The Service Contract Act (or SCA) is one of the most important governing laws that contractors should be aware of. The SCA’s connection to employee benefits is a major factor in understanding the SCA itself. Whether you’re entitled to employee benefits under the SCA, an employer who offers these benefits, or just interested in this topic, we’ve answered some frequently asked questions to help guide you through the logistics of SCA employee benefits and more.

What is the McNamara-O’Hara Service Contract Act?

The McNamara-O’Hara Service Contract Act of 1965 ensures that service employees who work on government contracts valued at more than $2,500 are paid a minimum wage and receive certain SCA employee benefits. A service employee is anyone who is actively working in the performance of a business that is covered by the SCA. A government contract is an agreement between the federal government and a private company or individual to provide goods or services to the government. This statute was enacted to protect prevailing labor standards and preserve the wages and benefits for employees who work for government contractors and subcontractors.

What is a “Bona Fide” Benefit Under the SCA?

A bona fide fringe benefit is something that an employer gives to its employees to take care of them. They are the plans that are used to meet fringe benefit obligations. Under the Service Contract Act (SCA), service employees are entitled to certain bona fide benefits. The most common SCA employee benefits are health insurance, disability insurance, retirement, vision, dental, and life insurance.

What are Fringe Benefits?

Fringe benefits are what happens when an employer utilizes the fringe rate to provide a benefit for their employees. These can be administered within the fringe dollar amount associated with the Service Contract Act, Davis-Bacon Act, and local and state prevailing wage contracts. The 2023 Service Contract Act fringe rate, for example, was announced in late June 2023 at $4.98 per hour. The fringe rate is a proportion of benefits paid to the wages paid to an employee. Some common SCA employee fringe benefits include health insurance, a retirement plan and social security. Employers can offer fringe benefits in lieu of a certain benefit plan or a cash payment depending on the preference of the employees.

Why Should My Business Offer SCA Employee Benefits?

By utilizing the health and welfare fringe rate to administer employee fringe benefits, it can ensure the health of your employees. Giving your employees access to these fringe benefit plans may make them feel valued and appreciated for their hard work and can keep employees motivated. Higher levels of employee motivation and satisfaction lead to higher productivity, increased employee retention, and other benefits to the business.

Providing SCA employee benefits can reduce costs for contractors on bids and increase competitiveness against peers. All while simultaneously providing employees with valued benefits! These benefits may be what give you the competitive edge in recruiting and retention of employees.

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