The Service Contract Labor Standards (SCLS) formerly known as the Service Contract Act (SCA) applies to every contract entered into by the United States or the District of Columbia, where the principal purpose of which is to furnish services in the United States through the use of service employees. Contractors and subcontractors performing on such Federal contracts must observe minimum wage and safety and health standards, and must maintain certain records unless a specific exemption applies. The Act requires minimum monetary wages for non-exempt service workers, as determined by a Department of Labor wage determination (WD) or collective bargaining agreement (CBA) and requires employers to provide Health and Welfare benefits.
Centre Law and Consulting conducts compliance reviews for contractors, and defends investigations and actions brought by the Department of Labor against contractors for alleged SCLS violations. SCLS compliance is especially difficult because the regulations touch various departments within an organization including accounting, human resources, program management, contracts and executive management. Without an overhead look at all departments and the knowledge of where to look, violations can be undetected for years.
Unfortunately, even diligent contractors can be investigated by the Department of Labor for an SCA violation. If the result of a random audit, or from a disgruntled report, there are numerous pitfalls during the SCA investigative process. If you were able to follow our tips above, or attend Centre’s SCA compliance training, the investigation will certainly go much smoother. Even then, the demands of an investigation can disrupt normal operations. Centre commonly works with DOL investigators to speed along the lengthy and intrusive inquiry, while minimizing the disruption caused by requests for interviews of senior management, employees and for enormous amounts of documentation.
Counsel during an investigation can also ensure you do not suggest or encourage a finding of non-compliance. If a violation is found, you will need someone knowledgeable to preserve your appeal rights and possibly even demand the government reimburse you for added costs adjusting to DOL decisions.
Usually, the process is as follows:
- Compliant by an employee (if one is made)
- Confidential interview of complainant by DOL
- Initial meeting at the company with relevant records asked to be produced
- Further interviews with employees and management
- Closing interview discussing DOL’s findings
- At the closing interview, if DOL has found a violation, they will request that you agree to pay the back wages owed and to sign a form agreeing to do so. After this occurs, DOL further evaluates the investigation and determines whether further action will be taken, whether it is a withhold action or debarment.
- We hope it never comes to this, but DOL has been bringing an increasing amount of debarment proceedings. As a technical matter, debarment can occur no matter the size of the violation. The proceeding is much like a court case, though the judge is a DOL employee (an Administrative Law Judge or “ALJ”). You have the ability to serve discovery demands and depose witnesses (including DOL employees) and they have the same ability. At the end of this “discovery” phase, a trial with witnesses, testimony, and evidence usually occurs. After the trial, the ALJ rules whether a violation occurred, if there is a defense to the violation, and the proper punishment. This is appealable within DOL and eventually to federal court.
- Because the SCLS covers a number of different areas such as human resources, accounting, and program management, no one individual or department takes responsibility. It is important that each department takes responsibility for SCLS compliance.
- Educate key employees. Your back-office personnel and human resources department should be familiar with SCLS requirements, so they can warn when violations may arise. They should be trained to know when legal counsel is needed.
- Ask your contracting officer questions. If any questions arise as to SCLS compliance, document, in writing, your questions posed to your contracting officer and/or the Department of Labor to show a good faith effort.
- Keep extremely detailed records of wages and fringe benefits paid out under the SCLS, as well as meticulous time cards. Assume that any records you generate will be reviewed in an audit.
- Often times, workers work without getting paid because of circumstances (such as an all-hands meeting before working hours) or even in situations when it is unclear when workers are actually “working.” It is important to delineate working time from non-working time and ensure all working time is compensated.
- Make the paycheck clear you are complying. The requirements to pay WD or CBA wages and fringe benefits are separate and must be shown on the pay stub separately. If the WD rate for a labor category is $20.00, and the minimum fringe benefit is $3.00, it is a violation of the SCLS if you pay your employee $23.00 an hour but fail to breakout the wage payments from the benefits.
- Recordkeeping is especially important because in a disagreement over factual circumstances between an employer and an employee, DOL will often side with the employee.
- Be cognizant of when the obligation to pay out lunch breaks is triggered. Contractors commonly come under fire for failing to compensate employees for breaks taken that require them to stay “on the clock” to a degree. For example, security guards who are required to carry a gun and stay on the premises during their lunch breaks may be entitled to compensation for that period of time. Similar to the determination of whether employees are entitled to holiday or vacation pay, whether contractors must pay their employees for “breaks” is fact-sensitive.
- Maintain robust and easily searchable employee files. Anniversary dates and extended leave of absences can trigger or delay huge obligations for fringe benefits, so make it as easy as possible to keep track of.
- If confused or unsure, get expert advice. Legal counsel for SCLS compliance is a necessary investment to avoid the potential company ending consequences of guessing wrong. Early evaluation of the contract and business structure is far cheaper than post violation responses.
- If a solicitation looks like it is for a Service Contract Act (SCA) covered contract, ask for clarification. A contract can be covered by the SCA even if the solicitation does not necessarily specify that it will. This means that if no one asks for clarification, the better contractor might lose out because it, but not the awardee, included higher prices to account for SCA requirements. Then, the awardee must go through the ordeal of requesting a price adjustment once the SCA is determined by the contracting officer to comply.
- One violation of the SCA can result in debarment. There has recently been a crackdown on SCA violations, resulting in debarment for some government contractors based on one violation of the SCA. The only way contractors can escape debarment is if: 1) the Department of Labor (DOL) instructs the contractor to correct the mistake rather than institutes debarment proceedings), or 2) if the contractor can show “unusual circumstances.”
- A Department of Labor audit no longer means that an employee has reported a violation. It used to be that if the DOL came to investigate a contractor’s wage practices, this was because an employee reported a violation. Certainly, this still remains a reason for the DOL to investigate, but recently the DOL is engaging in impromptu reviews of contractor practices because it has found that employees have been less willing to come forth with violations. This is largely in part to the poor economy and fear of losing their jobs.
- Averaging H&W – Under the SCA, minimum health and welfare (H&W) fringe benefit requirements are stated as a per-hour rate to be paid in addition to the minimum wage listed on the wage determination (WD). On certain SCA WDs, an employer may comply by ensuring that the overall amount paid by the employer for such benefits at least averages the required H&W rate for all hours worked by the covered workers. (See 29 CFR Part 4)
- Bona Fide Fringe Benefits – Fringe benefits provided by the employer to the employee which meet the definitions and requirements under SCA for compliance, as defined in 29 CFR, Part 4, Section 4.171. Used as an alternative to provide traditional fringe benefits under the SCA.
- CBA – Collective Bargaining Agreement. A contract between an employer and the representative of the employees, often a union. Terms of a CBA include wages, benefits, assignments, working conditions, grievance and seniority procedures, etc.
- Conformance – A process under the SCA for contractors to request an enforceable SCA or DBA wage and benefit rate for a classification that is required in the performance of a contract but is not listed on the applicable WD. The contractor initiates the request by preparing an SF 1444, Request for Authorization of Additional Classification and Rate, at the time of employment of the unlisted classification. The contractor must submit a proposed rate for the classification, and the employee(s) working in the classification must sign the proposal concurring or disagreeing with the employer’s proposal. The procuring agency’s contracting officer may concur or disagree with the proposal, and DOL has ultimate authority to approve/deny the employer’s request.
- Covered Employees – These are service employees engaged in a federal government contract for services, who do not fall within the exemptions as individuals acting in a bona fide executive, administrative, or professional capacities.
- CWHSSA – Contract Work Hours and Safety Standards Act. Applicable to certain construction and service contracts. CWHSSA requires overtime premiums and safety and health standards for specific workers.
- DBA – Davis Bacon Act. The minimum wage and fringe benefit requirements applicable to contracts for construction, reconstruction, alteration or repair of public buildings or public works. DBA (“Related Acted” are statutes that were passed to provide for some specific purpose (E.G., appropriation bills that provide federal funding for construction or maintenance of public housing or highways) AND that include a requirement that work be performed in compliance with the provisions of DBA. For more information, click here.
- Debarment – A process by which DOL or another federal agency may seek to make a company ineligible for the award of federal contracts. With SCA violations, a debarment ruling may be issued for up to three years, and in the context of the SCA is the result of a contractor’s violation of labor or procurement law.
- Exempt Employees – Employees who are not subject to the minimum wages, fringe benefits, or other provisions of FLSA, SCA or DBA because they meet the requirements stated in the statutes or in regulations for exemptions. These employees are persons employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in 29 CFR Part 541.
- Fringe Benefits – Benefits that must be furnished to service employees, the minimum of which to be determined by the Secretary of Labor (and published on the applicable wage determination). These may include medical or hospital care, pensions or retirement, compensation for injuries or illness resulting from occupational activity, and other forms of insurance.
- FLSA – Fair Labor Standards Act. FLSA requires employers to pay minimum wages and overtime premiums, restricts child labor, and requires payroll recordkeeping. Regulations issued under the statute govern the definitions of wages; hours worked; and exemptions for executive, administrative, professional, and outsides sales, and other workers. Access the Act.
- Health & Welfare (H&W) – Fringe benefits listed on most SCA wage determinations that must be met in addition to paying the stated SCA minimum wage. H&W generally includes benefits such as medical, life, and disability insurance, sick leave, pension, retirement, or other similar benefits plans. H&W requires that benefits be “bona fide” as defined in 29 CFR Part 4, Section 171.
- Job or Position Description – A detailed description of the work performed by each worker classification listed on an SCA WD, as defined in DOL’s Service Contract Act Directory of Occupations (See www.wdol.gov Library Page for a link to this document).
- Per-Person (or Single) H&W Rate – Under SCA, minimum H&W requirements are stated as a per-hour rate to be paid in addition to the minimum wage listed on the wage determination (WD). On certain SCA WDs, an employer must comply by paying for such benefits at an amount at least equal to the stated H&W rate for all hours paid to a worker each week, up to a total of 40 hours per week. “All hours paid each week” includes work hours and paid leave hours (See 29 CFR Part 4).
- Predecessor Contract – For SCA Section 4(c) purposes, a predecessor contract is the SCA-covered contract which was previously performed at the same locality for the purpose of providing the same services.
- Prevailing Wages – Wage rates based on data from DOL surveys and other information that generally reflect an average rate paid to certain employee classifications within a specific geographical location.
- Request for SCA Price Adjustment– A contractor’s request, generally submitted under FAR clause 52.222-43 or similar clauses, for an adjustment to a contractor’s otherwise fixed price, based on changes in the contract’s SCA wage and benefit requirements.
- Review and Reconsideration – The process by which a federal agency, contractor, or other interested party may appeal wage or benefit rates issued by DOL in a WD, or decisions issued by DOL on such matters as coverage, exemptions, conformances, or other related subjects.
- Service Contract – A contract for services entered into by the United States or District of Columbia, for performance within the United States, in excess of $2500.
- Service Employees – Employees engaged in the performance of service contracts.
- Successor Contract – Under SCA Section 4(c), a new contract that succeeds an SCA-covered contract previously performed in the same locality for the same services (or the exercise of an option or issuance of an extension of an existing SCA-covered contract)(See 29 CFR, Part 4). .
- Successor Contractor Rule – Prohibits a successor contractor from paying its employees less than its predecessor had paid its employees pursuant to the predecessor’s CBA. See 29 CFR §4.163).
- Unusual Circumstances – Not statutorily defined, but is a defense to debarment for violation of the SCA, consisting of a three-pronged test applied on a case-by-case basis that focuses on whether the violation was willful or deliberate, good faith compliance, and the general seriousness of the violation (See 29 CFR Part 4.188). Access this regulation here.
- Wage and Hour Division (WHD) – Within DOL’s Employment Standards Administration, WHD administers and enforces labor laws including FLSA, SCA, and DBA.
- Wage Determinations (WDs)– Issued by DOL under SCA and DBA provisions. WDs publish minimum wages and fringe benefits for each classification listed on the WD. Area WDs generally reflect wages that are prevailing for a broad number of classifications working in a specific, often broad, geographic area.
- Industry-Specific WDs – Reflect wages and benefits prevailing in certain unique agencies.
- CBA WDs – Reflect collective bargaining agreements determined by DOL to be protected and applicable to successor contractor workers.
- Regulations describing the labor standards for federal government contracts (29 CFR, Part 4).
- Regulations describing practices for administrative proceedings enforcing labor standards (29 CFR, Part 6).
- Regulations describing practice before the Administrative Review Board with respect to federal service contracts (29 CFR, Part 8).
- DOL FAQs – Wages & Work Hours.
Our attorneys and staff are prepared to help you through your SCA issues, whether you have a legal issue, want to ensure SCA compliance, or need SCA training. For questions or to learn more, go here
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Contact a Centre attorney today:
|Barbara Kinosky – email@example.com
Barbara Kinosky is the Managing Partner of Centre Law and Consulting and has more than twenty-five years of experience in all aspects of federal government contracting. Barbara is a nationally known expert on GSA and VA Schedules and the Service Contract Act, and she has served as an expert witness for federal government contracting cases.