- Employment Law Guide
Federal Contracts-Working Conditions: Prevailing Wages in Service Contracts
Compliance Assistance By Law
DOL Agency Assistance
Updated: September 2009
Who is Covered
The wage and hour requirements of the McNamara-O'Hara Service Contract Act (SCA) are administered by the Wage and Hour Division (WHD). The Act covers contracts and any bid specifications in excess of $2,500, whether negotiated or advertised, entered into by Federal and District of Columbia agencies where the principal purpose of the contract is to furnish services in the U.S. through the use of service employees. The definition of a service employee includes any employee engaged in performing services on a covered contract other than a bona fide executive, administrative, or professional employee who meets the exemption criteria set forth in 29 CFR Part 541.
The Act does not apply to certain types of contractual services. These statutory exemptions include:
- Contracts for construction, alteration, and/or repair of public buildings or public works, including painting and decorating (those covered by the Davis-Bacon Act(http://www.dol.gov/whd/contracts/dbra.htm));
- Work required in accordance with the provisions of the Walsh-Healey Public Contracts Act(http://www.dol.gov/whd/contracts/pca.htm);
- Contracts for transporting freight or personnel where published tariff rates are in effect;
- Contracts for furnishing services by radio, telephone, telegraph, or cable companies subject to the Communications Act of 1934;
- Contracts for public utility services;
- Employment contracts providing for direct services to a Federal agency by an individual or individuals;
- Contracts for operating postal contract stations for the U.S. Postal Service;
- Services performed outside the U.S. (except in territories administered by the U.S., as defined in the Act); and
- Contracts administratively exempted by the Secretary of Labor in special circumstances because of the public interest or to avoid serious impairment of government business.
The SCA requires contractors and subcontractors performing services on prime contracts in excess of $2,500 to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor's collective bargaining agreement as provided in wage determinations issued by the Department of Labor. These determinations are incorporated into the contract.
For contracts equal to or less than $2,500, contractors are required to pay the Federal minimum wage of $7.25 per hour effective July 24, 2009. Contractors must also, under the provisions of the Contract Work Hours and Safety Standards Act(http://www.dol.gov/whd/govcontracts/cwhssa.htm) and the Fair Labor Standards Act,(http://www.dol.gov/whd/regs/statutes/FairLaborStandAct.pdf) pay employees at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek.
Finally, employers must notify employees working in connection with the contract of the compensation due them under the wage and fringe benefits provisions of the contract.
The SCA provides covered service workers on Federal service contracts the right to receive at least the locally prevailing wage rate and fringe benefits, as determined by the Department of Labor, for the type of work performed. The Wage and Hour Division accepts complaints of alleged SCA wage violations.
Recordkeeping, Reporting, Notices and Posters
Notices and Posters
Every employer performing work covered by the Service Contract Act is required to provide each employee working on the contract notice of the SCA payment and fringe benefit requirements for the different classes of service employees and to post the “Employee Rights on Government Contracts(http://www.dol.gov/whd/regs/compliance/posters/sca.htm)” notice (including any applicable wage determination) at the site of the work in a prominent and accessible place where it may be easily seen by employees. There are no size requirements for the poster. The Employee Rights on Government Contracts poster is available Spanish(http://www.dol.gov/whd/regs/compliance/posters/scaspan.htm) as well.
If the contractor employs workers with disabilities under special minimum wage certificates, the “Notice to Workers with Disabilities/Special Minimum Wage (PDF) poster”(http://www.dol.gov/whd/regs/compliance/posters/disab.htm) must also be posted. This poster explains the conditions under which special minimum wages may be paid. It must be posted in a conspicuous place on the employer’s premises where it can be readily seen by employees and the parents or guardians of workers with disabilities.
Some of the records required to be kept under this law are also required under the Fair Labor Standards Act (see Wage and Hour Division Fact Sheet #21: Recordkeeping(http://www.dol.gov/whd/regs/compliance/whdfs21.pdf)).
Under the Service Contract Act, contractors and subcontractors are required to maintain certain records for each employee performing work on the covered contract. Basic records, such as name, address, and Social Security number of each employee must be maintained for three years from completion of the work. In addition, records on the following must be maintained for three years:
- The correct work classification(s), wage rate(s), and fringe benefits provided (or cash equivalent payments provided in lieu of fringe benefits)
- The total daily and weekly compensation of each employee
- The number of daily and weekly hours worked by each employee
- Any deductions, rebates, or refunds from each employee’s compensation
- Any list of a predecessor contractor’s employees which had been furnished showing employee’s length of service information
- A list of wages and fringe benefits for those classes of workers conformed to the wage determination attached to the contract
The contractor shall also make available a copy of the contract upon request from the Wage and Hour Division.
There are no reporting requirements.
Violations of the SCA may result in contract terminations and liability for any resulting costs to the government, withholding of contract payments in sufficient amounts to cover wage and fringe benefit underpayments, legal action to recover the underpayments, and debarment from future contracts for up to three years.
Contractors and subcontractors may challenge determinations of violations and debarment before an Administrative Law Judge. Contractors and subcontractors may appeal decisions of Administrative Law Judges to the Administrative Review Board. Final Board determinations on violations and debarment may be appealed to and are enforceable through the Federal courts.
Relation to State, Local, and Other Federal Laws
The SCA applies only to contracts awarded by the Federal or District of Columbia governments. As noted above, contractors are required to compensate employees working in connection with covered contracts for overtime work in accordance with the overtime pay standards of the Fair Labor Standards Act and the Contract Work Hours and Safety Standards Act.
Compliance Assistance Available
The Department of Labor provides employers, workers, and others with clear and easy-to-access information and assistance on how to comply with the SCA. Among the resources available to help comply with the SCA are:
- Compliance Assistance - SCA Web Page(http://www.dol.gov/whd/contracts/sca.htm): Provides information on the wage and benefit requirements of the SCA.
- Service Contract Act FAQs(http://www.dol.gov/whd/regs/compliance/web/SCA_FAQ.htm)
Additional compliance assistance including explanatory brochures, fact sheets, and regulatory and interpretive materials is available on the Compliance Assistance “By Law”(http://www.dol.gov/compliance/laws/comp-sca.htm) Web page.
The Employment Law Guide is offered as a public resource. It does not create new legal obligations and it is not a substitute for the U.S. Code, Federal Register, and Code of Federal Regulations as the official sources of applicable law. Every effort has been made to ensure that the information provided is complete and accurate as of the time of publication, and this will continue. Later versions of this Guide will be offered at www.dol.gov/compliance or by calling our Toll-Free Help Line at 1-866-4-USA-DOL (1-866-487-2365) (1-866-487-2365).