Title: Service Contract Act (SCA) in Unanet - A Deeper Dive
The content below is designed to accompany this separate page which outlines how to handle SCA in Unanet (click here for information on how to configure SCA in Unanet).
What’s covered in this document:
What is the Service Contract Act (SCA)?
The Service Contract as was enacted in 1965 in an attempt to “level the playing field” for companies with collective bargaining agreements. Those firms complained that while they had to pay their CBA rates and benefits, non-union firms could pay less and hire workers with no benefits, giving them the ability to perform on government contracts at a much lower cost. Union firms maintained they could not win against non-union companies unless the competing firms were forced to pay rates and benefits comparable to those of their CBAs.
The resulting statute requires the federal government to make a determination on every contract involving services (even if services is only a portion of the contract) as to whether the “primary purpose of the contract is the furnishing of services.” The Department of Labor is charged with making that determination based on information furnished by the contracting officer. When the determination is affirmative, the SCA clause of the Federal Acquisition Regulation (FAR), FAR 52.222-41, must be included in the contract and the contracting officer is required to provide a Wage Determination (WD) as a part of the contract.
The underlined portions of the last sentence are because they are critical to compliance.
The SCA clause is NOT a Christine Doctrine clause. It will not be “read into a contract” if it has been omitted – whether that omission is deliberate or inadvertent. Further, even if the clause is in the contract, it does NOTHING unless and until there is a WD incorporated into the contract to specify the rates to be paid and the benefits to be provided. A WD cannot be incorporated by reference nor is it the contractor’s responsibility to search one out, obtain one or determine which one might be appropriate. That is the responsibility of the contracting officer and the contracting officer alone.
On its Wage Determinations Online webpage, the Department of Labor cautions contractors to that effect with the following banner:
“Users should note that the only WDs applicable to a particular solicitation or contract are those that have been incorporated by the contracting officer in that contract action.”
Once incorporated into the contract, the WD applies until it is superseded by another WD. It does not “update automatically” nor is it the responsibility of the contractor to obtain a current WD no matter how old the one in the contract becomes.
- The contract is subject to the SCA only if the clause is included in the contract.
- The contractor has NO obligations under the SCA until a WD has been incorporated into the contract.
- The WD must be provided in the contract in full text. It cannot be incorporated by reference.
- The contractor must pay the rates and provide the benefits in the WD once it has been incorporated into the contract until it is superseded by a new one by contract mod.
The McNamara-O’Hara Service Contract Act requires 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, or the rates (including prospective increases) contained in a predecessor contractor's collective bargaining agreement. The Department of Labor issues WDs on a contract-by-contract basis in response to specific requests from contracting agencies. These determinations are incorporated into the contract.
For contracts equal to or less than $2,500, contractors are required to pay the federal minimum wage as provided in Section 6(a)(1) of the Fair Labor Standards Act.
For prime contracts in excess of $100,000, contractors and subcontractors must also, under the provisions of the Contract Work Hours and Safety Standards Act, as amended, pay laborers and mechanics, including guards and watchmen, at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. The overtime provisions of the Fair Labor Standards Act also apply to SCA-covered contracts.
Service Contract Act Mandates
Three areas of Pay and Benefits
Covered employees working on SCA covered contracts are entitled to pay and benefits in three basic areas:
Wages: Covered employees must be paid a minimum hourly rate based on their duties and the work being performed. Their internal company titles, labor categories or job descriptions are not relevant. The contractor is responsible for “conforming” the labor categories of the contract to the people or company labor categories to match them up. Misclassification is the most common cause of non-compliance with the SCA.
Payments to covered employees for work performed on SCA contracts must be made no less frequently than semi-monthly (twice a month).
Health & Welfare (H&W) Benefits: Covered employees must receive health and welfare benefits (exclusive of paid time off) equal to a fixed amount per hour per employee for ALL HOURS (in all “odd numbered” wage determinations) or an average amount per hour for all covered employees charging to the covered contract, but ONLY for hours actually worked on the contract (in all “even numbered” wage determinations).
Wages paid in excess of the WD rate, may NOT be used to offset a shortfall in H&W benefits. If a company elects to pay “cash in lieu” (of benefits) to make up a shortfall, it must be paid at the same time as the wages for the period. “Cash-in-lieu is a high-cost option for contractors because the amounts paid are subject to payroll taxes, increasing the cost. If the company elects to make up the shortfall by making a contribution to a bone fide benefits plan (such as a thrift program or 401k), the contribution must be made in accordance with the terms of the plan, but not less than quarterly.
Paid Leave: Covered employees must receive vacation (or PTO) equal to or greater than the amount specified in the WD. In addition, employees must receive the number of paid holidays specified in the WD. Some WDs specify the actual holidays, but all permit substitution so long as the total number of holidays for each employee is equal to or greater than the number in the WD. The vacation or PTO is specified as a specified number of days after a specified period of service. (Under certain circumstances, the period of service may be subject to credit for time worked on other contracts with other employers.)
Accrual of the entitlement during the period is not required and many employers do not. The entitlement occurs at the end of each period (usually a year) and the employee must receive the benefit before the next entitlement period ends. If the employee has not taken at least the amount of leave specified in the WD before the next period ends, it must be paid out in cash. A “carry-over” of an accrual of the entitlement is not sufficient. The employee must receive the benefit in the form of actual paid time off or cash.
Sample Wage Determination
A sample wage determination for several counties in Maryland, the District of Columbia and a number of Northern Virginia counties, including the one where the Unanet Headquarters is located, is attached here: WD 15-4281-abridged.pdf. This is WD that would probably apply to work done in anywhere in the Washington DC metropolitan area.
You will note that it skips from page 1 to page 7. The intervening pages were deleted simply to reduce the overall volume of the document. The primary purpose of the attachment is to show the actual language of the WD with respect to the benefits mandates. Also, please note this is an “odd-numbered” WD requiring benefits to be measured per employee (not as an average) and specifying a fixed amount to be provided. The vast majority of all current WDs are of this type. “Even-numbered” WDs permitting benefits to be measured by an average benefit provided over a population of covered workers are being phased out.
This WD also includes notes with respect to specific occupations, a requirement for hazardous duty pay under certain circumstances, a provision for uniform allowances and instructions for how to request a conformance for categories of labor not covered by the WD.
Trends in SCA Administration by Contractors
The advent of LPTA (low price, technically acceptable) as the default source selection methodology for the type of services most often subject to the SCA has given rise to a number of changes in policies with respect to covered employees. They are intended mostly to minimize labor costs.
Many contractors hire employees for SCA contracts with the understanding that they will paid exactly the amount specified in the WD and no more. Further, many of them state clearly in their offer letters or employment agreements that no raises will be given unless and until the WD in the contract changes.
Those same employers often do not accrue paid time off for their SCA-covered employees. They “block grant” PTO (again, only to the extent mandated by the WD) at the end of each entitlement period. Any employees that leave before the entitlement period ends get no leave or payout.
Who is Covered?
First, even if the SCA clause is included in the contract, no employee working on the contract is “covered” until and unless a WD is incorporated into the contract by the contracting officer.
Once a WD is incorporated into the contract, any FLSA non-exempt employee working on the contract with duties equivalent to those of any occupational category specified in the WD is covered. The preceding statement may sound cumbersome, but it is stated that way for a reason. If a non-exempt employee works on an SCA contract with a WD, they must be…
- Associated with a category in the WD based on matching duties and responsibilities,
- Associated with a category in the WD based on the equivalence of the employee’s duties and responsibilities to those in the WD (referred to as a “conformance”), or
- Associated with a category in the DOL directory of occupations that is NOT in the WD, but should be.
Any employees who duties and responsibilities cannot be determined to be equivalent to those in the WD must be paid at a rate that IS in the WD and which is considered to be a higher level than the level at which the employee is working. The contractor is required to promptly request a modified WD from the contracting officer and must continue to pay the employee at the higher rate until the new WD is issued.
Employees who are exempt from the provisions of the Fair Labor Standards Act (FLSA) are also exempt from the provisions of the Service Contract Act and are NOT COVERED. Exempt employees do not have to be paid the rates in the WD. Neither are they entitled to any specified level of leave or benefits. This can result is rather peculiar work situations where “covered” employees are paid more and get more benefits and more time off than their exempt (and, therefore, not covered) supervisors.
The Department of Labor maintains an extensive library of links and related information pertaining to the Service Contract Act.
In addition to the resources there, the following links may provide additional information of value:
All Agencies Memorandum (AAMs) (This web page provides links to over 200 significant All Agency Memorandums issued by the DOL.)
Cross-Index for Contract Labor Standards (This web page provides a cross-index between the Code of Federal Regulations (CFR) concerning the SCA and the Federal Acquisition Regulations (FAR).
State Labor Laws provides useful links to state resources and federal resources tangentially related to the SCA.
Prevailing Wage Resource Book - The Prevailing Wage Resource Book’s 2013 version is scheduled to be posted in early March 2013.
Employment Law Guide – Prevailing Wages in Service Contracts (PDF) (A brief summary of the SCA).
Service Contract Act Directory of Occupations, 5th Edition (PDF). This web page describes hundreds of specific job occupations pertinent to wage determinations under the SCA. SeeService Contract Act Directory of Occupations (an index of job titles, codes and government grade equivalents).
Chapter 14 — The McNamara-O'Hara Service Contract Act (PDF)
Fact Sheet 39 — 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 (PDF)
Fact Sheet 17a— Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (PDF)
Fact Sheet 22 — Hours Worked Under the Fair Labor Standards Act (PDF)
Fact Sheet 23 — Overtime Pay Requirements of the FLSA (PDF)
Fact Sheet 44 — Visits to Employers (PDF)
Fact Sheet 67A — Nondisplacement of Qualified Workers Under Service Contracts
Additional Fact Sheets — Hundreds of DOL Fact Sheets pertaining to SCA issues and other labor law issues)
Standard Form (SF) 1444 — Request for Authorization of Additional Classification and Wage Rate. This form can be used to request a Wage Determination for a position not already addressed by an existing DOL classification.
Applicable Laws and Regulations
McNamara-O’Hara Service Contract Act of 1965, as Amended (SCA) — 41 U.S.C. 351 et seq.(PDF)
Fair Labor Standards Act of 1938, as Amended (FLSA) — 29 U.S.C. 201 et seq. (PDF)
Contract Work Hours and Safety Standards Act, as Amended (CWHSSA) — 40 U.S.C. 3701et seq. (PDF)
The Davis Bacon Act — 40 U.S.C. 3141 et seq.
Walsh-Healey Public Contracts Act (PCA) — 41 U.S.C. 35 et seq.
29 C.F.R. Part 4 — Labor Standards for Federal Service Contracts
29 C.F.R. Part 6 — Rules of Practice for Administrative Proceedings Enforcing Labor Standards In Federal and Federally Assisted Construction Contracts and Federal Service Contracts
29 C.F.R. Part 8 — Practice Before the Administrative Review Board With Regard to Federal Service Contracts
29 C.F.R. 525 — Employment of Workers With Disabilities Under Special Certificates
29 C.F.R. Part 541 — Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Computer and Outside Sales Employees
29 C.F.R. 778 — Overtime Compensation
29 C.F.R. 785 — Hours Worked