. This allows the contractor to comply with the wage based on the average cost of their fringe benefit plan when calculated on the entire service employee workforce. This calculation is based on total hours worked (including overtime hours, excluding paid time off or PTO such as holidays and vacation) by all employees.
  • The odd-numbered wage determination requires the contractor to satisfy the fringe benefit requirements on a "per employee" basis and compliance must be calculated using all hours paid (including paid time off or PTO, excluding overtime hours). The contractor must meet the minimum fringe benefit requirement for each individual employee and is not allowed to average their fringe benefit cost over the entire workforce.

You can find a more detailed history and explanation of these two fringe benefit methodologies by reviewing Department of Labor's All Agency Memoranda #188 and #197. If the "average cost" WD was used under the previous contract period, DOL rules require its continued use under 29 CFR 4.52 .

What are H&W Fringe Benefits? What's included in the SCA contract Health and Welfare Benefits?

Full time SCA covered employees are provided with a base SCA health and welfare (H&W) benefits plan consisting of employee only medical, basic life and disability, and some other ancillary benefits such as dental or vision. This base plan is paid for entirely out of the employer's required hourly contribution per the wage determination.

How do you determine  which SCA contract Health & Welfare rate applies?

The rate that will be applicable to the lion's share of contracts is the $4.80 rate (for 2022). This is because many contracts have been awarded, extended or options exercised since the sick leave requirements of EO 13706 went into effect for new awards, options, etc. on or after January 1, 2017. The lower rate, $4.41 is intended to give employers credit for providing the mandated sick leave, which they previously were able to take credit to satisfy the H&W requirement.

Bear in mind that all WDs list both H&W rates and make reference to the EO 13706 sick leave mandate. So don't just look at your WD-read your contract. The sick leave mandate only applies if the contract contains FAR Clause 52.222-62 Paid Sick Leave Under Executive Order 13706 . If that clause is not in your original contract or it hasn't been added in a later contract modification, you're not required to provide paid sick leave and the $4.80 rate will apply.

How should SCA contracts handle vacation leave for SCA covered employees?

Vacation Leave for SCA Covered EmployeesBesides the hourly base wage and the additional H&W component, SCA employees also earn annual vacation benefits in an amount determined by the applicable WD. The WD lists the amount of vacation that must be provided to SCA employees. The amount of vacation earned each year increases based on the length of time a SCA employee has been employed on the contract (without any breaks in service). This will include the time they were employed with previous contractors performing similar functions at the same facility. According to the DOL, this "does not require the contractor to combine two separate periods of employment…Generally, no break in service has occurred if the employee is on leave with or without pay, absent with the employer's permission for reasons such as illness or injury, or is not performing work due to circumstances beyond their control."

Vacation is vested and becomes due at the employee's anniversary date on the SCA contract. Once vacation time is vested, employees may use it. Any unused, vested vacation balance must be paid out to the employee by whichever occurs first:

  • The next anniversary date;
  • The completion of the contract; or
  • The employee terminates employment.

For part-time employees, SCA vacation benefits are earned but pro-rated based on the hours that they actually work. For example, if they work 20 hours out of 40 hours, part-time employees will only receive half of the amount of vacation indicated in the WD.

Under the "fixed cost" benefit requirements (i.e., odd-numbered wage determinations), any time an employee uses vacation leave, they must be paid H&W on those vacation hours, if it does not exceed the H&W maximum of up to 40 hours in a work week. By contrast, under the "Average Cost" benefit requirements (i.e., even-numbered wage determinations), employees do not earn H&W dollars on vacation hours that they utilize. Note however, that H&W dollars are not earned on either contract type when the employer is simply paying out any unused, vested vacation balance for one of the reasons listed above (i.e., next anniversary, completion of contract, or employment termination).

How should SCA contracts handle sick leave for employees?

In accordance with 29 CFR 13 , and by operation of the FAR clause 52.222-62 , Paid Sick Leave Under Executive Order 13706, the following contractor requirements apply.

Sick Leave Accrual.

  • Contractors are required to permit an employee to accrue not less than 1 hour of paid sick leave for every 30 hours worked on or in connection with a contract covered by the E.O.
  • Contractors are required to inform each employee, in writing, of the amount of paid sick leave the employee has accrued but not used no less than once each pay period or each month, whichever interval is shorter, as well as upon a separation from employment and upon reinstatement of paid sick leave.
  • Contractors may choose to provide employees with at least 56 hours of paid sick leave at the beginning of each accrual year rather than allowing the employee to accrue such leave based on hours worked over time.

Maximum Accrual Limits

  • Contractors may limit the amount of paid sick leave employees are permitted to accrue to not less than 56 hours in each accrual year.
  • Paid sick leave shall carry over from one accrual year to the next. Paid sick leave carried over from the previous accrual year shall not count toward any limit the contractor sets on annual accrual.
  • Contractors may limit the amount of paid sick leave an employee is permitted to have available for use at any point to not less than 56 hours
  • Contractors are required to reinstate paid sick leave for employees only when rehired by the same contractor within 12 months after a job separation.
  • Nothing in E.O. 13706 or 29 CFR Part 13 requires contractors to make a financial payment to an employee for accrued paid sick leave that has not been used upon a separation from employment. If a contractor nevertheless makes such a payment in an amount equal to or greater than the value of the pay and benefits the employee would have received had the employee used the paid sick leave, the contractor is relieved of the obligation to reinstate an employee's accrued paid sick leave upon rehiring the employee within 12 months of the separation.

Using Sick Leave .

  • Contractors are required to permit an employee to use paid sick leave.

Request for Paid Sick Leave.

  • Contractors are required to permit an employee to use any or all the employee's available paid sick leave upon the oral or written request of an employee that includes information sufficient to inform the contractor that the employee is seeking to be absent from work and, to the extent reasonably feasible, the anticipated duration of the leave.

Certification or documentation for leave of 3 or more consecutive full workdays.

  • Contractors may require certification issued by a health care provider to verify the need for paid sick leave used or documentation from an appropriate individual or organization to verify the need for paid sick leave, only if the employee is absent for 3 or more consecutive full workdays.

Complying with SCA Contracts - What are the SCA Record-Keeping Requirements?

Each contractor and subcontractor performing work subject to the SCA must maintain certain records for each employee performing work on the covered contract. The following is a list of the basic records that must be maintained for three years from completion of the work:

  • Name, address, and Social Security number of each employee.
  • The correct work classifications, wage rates and fringe benefits provided (or the equivalent SCA cash-in-lieu payments provided instead of fringe benefits).
  • The total daily and weekly compensation of each employee.
  • The number of daily and weekly hours worked by each employee.
  • Any deductions, rebates, or refunds from each employee's compensation.
  • Any list of a predecessor contractor's employees showing employees' length of service information.

See 29 C.F.R. §4.6(g) and 29 C.F.R. §4.185 for further information.

Some of the records required to be kept under this law are also required under the FLSA. See Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards.

Who enforces the Service Contract Act (SCA) requirements?

SCA Compliance Enforced by Dept of LaborThe Secretary of Labor is tasked with enforcing the provision of the SCA by issuing regulations, orders, conducting hearings, deciding disputes, and taking other action as appropriate. SCA Wage determinations are specific to each contract. The Department of Labor has made many regulations implementing the SCA into practice.

What happens if a contractor violates the SCA requirements?

The Wage and Hour Division conducts investigations of contractors to ascertain compliance with the SCA. The SCA provides authority to withhold contract funds to reimburse underpaid employees, terminate the contract, hold the contractor liable for associated costs to the government, and debar from future government contracts for a period of three years any persons or firms who have violated the SCA.

Learn More: Complying with SCA Contracts

What are typical problems contractors have complying with SCA contracts?

  • Underpayment of service workers due to misclassification.
  • Erroneously considering workers exempt without regard to 29 C.F.R. Part 541 rules.
  • Failure to make timely payment of wages or fringe benefit contributions. (Lack of proper recordkeeping when cash payments are made to satisfy fringe benefit requirements.)
  • Failure to notify service employees of the applicable wage and fringe benefit requirements, or failure to post the "Notice to Employees Working on Government Contracts" at a prominent and accessible place at the worksite.
  • Failure to segregate and keep records on hours spent on contract work and non-contract work for employees who do both.
  • Failure to implement rate increases (if any) in a new wage determination in a multi-year contract subject to annual appropriations.

Learn More: Common Service Contract Act (SCA) Compliance Problems and Solutions

Additional Resources for McNamara-O'Hara Service Contract Act (SCA)

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