The Service Contract Act, Fringe Benefits, and Compliance

The Service Contract Act, Fringe Benefits, and Compliance

The Service Contract Act (or SCA) looms large among government contractors as one of the most significant regulations that govern the work they do. Keeping abreast of the basics of the Service Contract Act, fringe benefits, and compliance is vital for contractors wanting to maximize their competitive edge. Consider this your refresher!

Introducing the Service Contract Act

The Service Contract Act, formally the McNamara-O’Hara Service Contract Act of 1965, is a US labor law codified at 41 U.S.C. §§ 6701. This is the law that dictates the wage, hour, and benefit standards that contractors and subcontractors working on services contracts must abide by. This sets the foundation for compliance. Every employee performing on a federal government service contract valued over $2,500 is affected by the Service Contract Act, fringe benefits, and the compliance of their employer.

The Service Contract Act requires that employees performing on an eligible contract must be paid wages, as well as the SCA fringe amount in the form of additional cash or as fringe benefits. Service Contract Act fringe benefits must be furnished separately from and in addition to normal wages and fringe benefits, either direct cash or equivalent benefit offerings, must be properly tracked and recorded as proof of compliance.

The SCA Rate for Fringe Benefits

The hourly requirement for benefits is called the fringe rate. This is because fringe benefits are required to be tracked on an hourly basis. Proper tracking and administration can be a headache for government contractors, but putting the fringe towards benefits can come with some advantages.

The contractor that is putting their Service Contract Act fringe benefits towards a bona fide fringe benefit solution is at an advantage to their counterpart that pays the fringe rate out in cash. Advantages include reducing the payroll tax burden and overall healthcare spending, as well as the benefit of compliance. Remember: 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 a contractor must keep straight!

Compliance for Contractors

When it comes to maintaining compliance, proper reporting and careful administration of fringe contribution requirements and expenditures is vital. Every dollar, every election, and every hour must be accounted for – for every employee. That burden of benefits administration can be a challenge, but it’s of the utmost importance. Compliance challenges that often plague contractors include subcontractors falling out of compliance and costing the prime contractor, differences across multiple contracts leading to improper reporting, and the uptick in Department of Labor audits. It’s overwhelming!

Service Contract Act compliance. Fringe benefits. That’s what we do.

Boon takes a consultative approach to creating Service Contract Act fringe benefit solutions that actually feel like solutions. Our expert consultants craft benefit solutions to meet the unique needs of our contractor clients. Compliance is crucial, but it doesn’t have to be complicated. That’s where we come in.

Click here to learn more about our flexible solutions for government contractors.

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