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How to Avoid Costly Service Contract Act Violations

Posted on February 22, 2016
Debra KabalkinWritten by Debra Kabalkin | Email author

Most often when a company is audited for a Service Contract Act (SCA) violation it is because an employee complains. Recently however, the DOL has been initiating SCA compliance audits on their own. The DOL has sole responsibility for enforcing SCA compliance. If a violation is found, companies can find themselves targeted for follow up audits and subjected to additional penalties if corrective actions fail to yield a remedy.

When the Wage and Hour Division (WHD) of the DOL begins an audit, the contractor will receive a written notification. The notice will include the following:

  • Identification of the scope of the audit, contract(s) under review (may be all SCA-covered contracts) and the review period.
  • Date for initial conference (usually a short turnaround time).
  • Requests for records like rosters of employees working on the contracts for the review period.
  • Requests for records of employee hours, wages, fringe benefits, and additional payroll information.
  • In addition, the auditor may want to see the calculations for how the fringe was determined.

When the audit is complete, a final conference will be held to discuss the findings. If any violations were found, a plan for correction will be discussed at that time. Possible enforcement actions are:

  • Back pay will be required to correct the pay for each employee;
  • Contract termination;
  • Personal liability for corporate officials (if they intentionally withheld fringe benefits); and/or
  • Debarment for 3 years from all government contracts.

Even if a contractor cooperates with the DOL’s investigation and promptly resolves any noncompliance, and has no previous investigation history, DOL may still determine that debarment is appropriate if it believes the noncompliance was deliberate.

How to Avoid Costly Consequences of SCA Noncompliance

Service Contract Act Violation Costs

What can you do to avoid these costly consequences? Here are a few steps you can take to help ensure compliance:

  1. Record Keeping is Key
    Accurate timesheets having the correct labor categories is critical for managing SCA recordkeeping. Employees and their supervisors must know how to code their time for each task they are assigned if it is on an SCA classified job. Supervisors must be aware of the jobs worked when reviewing and approving employee timesheets.
  2. Understand Your Wage Determination
    Wage Determinations (WD’s) are not all the same. Your company can have multiple contracts operating with a different WD for each one. It’s important to read each contract carefully because there can be differences in holiday, vacation and fringe benefit payments. If you are a company operating in multiple states you need to consider that geography may be a factor you need to consider since not only do wages vary by location, but fringe benefits may vary as well.
  3. SCA and ACA (Affordable Care Act)
    Fringe benefits need to be provided separate from, and in addition to, specified wages. As am employer if you give your employee cash in lieu of benefits you could potentially be subjected to the employer excise tax under ACA based on the shared responsibility mandate.
  4. Know your Company Policies
    SCA makes no distinction between FT or PT employees. Vacation and holidays must be provided to employees based on the number of hours they work. Your company policy may only grant vacation to FT employees and the amount they get may vary based on tenure with the company. A best practice is for companies with SCA employees to have two separate leave policies or add language in the policy indicating a WD takes precedence over the company policy.
  5. Conduct An Assessment
    Assessments provide your organization with a roadmap of what needs to be addressed and are a proactive approach when it comes to addressing compliance concerns. Assessments will determine what policies may need to be revised and what procedures may need to be put in place. By conducting an assessment, if your company was to get an audit letter from the DOL you would be in a much better position to know what they would find when they arrived, and would already have a plan in place to show them the issues (if any) are being addressed.

The Service Contract Act can be complex and receiving notice that you are going to get audited can be even more nerve-wrecking. The National Contract Management Association has prepared an excellent presentation on Preparing for a Service Contract Act Compliance Audit that might be useful as a resource. Additionally, we have a few other articles that have helped some of our clients as they navigate SCA: Service Contract Act 101: A Review of the Regulations and Common Problems with SCA Requirements.

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