Do Your Employee’s Wages Violate the Law? (More on the SCA)

Do Your Employee’s Wages Violate the Law? (More on the SCA)

The Service Contract Act is a legal mandate for specific wage and benefit rates that workers MUST be paid by their employers. Huge fines can result for the employer who doesn’t follow this mandate.

Any employers in the management, building, property or equipment service, or food service industries who contract with the government must comply with the SCA. Recently, the SCA has included security services, though health care services are still exempt.

Based on an employee’s job classification, the SCA requires them to be paid certain wages. Additionally, businesses covered by the SCA need to provide their employees with certain benefits that are also based on their classification. These benefits include: medical, surgical or hospital care, training, death, disability, pension, unemployment, as well as vacation and holiday and personal leave.Do Your Employee's Wages Violate the Law? (More on the SCA)

Say an employee protected by the SCA goes from a minimum wage of $8.25 to $10.14 due to the SCA; he or she also must be paid benefits at a rate of $3.05 per hour. If the law does not specify an exact benefit amount, the employee is entitled to a default rate of 30% of that wage. There are three different ways this benefit can be paid. It can be paid as direct payment to the employee, payment to buy insurance in the equivalent amount or by implementing an employee benefit fund. Benefits already required under state law such as worker’s compensation, unemployment or social security do not fall under the 30% surcharge according to the DOL( Department of Labor).

Employers can be fined thousands of dollars for each violation. In addition to penalties, employers may also be responsible for back wages and interest payments to workers who have been underpaid.

Employees who keep accurate records of SCA compliance lower the risk of fines and penalties greatly. SCA covered employers have to submit annual certified payrolls to the DOL. An employer who can’t produce these records can be fined up to $200 a day.

When entering into a contract, see if it contains language submitting it to the SCA. These are known as Successor contracts and place the same requirements on the business. The concern for employers entering into successor contracts are that the wage rate schedule can change as it’s project specific. Be sure to obtain all wage rate information and review it before contracting with someone/place that is already contracted with the state.

The burdens of the SCA can be alleviated for employers or their successors who are already covered by a collective bargaining agreement. If you are covered by a CBA, you are excused from prevailing wage and benefit rates.

It can be hard to determine if a contract is covered by the SCA. To navigate the waters of the DOL, Fringe Consulting can help.




6 Ways the Affordable Care Act Could Cost Federal Contractors More

Six Ways the Affordable Care Act Could Cost Federal Contractors More

The impending health insurance reform leaves federal contractors facing major cost increases. President Obama signed the Patient Protection and Affordable Care Act (PPACA or Act) into law on March 23, 2010. Besides the politics surrounding the law, the Act raises cost and compliance implications for federal contractors significantly. Many federal contractors are unaware of theSix Ways the Affordable Care Act Could Cost Federal Contractor's More  impending changes and costs that are about to happen due to the Act. Enrollment in exchanges are set to begin October 2013 and key provisions of the Act become effective in January 2014 all following affirmation of the Supreme Court. It is certainly time for federal contractors to set their minds on how all this change could affect their bottom line. Following, are six ways the Act could increase costs for federal contractors and ways they can prepare for the impact said expenses will have.

1) The Act’s health care obligations include new requirements on individuals, employers and health plans, and restructures the private health insurance market, setting minimum standards for health insurance. It also provides financial assistance to some individuals. Before the October 2013 date and exchange enrollment, employers are required to provide formal notice to employees that the exchanges are available. Following this time, cost implications will be close behind and it’s important for federal contractors with slim margins and tight budget constraints to assess what it will take for them to comply.

2) Potential Cost impacts include play or pay penalties for employers. Employers need to either provide affordable health insurance that is valuable or pay a penalty. Therefore, they either “play” along with the set Act OR “pay” a penalty. Employers must be aware of their employees eligibility for tax credits and must carefully assess whether their firm is considered large. Because if their firm is considered large, they can be subject to monthly fees or penalties.

Six Ways the Affordable Care Act Could Cost Federal Contractor's More3)Traditionally full time employees are considered those who work 40 hours a week. The Act describes them as working 30 plus hours a week. The new definition of part time workers is a major change in the breakpoint for employee benefits coverage. This change could significantly alter federal contractors’ insurance costs and in turn generate increased overhead costs, ultimately affecting the employer’s competitive pricing strategies.

4) Another impact will be excess health benefits or “Cadillac” tax. The Act will also penalize high cost benefit plans. Many within the insurance industry refer to this as the Cadillac tax.

5) Contractors with Service Contract Act (SCA) employees face even more dramatic consequences under the Act than those above. Prevailing wage determinations dictate that SCA employers can offer SCA employees benefits as fringe dollars. Starting in January 2014, the Act eliminates this simple way for employers to comply with the SCA and establishes the more complicated regime under which large employers have to provide an “affordable plan meeting minimum value” for their employees or face big penalties.

6) Employers face potential costs under the exchange system. The exchanges are partly intended to keep health care costs down but they may also subject employers to additional business and administrative costs.

Prevailing Wage Employee Benefit Administration

Prevailing Wage Employee Benefit Administration for Davis Bacon and Service Act Contractors

The U.S. Department of Labor or DOL has responsibilities to oversee that coordination, administration and consistency of the of the labor standards provisions of the Davis Bacon and Related Acts is being followed. The DOL has issued regulations under this authority to establish standards and procedures for the administration and enforcement of the Davis-Bacon labor standards provisions in covered contracts they’re responsible for or to which they provide federal assistance under laws they administer.

Compliance Assistance Materials include:Prevailing Wage Employee Benefit Administration

Davis-Bacon and Related Acts web page – Information on prevailing wage and benefits.

Employment Law Guide – Prevailing Wages in Construction Contracts – Description of the coverage and basic requirements of prevailing wages in construction contracts.

Compliance Assistance – Davis Bacon and Related Acts web page – Information on the acts that require prevailing wages and fringe benefits on federal construction contracts.

Wage Survey Form  – Optional form to ensure consistency in submission of wage data.

Wage Determinations on line – A single location providing federal contract officers and the public to use in obtaining SCA and DBA wage determinations for each official contract action.

Davis Bacon poster – Covered contractors must post this poster.

Form WH-347 – Optional form that satisfies requirements of Regulations parts 3 and 5. See 29 CFR 5.5 (a)(3)  for more information.

Davis Bacon Act – Requires payment of prevailing wages to laborers on a federal construction contract.

Reorganization Plan of 1950

29 CFR Part 1, 29 CFR Part 3, 29 CFR Part 5, 29 CFR Part 6, 29 CFR Part 7 – Regulation descriptions.

This is all the compliance materials, record keeping materials and applicable laws and regulations.  Contact Fringe Consulting for more information.


Service Contract Act – Fringe Consulting

Service Contract Act

The Service Contract Act, hereto referred to as SCA was enacted to prevent wage busting and displacement of workers. In the act, wages, benefits, vacation and holiday policies are specified as well as other working conditions for employees who fall under certain SCA classifications.Service Contract Act – Fringe Consulting

Anyone wishing to bid for a federal service contract in Massachusetts, New England, Boston or elsewhere, must meet the requirements of the act and develop strategies to make sure they also stay in compliance.

Before bidding on a project or negotiating the project price, it’s important to have a sound and thorough understanding of the financial and operation implications of the SCA.

The SCA enforces compensation requirements on the general contractors as well as their subcontractors providing services to the federal government. Make sure to note that the SCA applies to service contracts performed within the U.S. when the contract value exceeds $2500. If a portion of the contract is performed outside of the U.S., it does not apply as well as if a certain federal contract is exempt.

So, how does one make sure all their ducks are in a row as far as the SCA is concerned? Here is a helpful checklist to use as your measuring stick:

-Employee duties they actually perform dictate the classification of that job under the act and the rate of pay they’re entitled to under the applicable wage determination.

-When starting a new federal contract, previous or incumbent employees should be offered first right of refusal by the contractor within ten days. This can be done by acquiring copies of the predecessor’s service employment contract.

-Payable wages must meet prevailing wage rates and fringe benefits.

-The regular pay rate of such an employee shall not include any fringe benefit payments which are excluded from the regular rate under the FLSA.

-An employer may be able to apply a Special Minimum Wage when employing workers with disabilities. This exception applies only to prevailing wage and not fringe benefits. The employer must obtain the appropriate certification from the Department of Labor.

-The SCA specifies a distinction between temporary, part-time, and full-time employees and entitles them to an amount of the fringe benefits that is proportionate to the amount of time spent in work subject to the SCA.

-The SCA requires extensive record keeping. You must keep available such things as the employee’s basic information, correct work classification, wage rates and fringe benefits provided; hours worked, pay rates applied, paid vacation and holidays for three years from the completion of a given work assignment.

Should an employer not comply with the requirements of SCA, the Department of Labor has the authority to withhold the violator’s contract funds in order to reimburse the employees, as well as terminate the contract, holding the contractor liable for associated costs. Lastly, the violator can be prevented from participating in future federal contracts for three years.