Vacation Benefits Under the SCA and Compliance

Vacation Benefits Under the SCA and Compliance

Vacation benefits are a highly desirable benefit that employees value. Taking time for mental wellness is just as important as other employee benefits that contractors are required to offer their SCA employees. Like with all things under the Service Contract Act, it’s important for employers to be aware of the potential compliance hurdles that must be overcome by SCA contractors. Compliance is crucial, but it doesn’t have to be complicated.

Read on to learn more about how government contractors can maintain compliance and offer vacation benefits under the SCA!

The Basics of the SCA

The Service Contract Act (SCA) was adopted in the mid-1960s to address the needs of service employees performing government contract work. The Service Contract Act is comprised of the same general principles that the Davis-Bacon Act previously put in place for construction contracts. The SCA issues wage determinations in accordance with Department of Labor and Internal Revenue Service regulations to ensure fair pay for service personnel.

This is the basis for compliance that binds the vast majority of government contractors. Contractors working under the SCA have minimum requirements regarding employee wages and benefits that they must meet to comply with the requirements of the Service Contract Act and its associated regulations  The hourly requirement for the funding of employee benefits is referred to as a fringe rate; the fringe rate is regularly updated to meet the needs of employees working under SCA contracts.

Vacation Benefits Under the SCA

It’s a common practice with commercial employers who offer vacation benefits to allow employees to accumulate paid vacation time and carry over unused time into the next year. This option is lauded for the flexibility it gives to employees to take time off as they please. However, under the Service Contract Act, this option is not possible.

For government contractors and their workers subject to the requirements of the Service Contract Act, the Department of Labor requires that vacation benefits be used annually, with any unused days being automatically cashed out at the end of the year. The DOL does not allow for SCA covered workers to elect an option to carry forward their unused vacation time. If a SCA worker uses his accumulated vacation time within a single year, with a cash payout for any unused time, the DOL can track the employer’s compliance with the SCA’s requirements to provide paid vacation benefits. However, in a scenario where an employee can carry over vacation time, a host of compliance issues emerge making it harder to account for the benefit.

The Department of Labor summarizes the rule as follows:

Where a prevailing wage determination specifies “1 week paid vacation after 1 year of service with a contractor or successor,” an employee who renders the 1 year of continuous service  becomes eligible for  1 week of paid vacation (i.e. 40 hours, unless otherwise specified in the applicable wage determination) upon his/her anniversary date of employment and upon each succeeding anniversary date thereafter. There is no accrual or vesting of vacation eligibility before the employee’s anniversary date of employment, and no segment of time smaller than 1 year need be considered in computing the employer’s vacation liability, unless otherwise specifically provided  in a particular wage determination.

The vacation benefits need not be provided by the employer on the date of vesting.  However, the required benefit must be furnished before the employee’s next anniversary date, before the current contract is completed, or before the employee terminates employment, whichever occurs first. It’s important to note that health and welfare benefits continue to accrue during a paid vacation period.

( See 29 CFR § 4.173 – Meeting requirements for vacation fringe benefits.)

An employer must take into account time spent working for the employer on private work and on the SCA contract in determining if the employee has met the 1 year of continuous service requirement, unless the wage determination specifies otherwise. Additionally, if the wage determination references “a successor” the successor contractor must also take into account time that the employee spent working on the contract under the employment of a predecessor employer, if any, on that same contract. However, if the wage determination only refers to 1 year of continuous service with the employer then time spent working on the SCA contract by an employee for the predecessor contractor need not be considered.

Maintaining Your SCA Compliance

It’s to the benefit of employers to offer benefits to their employees. Healthcare and vacation time make for a healthy and productive workforce. For government contractors, benefits can also provide another advantage. However, as with this vacation example, every benefit required under and SCA contract comes with the burden of benefits administration and maintaining compliance.

Boon has the necessary expertise and experience to handle the needs of government contractors. Compliance doesn’t have to be a hassle. We’ve seen to it.

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