Service Contract Act Compliance

If you are a direct contractor or subcontractor on a contract with the federal government for services you should know about the McNamara-O’Hara Service Contract Act (SCA) and how it applies to your employees.

The Service Contract Act (SCA) applies to contracts for more than $2,500 with the federal government that provide work done by “service employees”. The term “service employee” applies to many different types of employees – a list of which can be found here. The SCA also requires payment of a prevailing wage and a fringe benefit known as “Health & Welfare” which is a set amount for every employee and usually increases every year. In addition to the Health & Welfare benefit most SCA contracts also require vacation pay and paid holidays.

In order to determine if the SCA applies to the contract you are working on, review your work contract to see if it was incorporated into the contract. If it’s not incorporated in the contract but it meets the criteria of a SCA job know that the U.S. Department of Labor can retroactively incorporate the SCA into a contract even if it wasn’t applied at the time that work was done. 

A common and painful mistake that many companies make when they are paying employees on a service contract is not separating the Health & Welfare fringe amount from the prevailing wage. To illustrate let’s say that you employ a gardener on a SCA contract. The prevailing wage for your county is $17.31 per hour and the Health & Welfare is $4.27 per hour. On the employee’s paycheck he is paid a total of $21.58 per hour ($17.31 + $4.27).  This is INCORRECT. The amounts must be shown separately on the pay records and the pay stubs. It must show $17.31 per hour for x number of hours and $4.27 per hour for x number of hours. If you are doing this incorrectly change your practice now because the U.S. Department of Labor has the ability to charge back wages and say that you did not actually pay a fringe benefit.

The following are some other common SCA mistakes:

  • Paying the fringe for more than 40 hours.  The SCA only requires that the fringe be paid on the first 40 hours. 
  • Misclassifying employees as independent contractors.
  • Misclassifying employees as 541 exempt (and therefore SCA exempt).
  • Not paying required vacation and holiday pay or calculating it incorrectly.
  • Not paying an employee the correct prevailing wage.

The Labor Brain Inc. is not a law firm and its employees do not practice law or provide legal services.  The information provided on our website,  in email correspondence with representatives of The Labor Brain, and at outreach events is for informational and educational purposes only.  The information provided is not a substitute for the advice of an attorney.