SCA Regulation Compliance and Management

Who better to help you ensure compliance with government regulations than an experienced government contractor? Not only are we the first one to be a health and welfare administration and compliance firm, but we’re also still the only one.

To be honest, navigating the complexities of the McNamara-O’Hara Service Contract Act of 1965 (SCA) isn’t a simple process. That’s why we partner with businesses like yours. We take on the tough act of getting you to a place of compliance without you having to pull your hair out.

Still, we’re going to examine what it takes to be compliant for you. The more knowledge that you have, the better you can make sure you’re following the law and protecting your business.

Why Do SCA Employee Rules Exist?

In short, SCA employee rules exist to protect employees’ rights when they’re working for a company on a government contract.

Here’s how it works:

For Contracts Less than $2,500

Contractors have to pay at least the federal minimum wage, which is currently $7.25 per hour.

For Contracts Equal to or over $2,500

For contractors and subcontractors working on contracts worth $2,500 or more, you must pay employees the standard wages in the location where they are working. You must also include SCA employee benefits.

The Department of Labor (DOL) will tell contractors and subcontractors what those wages should be after a case-by-case analysis.

For Contracts Greater than $100,000

According to the Contract Work Hours and Safety Standards Act, contractors have to pay laborers, mechanics, guards, and watchmen one and a half times their standard pay rates for any excess hours over 40 within a single workweek.

Contractors may also have to contend with the overtime provisions in the Fair Labor Standards Act for an SCA contract.

Simply knowing the basic rules regarding salary isn’t enough, as these can be somewhat vague if you don’t know what to look for. Let’s dig deeper.

What Happens If I’m Not Compliant?

The first devastating result will be the loss of the contract. You’ll also be liable to the government for the costs related to the contract termination.

After that, the government will withhold contract payments to disburse SCA employee benefits and wages still owed to employees, including any underpayments. You would also face legal action to recoup the underpayments and become barred from taking further contracts for up to three years.

If you believed you weren’t guilty of any violation, you could take your challenge to an administrative law judge (ALJ). If you felt their decision wasn’t just, you could then escalate the case to the Administrative Review Board (ARB). If you still felt that your case had merit, you could then appeal to a federal court.

As for who enforces the rules, all compensation requirements are under the jurisdiction of the DOL’s Wage and Hour Division. SCA safety and health requirements fall under the eye of the Occupational Safety and Health Administration (OSHA) in the DOL.

The Wage and Hour Division handles all complaints about violations. If someone needs to file a complaint, they can call the nearest Wage and Hour Division office or the department’s toll-free helpline at 1-866-4-US-WAGE (1-866-487-9243).

Now that we’ve discussed the basic rules and the ramifications, let’s get to some essential questions to ask about your contract and how it relates to the SCA.

Is My Contract Under the SCA Employee Rules?

You might think the answer is an automatic “yes,” but it’s not that easy. After all, there are rules for every contract award amount, even ones totaling less than $2,500. Use the following questions to see whether your contract falls under SCA requirements:

Does It Incorporate Federal Acquisition Regulation (FAR) Clause 52.222-41?

FAR Clause 52.222-41 is all about service contract labor standards. It outlines protections for workers, such as collective bargaining agreements, pay periods, and withholding of payments. In essence, it’s in place to make sure that workers get paid fairly.

Does It Have an SCA Prevailing Wage Determination?

Information from the Bureau of Labor Statistics and other sources is used to determine what the majority (at least 50%) of laborers earn. After the data is analyzed, you will be required to pay, in most cases, the median wage for given positions.

Is the Contract Otherwise Subject to the SCA?

You’ll need to ensure that the contract is not somehow exempt from the SCA rules. The following criteria indicate that the contract is covered by the SCA:

• The contract is awarded by the US Government or District of Columbia
• Work is done by “service employees” who are not exempt from the Fair Labor Standards Act
• The contract is for more than $2,500
• Some of the work will be done in the U.S. or U.S. territories

Even if you believe your contract falls under SCA requirements, you should still get AXIM Fringe Solutions Group to look over your contract for confirmation.

What Is a Service Employee?

A “service employee” is any employee who performs services on a covered contract other than an executive, administrative, or professional employee and who meets all of the exemption criteria in the Code of Federal Regulations Title 29 Subtitle B Chapter V.

Exemptions from SCA Rules

As mentioned, not all contracts are governed by the SCA. Exemptions include:

• Construction projects, even painting and decorating, of public buildings
• Work done under the Walsh-Healey Public Contracts Act
• Transport of freight or personnel where tariff rates are in effect
• Radio, telephone, or cable services under the Communications Act of 1934
• Contracts regarding public utility services
• Contracts with direct services to a federal agency from an individual
• S. Postal Service contracts regarding the operation of postal contract stations
• Services performed outside the U.S. or its territories
• Contracts exempted by the Secretary of Labor

The reason these exemptions exist is not that workers performing these jobs aren’t worth protecting; it’s because they’re mostly already protected by the Fair Labor Standards Act.

But don’t think that just because a contract is for a construction project – whether renovation, repair, or new construction – for a public building or public work that you are exempt from the SCA. It’s not that cut-and-dry. Each contract needs to be examined on a case-by-case basis.

What Determines SCA Wage and Benefit Requirements?

We mentioned earlier that the prevailing wages of workers in the location where work is to happen will determine what you’ll pay.

To determine SCA employee benefits and wages, these are the pertinent documents:

• A DOL wage determination
• Collective bargaining agreements (CBAs)

The wage determinations can be found at wdol.gov and must be included in the contract solicitation. If you’re taking over the contract from another contractor, you’ll need to get that contractor’s CBA.

The rates defined in that CBA will most likely be what you’ll end up paying. It’s also going to be the document you’ll pass on to the next contractor should the contract move away from you for any reason.

Be aware that if you take over a contract, the Executive Order on Nondisplacement of Qualified Workers Under Service Contracts will most likely require that you keep your predecessor’s employees.

You’ll need to know whether your contract is governed by this rule, especially if you were hoping to place new employees in those positions.

Do I Have to Map Job Duties?

Yes, you’ll need to map out job duties. All of the employees working for a contractor with an SCA-bound contract have to have their jobs mapped to the appropriate DOL wage determination labor category. This will be how you figure out how much each employee is supposed to be paid.

While it is up to you to properly map the contract’s employees and match them to a labor category, you’ll still be liable if you’re not paying them enough or if you improperly map their duties.

Here are the steps to proper job mapping:

Determine Job Duties

The contract should have a Performance Work Statement or Statement of Work. You may also find a Statement of Equivalent Rates. Check the contract solicitation for these and other pertinent documents, which will outline the scope of the duties to be performed.

Analyze Coverage

You’ll have to do coverage analysis on your employees’ positions, wages, and benefits. The analysis will also identify which employees are “service employees” under SCA rules and which ones are exempt.

Determine Labor Categories

Check the wage determination, Statement of Equivalents information, and DOL Directory of Occupations to place each employee in their appropriate labor categories.

You may still encounter some vagueness in the DOL’s Directory of Occupations due to missing or poorly defined categories. AXIM Fringe Solutions Group can help to sort it out for you.

Document Your Decisions

Every determination you make regarding job duties, coverage, and categories must be thoroughly documented.

Figure Out Any Subcontractor Issues

You may find that a subcontractor won’t or can’t comply with SCA rules. You’ll need to have provisions for how to handle the situation in the event that happens. You’ll also be responsible for monitoring whether they’re compliant. Lastly, you’ll need to verify that all “service employees” have been identified and documented.

How Do I Determine Pricing for the Contract?

When setting a price for your work under an SCA contract, you’ll have to take into account all of the wage and benefits requirements outlined above.

Wage Impacts

What you pay employees naturally figures into the cost of doing the work under your contract. After getting the prevailing wages regarding each job duty, you can’t pay less than those wages, but you can pay more. You might do this to attract certain talent, for example.

Check the Price Adjustment Clause to see if you’ll be able to seek price adjustments down the road.

Fringe Benefits

Next, determine the cost of providing SCA employee benefits. You’ll have to figure out whether health and welfare benefits count as “bona fide” under SCA rules, determine how to account for vacation time in an SCA-approved manner, document how to handle paid holidays, and decide whether to offer cash in place of benefits you can’t provide.

Unfortunately, you can’t just pay an employee more than the prevailing wage and have that count in place of fringe benefits. Keep in mind that other laws may still require you to pay certain other benefits, like workmen’s compensation. These can’t offset the required fringe benefits.

Inform Employees

Tell employees what wages and benefits they’ll get and inform them that the breakdown of wages and benefits will be on their pay stubs. This will give them ample opportunity to either accept the wages and get to work or negotiate.

Approved Deductions

If you’re going to make deductions from employees’ paychecks, they must be SCA-approved, and you have to inform the employees ahead of time. You may even need to get employee approval.

Do I Have to Keep Records?

You’ll need to keep highly accurate records. Every employee under the contract has to have their information stored and up-to-date up to three years after completion.

Here are the pieces of information on your employees you’ll have to keep:

• Name
• Address
• Social Security number
• Work classifications
• Wages
• Fringe Benefits
• Daily/weekly compensation
• Daily/weekly hours worked
• Deductions/rebates/refunds
• A list of predecessor’s employees and lengths of service

All of this is helpful should you have to turn the contract over to someone else.

What AXIM Fringe Solutions Group Does for You

In short, we ensure you’re compliant with SCA employee rules. AXIM Fringe Solutions Group manages all of your compliance needs so you can avoid costly fines and reduce your overhead.

Think about the time it could take to go through all of the regulations regarding SCA employee benefits and rules and what that looks like for your company. Creating and maintaining databases, researching, communicating with the DOL, and preparing documents – it’s a lot! We know how to do it and do it right.

You can expect AXIM Fringe Solutions Group to be completely transparent in all reporting. We use all of the right terms in official documentation and speak plain English when we’re telling you what we’re doing.

SCA employee rules are tough, but we’re tougher. To get compliant and stay compliant, contact AXIM Fringe Solutions Group today.