Understand the basics of the Service Contract Act, managing compliant contracts and how to support SCA covered employees.
Answer a few questions to see if you are correctly and efficiently handling your SCA employees.
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.
The actual text of the SCA and the regulations implementing it can be found at:
The SCA does not apply to certain types of contractual services. These statutory exemptions include:
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.
The 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
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.
The Department of Labor (DOL) issues two wage determinations for each locality that are identical except for compliance with fringe benefit requirements.
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 .
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.
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.
Besides 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:
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).
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.
Maximum Accrual Limits
Using Sick Leave .
Request for Paid Sick Leave.
Certification or documentation for leave of 3 or more consecutive full workdays.
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:
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.
The 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.
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.
Additional Resources for McNamara-O'Hara Service Contract Act (SCA)
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