The Service Contract Act, also known as McNamara–O’Hara Service Contract Act of 1965 is meant to secure certain wages and benefits standards for the individuals employed by government contractors. As a government contractor, it is crucial to understand what the SCA implies and to do everything you need to comply.
The SCA covers any contract that is fulfilled in the United States. Some services are not covered by this Act, such as construction, freight carriage, communication services, public utility services, postal services and direct services provided by an individual to a Federal Agency. Anything else is covered.
If you fail to comply, you could be banned from government contracting for three years, lose your funding and be liable to compensate the employees who were underpaid. Keep in mind that anyone can report you for failing to comply, including employees, unions, and other contractors.
What is wage determination under the SCA?
The minimum wage you should pay your employees is determined in function of the prevalent wage in the area for the type of work performed. Occupations are organized into classes and data from the Bureau of Labor Statistics is used to determine what more than 50% of workers in this class and location earn. This data is updated once a year.
You have to comply with wage determination if the contract exceeds $2,500, regardless of the number of employees. Tips can count towards the prevalent wage as long as this is an occupation where tips are common and employees receive at least $30 in tips each month.
Some additional rules you have to follow to comply with the SCA…
You have to notice your employees of the hourly wage you will be paying them in compliance with the SCA. A notice can be posted on the work site or personal notices can be sent to employees. The wage is determined on the day the work begins and can be updated if the original contract is extended.
If an employee has duties that correspond to two different classes, you have to either pay that employee the highest hourly wage or separate their duties and report their hours as two separate positions with different hourly rates.
If an occupation does not correspond to any of the classes established by the Department of Labor, it is your responsibility to find an equivalent class based on skills. You need to have this conformance approved by the Department of Labor within 30 days of hiring the person.
What kind of fringe benefits do you have to offer under the SCA?
The SCA requires you to offer sick leave and paid vacations in function of an employee’s class. These benefits apply to full-time, part-time and temporary employees. However, part-time and temporary employees will only receive a certain percentage of these benefits based on the number of hours they worked.
You also have to pay a health and welfare rate. This rate is meant to be added to the hourly wage. You have to pay the hourly health and welfare rate for up to 40 hours a week and also have to pay this hourly rate for paid vacations, holidays and sick leave. You have the option to pay these fringe benefits in cash since separate records have to be kept.
Due to the harsh penalties associated with failing to comply with the SCA, it is important to keep an accurate tab on the number of hours each employee worked and on the hourly wage and fringe benefits provided. This can be made a lot easier with the right accounting tool.
Learn more about complying with the Service Contract Act, contact JAMIS today to get connected with a qualified resource, here. And for those in the San Antonio, TX area, JAMIS and its partner FCE Benefits will be hosting a labor compliance seminar on November 15th. To register for this event, click HERE.