By: Amy Dozier on August 6th, 2014

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Service Contract Act Requirements & Common Problems

Risk Management

There are thousands of government contractors who hold Service Contract Act contracts, yet so many of them are confused about the requirements. It’s understandable; the requirement guidelines are complicated and difficult to navigate. 

As an HR consultant with GovCon subject matter expertise, I often interpret the guidelines for many of our federal contracting clients to ensure they are in compliance.  Here are a few tips to help clarify some of the most frequent misunderstandings I have discovered over the years consulting on the McNamara-O’Hara Service Contract Act of 1965, now known as the Service Contract Labor Standards.

Classifying Service Contract Act Employees

Service Contract Act Wage Determination

  • Use the Wage Determination provided in the contract.  If the Wage Determination needs to be updated, work with your Contracting Officer to get a contract modification before applying a new or different WD.
  • You should post the wage determination in a prominent place at the worksite.

Service Contract Act Vacation and Holidays

  • Read the Fringe Benefits section following the Occupational Listing.  Different WD’s, even on the same contract, may have different Health & Welfare, Vacation, and Holiday requirements.
  • Incumbents are due vacation based on the length of service as per the Wage Determination.  The length of service is the length of service with the predecessor contractors in the performance of similar work at the same Federal facility, not just the length of service with you as the new contractor.  If you are taking over an SCA contract with incumbents, the predecessor contractor is required to provide you with a list of incumbents and their length of service so you can determine the accurate vacation due to each incumbent.
  • Vacation is vested on the employee’s anniversary date and must be used or paid out by the next anniversary date.  The SCA does not allow carry over vacation even if your normal company policy does.
  • Part-time employees are entitled to pro-rated vacation and holidays.
  • Temps and independent contractors are entitled to a vacation and holidays or cash equivalent.

Service Contract Act Benefits

  • You can meet the Health and Welfare requirements by providing bona fide fringe benefits or cash equivalent; however, make sure you know how the Affordable Care Act will affect this practice. 
  • You cannot offset an hourly rate paid in excess of what is required under the WD in order to satisfy fringe benefit obligations.
  • If you are self-insured, make sure you meet the minimum requirements and get your plan approved by the DOL.  It is recommended to set aside assets in an escrow account to ensure those funds are spent on bona fide fringe benefits.

Are you meeting all of these requirements? 

It’s ok to say no; you are not the only one. 

Now that you know, though, make sure you are in compliance with your SCA Contract before the DOL comes knocking on your door. It’s critically important that HR, Finance & Accounting, Proposals, Contracts, and your Program Managers are all familiar with the requirements of the Act.  For further peace of mind, consider hiring a third party specialist to perform a compliance audit to get you on track to meet all of your government contracting requirements.

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