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© Aronson LLC | © Helios HR |

Service Contract Act: Overcome the

Challenges and Breathe Compliance

Hope Lane & Cassee Ger | April 24, 2018

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About Aronson LLC

Aronson LLC provides a comprehensive platform of assurance, tax, and consulting solutions to

today’s most active industry sectors and successful individuals. For more than 50 years, we

have purposefully expanded our service offerings and deepened our industry specialties to

better serve the needs of our clients, people, and community. From startup to exit, we help our

clients maximize opportunity, minimize risk, and unlock their full potential.

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Hope A. Lane, CPA, leads Aronson LLC's Government Contract Consulting practice. With more than 20

years of broad-based experience in the government contracting arena, she is well-known as one of the

industry's most knowledgeable thought leaders in contract-related financial compliance and contract

administration.

Exclusively focused on government contracting, Hope possesses in-depth understanding and hands-on

expertise. Prior to joining Aronson, she served in financial management positions with several regional

federal contractors. Often described by her peers as forward-thinking, Hope is able to go beyond what a

client asks for to deliver precisely what they need.

As an avid advocate for the government contracting industry, Hope is a guest speaker and lecturer for

associations and industry trade groups and a featured speaker at Aronson's executive briefings. She also

serves as editor-in-chief of Aronson’s government contracting blogs. As a leader in the firm, Hope

advocates for continuous growth and mentorship and encourages others in the practice to innovate for the

benefit of their clients.

Hope earned her bachelor's degree in accounting from the University of North Carolina at Charlotte and is

actively involved in professional organizations like the Professional Services Council, National Contract

Management Association and Women Impacting Public Policy.

Partner, Aronson - Government Contract Services Group

Hope A. Lane, CPA

301.231-6266

[email protected]

https://aronsonllc.com/insights/?_sft_industry=government-contracting


About Helios HR

At Helios HR, a leading human capital consulting and recruiting firm, we help organizations in

transition attract, engage and retain top talent. With our unrivaled team of in-house experts, we

have the capability and depth to provide on-demand customized solutions that meet the needs

of today’s ever evolving workplace.

Our clients hire us because of our:

• Unparalleled knowledge of the market

• Deep bench of senior-level specialists

• Wide range of flexible services, including consulting, recruiting, interim placements and

outsourcing

5© Aronson LLC | © Helios HR

Cassee has over eight years of HR experience in the government contracting industry. She has made it

her mission to elevate the contribution of HR professionals to organizational success. Cassee has

experience with many different government contracting engagements and environments to include working

with Service Contract Act (SCA/SCLS) and unionized employees.

Cassee has been a guest speaker for other SCLS related events and has contributed to blogs written

about SCA, which can be found on Helios HR’s website.

Cassee earned her Master’s degree in Human Resources and Employee Relations from the Pennsylvania

State University and earned her Bachelors in Administration of Justice, from George Mason University.

Cassee is actively involved in SECAF (Small and Emerging Contractors Advisory Forum) and is currently

serving as a judge in the 10th annual SECAF awards.

HR Consultant, Helios HR

Cassee Ger, SPHR, SHRM-SCP

703-860-3882 x 134

[email protected]

Agenda

• SCA Basics

• Pricing for SCA

• Required SCA Notifications

• SCA Coverage

• Accounting for Wages

• Managing Health & Welfare

• Contract Changes

• Compliance Failures

SCA Basics


What is SCA?

Service Contract Labor Standards

Formerly known as Service Contract Act of 1965 (SCA)

FAR 52.222-41, 29 CFR Part 4, Section 4.6

Sets the minimum wages and fringe benefits that contractors and their subcontractors must pay service employees working on

covered contracts. Similar to the Davis-Bacon Act (construction) and Walsh-Healey (supply)

When does SCA apply?

To contracts that are…

– From any Federal Agency or any other Federal Government entity or District of Columbia;

– To be performed in the U.S, its territories and possessions;

– Principally for services (>50% of contract effort);

– Performed through the use of service employees; and

– In excess of $2,500.


SCA Wage Determinations

SCA incorporates WDs that set the minimum wages and fringe benefits for job classifications for a specific

geographical region.

• Minimum hourly Wage for the job position

• Minimum hourly Health & Welfare Benefit

• Minimum annual Vacation Benefit

• Minimum Holiday Benefit

Note: As a rule, SCA does NOT provide for Sick Leave Benefit. (That benefit if given, is governed by the

Contractor’s company policy. An exception to this rule – Collective Bargaining Agreements (CBAs) may contain a

Sick Leave requirement or FAR 52.222-62 Paid Sick Leave Under Executive Order 13706.

Pricing for SCA


Recognizing SCA Coverage & Identifying the WD

• Look for the inclusion of FAR 52.222-41 or 29 CFR Part 4, Section 4.6 and

• The incorporation of WDs

• WD(s) should be incorporated into the request for proposal (RFP) based on the place of

performance(s)

• Several WDs may be incorporated

• No WD in the RFP? Ask the CO to incorporate during Q&A phase


Pricing Strategy

• Bidding to the WD

• Using firm-wide fringe rate can be problematic – too high or too low

• Ensure all allowable HW costs are recovered in pricing calculation!

– Odd WD: HW applies to all hours paid up to 40 hours a week which includes regular hours worked

+ paid leave (vacation and holiday). Pricing formulas should allow these costs to be recovered

over regular billable hours.

– Even WD: HW applies to all regular and overtime worked hours (excluding vacation and holiday).

• SCA required vacation amounts vary by WD and are based on employee length of service on

the contract, which is difficult to price.

• Difficulties of pricing multiple years


Right of First Refusal

• Priority of right of first refusal

– Obligation to offer the position to the incumbent employees before posting the position externally

and/or recruiting for the role

– Successor not required to match prior wages, but the hourly rate must meet the WD requirements.

– Price to the WD


Considerations for Predecessor Employees

• Anniversary Date

– Challenges and workarounds

• CBA’s

– Is there a CBA in place?

– If a predecessor contract is subject to CBA(s) then the successor contractor must maintain substantially the same services and benefits.

• Leave

– Did the predecessor contract offer more leave?

– Is the same accrual method or front load method being used?

– What about allowing employees to go negative in leave?

• Benefits

– How are they different? Eligibility dates, premiums, administration, etc.

• Keep employees happy, be transparent

Required SCA Notifications


SCA Notifications

• The Contractor and any subcontractor covered under an SCLS contract must notify each SCLS employee performing work on the contract of their minimum monetary wage and any fringe benefits.

• WD Notifications

– Minimum wage rate and regular rate (if different)

– Fringe benefit

– Equitable adjustments

• Methods of Notification

– Offer Letter

– Posting the WD

– During wage or fringe adjustments

• SCLS Posters

– Contractors must post the Notice to Employees Working on Government Contracts in a prominent and accessible place at the worksite.

– Challenges of posting

48 CFR 52.222-41


Executive Order 13706 (Sick Leave) Notifications

• Accrual Method - Contractors must provide an SCLS employee, in writing, the amount of

paid sick leave the employee has accrued but not used:

– no less than monthly;

– at any time when the employee makes a request to use paid sick leave;

– upon the employee’s request for such information, but not more often than once a week;

– upon a separation from employment; and

– upon reinstatement of paid sick leave.

Source: DOL

SCA Coverage


SCLS Coverage for Temporary and Part-Time Employees.

• The SCLS makes no distinction between temporary, part-time, and full-time employees.

– H&W still applies for all classifications

• Requirements for Vacation, Sick Leave, and Holidays still apply

• How much do you give?

– Holidays – pay employees a proportion of the holiday benefits based on the number of hours the

temporary or part-time employee worked in the workweek prior to the workweek in which the

holiday occurs.

– Vacation – Contracts would use the number of hours the SCLS employee worked in the year

preceding the employee’s anniversary date of employment to determine vacation benefits.

• 1099’s are entitled to wage and fringe benefit requirements as well, but why?

– A “service employee” is defined as any person engaged in the performance of a covered contract

except those persons who individually qualify for an FLSA exemption as defined in 29 C.F.R. §

4.155. 29 CFR 4.176(a)(3). What about interns?

Accounting for Wages


Segregating Wage Types and HW

• The time spent by the employee working in each classification should be segregated and

paid according to the wage rate specified for each classification.

• What if I can’t segregate the hours?

– Contractors must pay the employee the highest rate for all hours worked in that workweek.

• Fringe benefits under the SCLS must be furnished separately from, and in addition to, the

specified monetary wages.

29 CFR 4.169.

29 C.F.R. § 4.170.


Differing Wages

• Challenges:

– SCA Contracts vs Non-SCA/Commercial

– OCONUS Deployments

– Two Work Performance Locations

– Two or more different SCA Occupations

• Working in different capacities applies only to work in different job classifications (e.g.,courier and

receptionist defined in the SCA Directory of Occupations), not to levels within the same job

classification (e.g., secretary I and II).


Scenarios

Washington, DC

27101 ‐ Guard I $15.38

27102 ‐ Guard II $20.57

H&W = $4.27 per hour

Virginia

27101 ‐ Guard I $15.03

27102 ‐ Guard II $16.81


Washington, DC

27101 ‐ Guard I $15.38

27102 ‐ Guard II $20.57


Washington, DCMarket Rate for Guard $13.00

Washington, DC

27101 ‐ Guard I $15.38

27102 ‐ Guard II $20.57


Japan

Market Rate for Guard

$20.00

Market Rate for Guard

Different Work

Locations

SCA vs. Non SCA

OCONUS

1

3

2

Managing Health & Welfare


SCA Wage Determinations

• DOL issues two Standard WDs for each locality

– odd-numbered

– even-numbered

• Labor classifications, wage rates, H&W rate, holidays and vacation benefits are the same on both WDs.

• However, the method required to be used by employers in providing the H&W benefit is different for each WD

• The applicable method (odd or even) is determined by the WD incorporated into the RFP


SCA WD – Odd Numbered

• Odd-numbered WDs (i.e., 2005-2011) require a contractor to pay the H&W rate for all hours

paid each week (work time and paid leave time) up to a maximum of 40 hours each week

• Referred to as the “Fixed Cost”

– Most frequently used


SCA WD – Even Numbered

• Even-numbered WDs (i.e., 2005-2020) require a contractor to pay a minimum contribution for

benefits costing an average of the H&W rate for all hours worked (including overtime

hours) by service employees on the contract

– Not as common, but some contracts still maintain even HW calculation


Benefits / Cash / 401(k)

• Excess wages over WD minimum may not be credited toward H&W requirements (29 CFR §

4.170)

• Excess FB costs may not be credited toward wage requirements (29 CFR § 4.167)

• Employer cost of benefits satisfying HW – Health, Dental, Life, Vision, Jury Duty, AD&D, etc.

• Cash payments in lieu of fringe benefits must be paid on regular pay date (29 CFR §

4.165(a))

• Payments into bona fide FB plans (401(k)) must be made no less often than quarterly (29

CFR § 4.175(d))


Benefits / Cash / 401(k)

Employer Cost of Benefits Cash 401(k)

At least quarterly payments Pay on regular pay date At least quarterly Contributions

Must be “bona fide” Must separate from regular wages on

paycheck

Only 100% employee-vested funds offset

HW

Third party SCA benefit administration

costs may count towards HW

More costly – subject to FICA


401(k) Contributions

• Utilizing 401(k) contributions can be more cost effective than providing cash in lieu of

benefits

• SCA contributions to 401(k) are based on a per contract/per employee calculation

Contract Changes


Modifications

• Revised WDs should be incorporated into the contract at each option, extension, substantial

change in scope of work, or no less than every two years for multi-year contracts.

• If CO does not incorporate updated WDs, be proactive and request new WDs

• Contract price adjustments must be requested by contractors within 30 days of WD

incorporation into the contract.


Price Adjustments

• When the contract is modified by the Contracting Officer to incorporate a revised WD, a

contractor may be entitled to a price adjustment.

• Under cost-reimbursable contracts, contract price relies on “reasonable, allowable, and

allocable” determinations

• Under fixed-price contracts, a contract price can be changed only under

– The Changes Clause, OR

– The SCA/FLSA Price Adjustment Clause (FAR 52.222-43)


Price Adjustments

• The release of a new WD by DOL does not trigger a price adjustment.

• A price adjustment may be triggered when the contract is officially modified with a revised

WD.

• Do not increase wages or HW benefits impacting your contract until after a new WD is

incorporated, or it may jeopardize your ability to request a price increase.

• Price adjustments are limited to actual increased wage and H&W costs, and applicable FICA,

unemployment taxes, and workers compensation.

• Price adjustments do not allow for general and administrative (G&A), overhead (OH), and/or

profit

Compliance Failures


Mechanism for Monitoring Compliance

• Compliance does not come naturally

• Monitor compliance on a periodic basis (at least quarterly) and adjust calculation when

contract changes

• An effective monitoring mechanism by contract will track wages and benefits in comparison

to SCA WD requirements

– Odd WDs - Complying with HW requirements is based on the cost of actual benefits taken by

each employee, not firm-wide fringe cost.

– Even WDs - Complying with HW requirements is based on the average cost of benefits taken by

all covered employees, not firm-wide fringe cost.


Monitoring Subcontractor Compliance

The Prime Contractor

• Must “flow down” the applicable SCA contract clauses to subcontractors (includes

independent subcontractors – i.e., 1099s) (29 CFR 4.155)

• “Joint and severally” liable for subcontractor’s non-compliance with SCA (29 CFR 4.114(b))

• SCA-covered subcontracts should include the following provisions:

– Indemnification

– Requirement of annual compliance certification

– Access to subcontractor books and records for SCA compliance verification


Beware of Multiple Pay Rates

• Employees working on multiple SCA-contracts

• Employees working on SCA-covered contracts and commercial contracts

• Employees working in multiple locations

• Employees working in multiple contract positions

• OCONUS-deployed employees


Understanding Interplay of Overlapping Changes

• Timing of HW increase and benefits cost changes


Open Enrollment


Benefit Cost Changes

• Medical, dental, vision are the most commonly thought of.

• Employer paid benefits such as life insurance or disability are often overlooked or forgotten

about when they are updated.

– Open Enrollment

– Mid Year Changes

– Retirement Plan Changes

• Don’t forget to capture all of your benefits changes, even if it’s only changing by one cent.

• All benefits must contain a definite formula for determining the amount to be contributed by

the contractor and a definite formula for determining the benefits for each of the employees

participating in the plan.

29 C.F.R. § 4.171(a)


Messaging to SCLS Employees

• If it’s hard for you to understand, imagine what your employees must be thinking.

• What should you communicate?

– Wages

– H&W

– Leave

– Benefits

• Do you have a communication strategy?

Fact or Fiction: SCLS regulations are easy to navigate and

compliance is a walk in the park for most contractors.


Messaging to SCLS Employees - Considerations

• Who is your audience?

– New employee. Are they new to SCLS?

– Incumbents

– When should I communicate?

• equitable adjustments

• job change

• wage change

• location change

• Methods of communication

• Create a generalized response to common questions to keep communications consistent

• Provide opportunity to employees for informational sessions, but be prepared to answer complex questions

• Transparency matters


What Happens When Contractors Don’t Comply?

• Contractor: HWA Inc.

• Violation: Failed to make $1 million in wage payments to 206 employees.

• Penalty: Debarment for company and individuals (President John Wood and Vice President

Barbara Wood)

• Take Away:

– Contractors must make minimum payments to workers based on an appropriate wage

determination.

– Follow record keeping regulations.

– Be proactive about compliance. Determine who and which departments need to be involved.

– Multiple SCA violations will almost always result in a debarment proceeding for the company and

company officials.

Source: https://www.dol.gov/opa/media/press/whd/WHD20110262.htm

https://www.dol.gov/opa/media/press/whd/WHD20110262.htm


Contact Hope Lane / Aronson LLC

301.231.6266

[email protected]

https://www.linkedin.com/in/hopelanecpa

https://twitter.com/Aronsonllc


Contact Cassee Ger / Helios HR

703.860.3882 ext. 134

[email protected]

https://www.linkedin.com/in/cassee-ger-sphr-shrm-cp-83209525

@Helioshr

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