Maintaining compliance with the Service Contract Act (SCA) is not all that simple. The professional landscape is constantly shifting for government contractors. Not to mention that the process for enforcing SCA compliance has changed over the past several years with the addition of more than a thousand Department of Labor (DOL) investigators! There is a heightened level of scrutiny and attention to detail when it comes to SCA compliance! The question is, “Are government contractors prepared for this challenge?”
Commingling of Service Contract Assets
An example of the DOL’s increased interest in enforcement is the practice of commingling SCA employee fringe dollar assets with those of non-SCA employee benefit assets. There is no law or regulation prohibiting SCA and non-SCA funds residing in the same account. However, it’s not the regulations that pose a threat to a government contractor’s SCA compliance. It’s the enforcement.
The DOL’s enforcement of the Code of Federal Regulations relies on the requirement that government contractors must be able to prove that each employee receives the full benefit of the health and welfare dollar amount. It must be assured that none of the health and welfare dollars were used to reduce the cost to the contractor of providing benefits to non-SCA employees. The Code of Federal Regulations states this directly, as follows:
- Unfunded self-insured plans paid from the general assets of the contractor are typically not allowed. (29 CFR § 4.171)
- Contributions must be paid irrevocably to a third party or trustee. (29 CFR § 4.171)
- The trust must be set up in such a way that the contractor will not be able to divert the funds to its own use or benefit. (29 CFR § 4.171)
Contractors Bear the Responsibility of SCA Compliance
Ultimately, government contractors bear the responsibility of SCA compliance. For example, in a situation where SCA assets are being deposited into an account that pays for both SCA and non-SCA benefits the contractor is taking on a major administrative burden. If in this instance the contractor is not reconciling claims attributable to the separate SCA and non-SCA classes, there’s no way for the contractor to be certain that they’re in compliance on a per-employee basis. If any of the SCA funds were used to offset any non-SCA costs, that contractor would find themselves in violation of their SCA compliance and in major hot water!
When the DOL is looking into SCA compliance, if the contractor cannot prove that they are in compliance through their record-keeping the assumption is that they are in violation. (29 CFR §§ 4.179 and 4.185). The burden of compliance with regulations falls entirely to the contractor.
The Essential Nature of Record-keeping
The best defense for government contractors wanting to maintain SCA compliance is accurate record-keeping. Properly accounting for each SCA employee and their work is extremely important. Here’s a quick checklist of what information is important for government contractors to record:
- How many SCA and non-SCA employees worked on the same contract?
- In the event of a contractor having multiple projects at once, which SCA employees have worked on which SCA contract?
- How long did an SCA employee work on a given project and when?
For its purposes, the Department of Labor is presuming that all employees working in the establishment, department, or division where Service Contract Act work is performed are covered. The same is true for employees that work in any connection to a contract during the period of performance. It is up to the contractor to show otherwise and be able to clearly prove which of their employees do and do not fall under the SCA.
SCA Compliance Solutions for Government Contractors
At Boon, our fringe benefit solutions are built on a foundation of compliance. As industry experts, we stay abreast of all state, federal, and local regulations to keep our clients informed and our solutions compliant. Through our consultative approach to benefits, we are able to guide our clients to custom-fit solutions that satisfy the fringe obligation, fit their unique needs, and maintain SCA compliance.
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