Infotech and the Law

Service Contract Act: A quiz on the basics

Devon Hewitt

One of the thorniest issues for federal contractors is determining if and how the Service Contract Act applies to a specific contract. Although the SCA has been around for a while, many of its requirements are misunderstood.

The act requires contractors to pay service workers at least the prevailing wage and benefits rates for the locality where the work is being done.

So how well do you know the act? Here are a few true-or-false questions to test your knowledge regarding the SCA's basic concepts.

Question: The Service Contract Act does not apply to my contract, because the contract does not contain any SCA clauses.

False. Whether the act applies to a particular federal contract depends on whether the contract requires using "service employees" as the act defines them. The fact that a procuring or contracting agency does not include the standard SCA-FAR clause in a contract, or that the agency otherwise states the SCA is not applicable to a contract is not binding on the contractor. Only the Labor Department has the authority to determine if a contract is subject to or exempt from SCA.

Question: If an employee is exempt from the Fair Labor Standards Act, he or she is also exempt from SCA.

True. If an employee qualifies as a bona fide executive, administrative or professional employee as defined by the Fair Labor Standards Act, that employee is exempt from SCA requirements, even if SCA covers other employees on the federal contract.

Question: If a contractor pays an employee wages in excess of the minimum wage required for an SCA position, the contractor can use the excess wage payments to offset its obligations to pay health and welfare benefits to the same employee.

False. Health and welfare requirements are determined separately from the minimum wage a contractor pays. Consequently, a contractor cannot cover its obligation to pay health and welfare benefits to a particular employee by paying that employee wages in excess of the minimum wages required under the SCA for that position. A contractor, however, does have flexibility in meeting the health and welfare benefit requirement and may mix various benefits to achieve compliance with the requirement. For example, a contractor may combine the cost of health insurance, life insurance, disability insurance and sick pay to satisfy a health and welfare cash value requirement.

Question: A contractor can only count the cost of payments or premiums to an independent, third-party health insurer in determining the contractor's compliance with a health and welfare benefit cash value requirement.

False. A contractor that self-insures for health benefits provided to employees may count the cost of this insurance plan in determining compliance with a health and welfare cash value requirement if the Department of Labor has reviewed and approved the plan. In addition, as noted earlier, the contractor can meet its health and welfare benefit requirements by providing other types of insurance or health and welfare benefits along with or in lieu of health insurance.

Question: A contractor must pay the health and welfare benefit for every hour an employee works, including overtime.

False. A contractor is only required to pay health and welfare benefits for every hour worked on a federal service contract up to 40 hours per week, 2,080 hours per year. A contractor does not need to pay health and welfare benefits for overtime hours, but must pay these benefits for vacation, sick and holiday time taken by the employee subject to the aforementioned limitations.

Devon Hewitt is a partner of Government Practices at ShawPittman in McLean, Va. She can be reached at devon.hewitt@shawpittman.com.

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