Service Contract Act: Compliance for Contractors

Service Contract Act: Compliance for Contractors

The McNamara-O’Hara Service Contract Act of 1965, as amended– sometimes referred to as the Service Contract Act or SCA for short  — is one of the most important acts and set of regulations that impact government contractors. The Service Contract Act affects every employee that is working on a services contract with the federal government over $2,500. If a contractor fails to meet the standards of SCA compliance, the penalties can be detrimental. We’re here with your guide to Service Contract Act compliance for government contractors.

The Importance of Service Contract Act Compliance

The government contracting space presents challenges to contractors that are totally unique to the industry. The compliance concerns facing SCA contractors runs the gamut from proper administration and record keeping to understanding the fringe rates and factoring those rates into a bid strategy. Compliance touches every level of an SCA contract. It protects the rights and interests of valued employees working on the contract. Compliance ensures that the work is being done correctly and in accordance with the government’s requirements. Most importantly, maintaining compliance protects contractors from incurring penalties that could take them out of the game!

Service Contract Act compliance doesn’t come with a step-by-step manual that makes maintaining compliance easy. There are so many contractors that are intimidated by the burden of maintaining compliance and for good reason!

The Challenges of Compliance

The government contracting space is constantly evolving, with new rules, regulations, legislation, and updated fringe rates being introduced all the time. It’s important for an SCA contractor to understand these changes, be adaptable, and ensure that their subcontractors are also aware of their responsibilities under the SCA. Understanding the challenges of Service Contract Act compliance is of the utmost importance for a contractor. Here are just a few of the challenges government contractors face that threaten their compliance.

DOL Audits: The Wage and Hour Division of the Department of Labor (DOL) routinely performs audits to confirm that SCA contractors are adhering to the SCA’s wage requirements and correctly paying wages and making employer health and welfare fringe benefit contributions to their employees. In recent years, the DOL has greatly increased its budget, and as a result the number of auditors it has hired, further resulting in an increase in the number of audits by the Wage and Hour division of the DOL. It’s important for government contractors to be prepared. It is recommended that contractors regularly self-audit their compliance (every 3 to 6 months) or retain the services of experts in the field, including benefits administrators.

Improper Reporting: Consider all the factors that a contractor must report to maintain Service Contract Act compliance. There’s accounting for the fringe dollar, proper wages, hours worked, and benefits elected for every individual employee. There’s differences across multiple contracts that a SCA contractor may be working on, in addition to labor category classifications and paying the proper wages. That’s a lot to keep up with across any given project!

Subcontractors and Non-Compliance: The Service Contract Act states that the prime contractor is responsible for ensuring that every single worker that’s involved in the project is paid the correct wage and fringe rate set by the contract. That includes the employees of subcontractors. If a subcontractor is found to be out of compliance, the prime contractor takes the brunt of the punishment. Any back wages owed or penalties incurred rest squarely on the shoulders of the prime contractor – not to mention the additional administrative burden of reviewing subcontractor compliance.

Figuring Out the Fringe: Government contractors have options when it comes to choosing how to use the fringe amount. One option is to put the fringe towards a bona fide fringe benefit solution, offering health insurance and other benefit options to their workforce. The SCA contractor that puts those fringe dollars towards a benefit solution is at a distinct advantage over the employer that pays the fringe in cash, reducing payroll tax burden and overall healthcare spending and getting the added benefit of compliance. Whatever decision a contractor makes, managing the fringe rate requirements can present an administrative burden that overwhelms many contractors. It’s also important to note that no part of what is designated as wages in the wage determination can be used to fund fringe benefits. The fringe amount and wage amounts set out in the wage determination are two separate requirements that an SCA contractor must keep straight!

The challenges of compliance are numerous and the cost of non-compliance is steep. If a contractor providing services on a government contract is found to not be in compliance with the Service Contract Act, the contractor runs the risk of incurring penalties that could sink any business. A non-compliant contractor could be hit with financial ramifications like fines or having payments withheld. More grave consequences include termination of the contract and debarment from future government contracts.

Service Contract Act Compliance Solutions

Boon takes a consultative approach that focuses on fringe benefit solution that meet the needs of the SCA contractor. Our team of experts are constantly assessing the shifting landscape of Service Contract Act compliance to create benefit solutions that are innovative, compliant, and that meet the needs of the government contractor. Service Contract Act compliance is crucial, but that doesn’t mean it has to be complicated.

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