Webinar: Service Contract Act (SCA) Compliance in Real Business Government Contractor Environments

SCA Compliance in Real Business Government Contractor Environments

March 15, 2017 | Barbara Connell

http://blogs.aronsonllc.com/fedpoint/

2© 2017 | www.aronsonllc.com | www.aronsonllc.com/blogs |

Agenda

• What/When/Where/Who• Wage Determinations• Wages and Fringe Benefits• Contract Compliance• Real Business Examples• 10 Steps to SCA Compliance

http://www.aronsonllc.com/

http://www.aronsonllc.com/blogs

https://www.facebook.com/MeetAronson/

https://twitter.com/Aronsonllc

https://www.linkedin.com/company/21619?trk=tyah


What/When/Where/Who?







What is SCA?

Service Contract Labor Standards Formerly known as Service Contract Act of 1965 (SCA)

•Sets the minimum wages and fringe benefits that contractors and their subcontractors must pay service employees working on covered contracts. Similar to the Davis-Bacon Act (construction) and Walsh-Healey (supply)•Pub. L. 89-286, 79 Stat. 1034; Codified at 41 U.S.C. 67•Amended twice:

–1972 – Successor Employer Obligation § 4(c) –1976 – Extension to White Collar Employees

•Regulations–29 CFR Part 4, Section 4.6, Last major changes 1/30/84–FAR 52.222-41 Service Contract Labor Standards–FAR 52.222-17 Nondisplacement of Qualified Workers







What is SCA?

• SCA was intended to remove wages as a bidding factor in the competition of federal service contracts; and

• To provide wage protection to service employees







When Does SCA Apply?

To contracts that are…•From any Federal Agency or any other Federal Government entity or District of Columbia;•To be performed in the U.S, its territories and possessions; •Principally for services (>50% of contract effort);•Performed through the use of service employees; and•In excess of $2,500.







When Does SCA Not Apply?

To contracts that are….•For leasing of space•For professional services (performed almost exclusively by employees that meet the exemptions under 29 CFR Part 541)

– Non-exempt employees are a minor factor in contract performance, DOL applies a 10-20% range

•For maintenance, calibration or repair of IT and office equipment•For federally-assisted contracts for services entered into by state governments (e.g. Medicaid, Medicare programs)•Other Statutory exemptions (e.g. construction, freight, carriage)•For communication services covered by the Communications Act of 1934•For public utilities services•For employment contracts with individuals for direct services to a Federal agency•For United States Postal Service contract station operation contracts







• Johnston Island• Wake Island• The Virgin Islands• Outer Continental Shelf Islands as

defined in the Outer Continental Shelf Lands Act.

• Any State• The District of Columbia• Puerto Rico• Commonwealth of Northern Mariana

Islands• Guam• American Samoa

Where Does SCA Apply?

Geographical LimitsThe SCA applies to all work performed within the United States. For purposes of the SCA, the term “United States” includes:


How to Determine if SCA Applies to an RFP/Contract?

Requests for Proposal or Contracts incorporating either of the following two clauses:•FAR 52.222-41 Service Contract Labor StandardsFAR (Federal Acquisition Regulations) are the rules and regulations that implement acquisition policies for federal agencies and Contractors

-OR-•29 CFR Part 4, Section 4.6 Labor Standards clauses for Federal service contracts exceeding $2,500

The Code of Federal Regulations (CFR) is a compilation of the regulations that implement federal laws







How to Determine if SCA Applies to an RFP/Contract?

ANDArea Wage Determination (AWD)•Attached as an exhibit; or•By reference (not recommended)







What if SCA is NOT in the Contract?

The “Christian Doctrine”•Mandatory clauses automatically become part of the contract despite their omission from the contract.FAR 22.1006•Details the mandatory clauses for service contracts government by the Service Contract Labor Standards; therefore, they would be included in contracts even if they are inadvertently omitted.







Who Interprets & Administers It?

• SCA is enforced solely by DOL• Contracting agencies have certain responsibilities but no authority.• If contract is subject to SCA but agency does not specify SCA in contract, DOL will

notify agency to insert SCA contract clauses & applicable Wage Determinations. • Reliance on advice from contracting agency officials is not a defense against

a contractor’s back wages under the Act (29 CFR 4.187 (e) (5)).







Employees who qualify for exemption as executive, administrative or professional as defined by 29 CFR Part 541…

•Executive– Must be paid on a salary basis at least

$913/week, supervise 2 or more workers, exercise authority; and spend most of their time doing so

•Administrative– Must be paid on a salary basis at least

$913/week, make decisions of importance and significance using independent judgment and discretion, and spend most of their time doing so

• Professional– May be paid salary, fixed fee, or hourly basis

at least $913/week, perform work primarily requiring advanced knowledge, predominantly intellectual, customarily acquired by a prolonged course of specialized intellectual instruction (e.g. college level); and exercise independent judgment and discretion

• Computer Professional– May be paid on a hourly basis if paid more

than $27.63/hour; otherwise,– Must be paid on a salary basis at least

$913/week– Perform higher level duties (e.g. design,

development work with greater responsibilities)

Which Employees are Exempt from SCA?


Wage Determinations







What is an Area Wage Determination?

A WD sets the minimum wages and fringe benefits for job classifications for a specific geographical region.•Minimum hourly Wage for the job position•Minimum hourly Health & Welfare Benefit•Minimum annual Vacation Benefit•Minimum Holiday BenefitNote: As a rule, SCA does NOT provide for Sick Leave Benefit. (That benefit if given, is governed by the Contractor’s company policy. An exception to this rule – Collective Bargaining Agreements (CBAs) may contain a Sick Leave requirement or Sick Leave may be mandated by Presidential Executive Order 13706)







Area SCA WDs

Area (Standard) WDs•Generic, issued per locality, reflect prevailing wages•Locality is county or group of counties, or larger•Area WDs list over 200 worker classifications







Updates to Wage Determinations

• No increase to minimum wages for a number of years. DOL did not have a standard upon which to base regular wage increases.

• New source: Occupational Employment Statistics (OES) survey published by Bureau of Labor Statistics (BLS)

• More WDs issued due to OES survey’s smaller geographic areas• WDOL.gov – Library of Links and Related Information

– 2015 SCA Crosswalk for new WDs







Updates to Wage Determinations, Cont.

• To avoid a disruptive impact on wages due to transition to OES survey, DOL will implement new methodology gradually-– DOL will maintain existing wage rates as a floor– DOL will cap any increases in wage rates at 10% per WD rate update

• Updates to Directory of Occupations– Updates to existing occupational definitions– 27 new classifications added

All Agency Memo No. 218







Other Types of SCA WDs

• Non-Standard WDs– e.g., fast food, elevator maintenance, diving, moving household goods,

urinalysis, etc.– Reflect wages prevailing in specific industry

• Collective Bargaining Agreement (CBA) WDs– Based on predecessor collective bargaining agreements under SCA Sec. 4(c)

• Contract-Specific WDs– WDs issued by specific request to DOL for unique (often sole-sourced)

contracts– Cannot be used for any other contract







Where do You get SCA WDs?

• For Contractors – look in your contract– WDs must be incorporated into the contract by the contracting officer to be

applicable

• Contracting officers obtain WDs from www.wdol.gov– WDOL is a menu-driven database for contracting agencies to use– Accessible by the general public for informational purposes only







SCA Wage Determinations

• DOL issues two Standard WDs for each locality– odd-numbered– even-numbered

• Labor classifications, wage rates, H&W rate, holidays and vacation benefits are the same on both WDs.

• However, the method required to be used by employers in providing the H&W benefit is different for each WD…







SCA WD – Odd Numbered

• Odd-numbered WDs (i.e., 2005-2011) require a contractor to pay the H&W rate for all hours paid each week (work time and paid leave time) up to a maximum of 40 hours each week

• Referred to as the “Fixed Cost” – Most frequently used







SCA WD – Even Numbered

• Even-numbered WDs (i.e., 2005-2020) require a contractor to pay a minimum contribution for benefits costing an average of the H&W rate for all hours worked (including overtime hours) by service employees on the contract







Wages and Fringe Benefits







Common Misconceptions

• “I pay higher than market wages.”• “I have a healthy benefits package.”• “I pay more than is required, so it offsets the health and welfare

deficit.”• “They’re independent contractors, its not my problem.”• “The labor category doesn’t appear in DOL’s Directory of

Occupations, so it is not SCA covered.”• “DOL released a new WD, I need to make payroll changes.”• “Temporary employees don’t earn benefits.”







Payment of Wages

• The prevailing rate established by the contract Wage Determination (WD) is the minimum rate of pay.

• Wages and hours worked must be calculated on a fixed and regularly recurring “work week” of seven consecutive 24-hour workday periods.– Payroll Records must be kept on this basis– A bi-weekly or semi-monthly pay period may be used if advance

notice is given to affected employees. • No distinction is recognized in wage compensation requirements

between full-time, part-time, and temporary employees.







SCA Fringe Benefits (FBs)

Prevailing WDs identify fringe benefits•Vacation, generally stated as X weeks/year•Holidays, generally stated as X days/year•Health and Welfare (H&W) Benefits

– Stated as an hourly amount– Issued nationwide (one rate for all localities, except Hawaii)– Revised annually by DOL approximately every June 1st (applicable to contract

awards/options issued thereafter)







SCA Vacation Benefits

Vested and becomes due after the SCA employee’s Anniversary date determined by total length of time:• Working for present employer in any capacity• And/or working for predecessor contractors in performance of similar

services at the same facility.







SCA Holiday Benefits

• Employee is entitled to holiday pay if they work in or receive sick/vacation pay in the holiday workweek.

• Holiday Pay is generally not applicable to days in which the Federal Government is closed by proclamation, such as the day before Christmas or on snow days, in other words, any holiday not named in the Contract or Wage Determination.







Part-Time & Temp Employees

Part-time employees must be paid a proportionate amount of the mandated fringe benefits.Examples:

– A full-time employee is entitled to 2 weeks (80 hours) of vacation. A part-time employee working a regular schedule of 20 hours per week would be entitled to ½ (40 hours) the paid vacation benefits at the end of the anniversary year.

– The same part-time employee would be entitled to ½ the holiday pay benefits (e.g., 4 hours)

– Temporary or part-time employees working irregular schedule of hours are entitled to holiday pay proportionate to the number of hours worked in the week prior to the holiday.

– All part-time and temporary employees would be entitled to the same hourly rate of the health & welfare (e.g. $4.27/hour).







SCA H&W Benefits

• Reference 29 CFR Part 4, Sec. 4.175 (a) and (b)• Under both types of Standard WDs, employers discharge the H&W requirement by

– Providing bona fide benefits to the workers– Or cash payment for the H&W rate– Or paying a combination of cash and bona fide benefits– Currently $4.27 hour







Payment H&W Benefits

• Cash payments in lieu of fringe benefits must be paid on regular pay date (29 CFR § 4.165(a))

• Payments into bona fide FB plans must be made no less often than quarterly (29 CFR § 4.175(d))

• Excess wages over WD minimum may not be credited toward H&W requirements (29 CFR § 4.170)

• Excess FB costs may not be credited toward wage requirements (29 CFR § 4.167)







• Health Insurance• Dental Insurance• Life Insurance• Accidental Death &

Dismemberment• Disability Insurance• Vision Care Insurance• Sick Leave Paid, if not

required by CBA, WD, or mandated by Executive Order 13706 or state/municipal law

• Employer Contributions to 401(k) Savings Plan

• ESOP, Pension Plan, or Thrift Plan

• Educational Assistance, if not required by the job

• Severance Pay Plans• Paid Vacation or holiday in

excess of WD requirement• Jury Duty, Military,

bereavement, and other paid leave in excess of that required by law

• Cash paid in lieu of benefit plans

What Benefits Satisfy H&W

Typical Benefits that satisfy the H&W requirement are:


Benefits NOT Satisfying H&W

Typical Benefits NOT ELIGIBLE for Satisfying the H&W requirement are:

• Statutory payments (FICA, Unemployment Insurance, Worker’s Compensation)

• Benefits provided for the benefit or convenience of the company:• Relocation• Incentive Awards• Tools• Uniforms, not required by WD• Social functions, gifts, celebrations• Administrative costs incurred in providing benefits• Paid leave or sick leave required by the CBA, WD, or Executive Order

13706, or state/municipal law







Contract Compliance







Who is Liable for Compliance?

The Prime Contractor•Must “flow down” the applicable SCA contract clauses to subcontractors (includes independent subcontractor – i.e., 1099s) (29 CFR 4.155)•“Joint and severally” liable for subcontractor’s non-compliance with SCA (29 CFR 4.114(b))







Costly Assumption

“We have a healthy benefits package, our fringe rate is 32%.”

•Odd WDs - Complying with HW requirements is based on the cost of actual benefits taken by each employee, not firm-wide fringe cost. •Even WDs - Complying with HW requirements is based on the average cost of benefits taken by all covered employees, not firm-wide fringe cost.







How to Implement a Compliance Program?

• Keeping an excel spreadsheet which tracks wages and benefits in comparison to SCA wage determination requirements.

• Factors that add to the complexity of compliance:– Multiple pay rates and/or positions during the year– Multiple benefits costs during the year– OCONUS deployments not subject to SCA







Why Should I Comply?

SCA Sanctions & Remedies (41 U.S.C. 6705)For violations, the U.S. Government may….•Withhold from payment for the contract a sum adequate to pay back wages or fringe benefits to underpaid employees;•Bring legal action against the Contractor or surely for the amount of underpayment; •Terminate contract and hold Contractor liable for any resulting cost to the government; and•Not award contracts to a violator for up to 3 years (debarment).







Real Business Examples that Add to the Complexity of Complying with SCA







Real Business – Why it Matters

• United States v. Tucker et al.

• Consent Findings and Order-Innovative Technologies, Inc.







Real Business Examples 1-4

1. SCA-covered employees working in more than one location2. SCA-covered employees working in more than one position3. SCA-covered employees working on SCA-covered and Non- SCA covered contracts4. SCA-covered employees working both CONUS and OCONUS












Real Business Example 5

5. Holiday disbursement for part-time employees with an irregular work schedule












Real Business Example 6

6. Benefits costs changing during the year

















10 Steps to SCA Compliance







Steps to SCA Compliance

1. Thoroughly review federal contracts to determine when SCA applies

2. Gather Wage Determinations (WD)








3. Identify service employees covered by SCA

4. Map SCA positions to the Directory of Occupations








5. Test minimum wages

6. Test vacation

7. Test holidays

8. Test Health and Welfare (HW)








9. Develop messaging and issue retroactive payments

10. Prepare for inquiries from SCA employees and Department of Labor







About Aronson LLC

Aronson LLC provides a comprehensive platform of assurance, tax, and consulting solutions to today’s most active industry sectors and successful individuals. For more than 50 years, we have purposefully expanded our service offerings and deepened our industry specialties to better serve the needs of our clients, people, and community. From startup to exit, we help our clients maximize opportunity, minimize risk, and unlock their full potential.







About Aronson LLC

• Thinking ahead for clients for more than 50 years• 225+ professionals located in Rockville, MD• 80+ professionals dedicated to supporting government contractors • Aronson helps clients rethink the way they approach their business

through innovative, industry-specific services and advice:– Audit, Assurance and Tax– Deltek Systems and Outsourcing– Financial and Contract Compliance– GSA Schedules

• www.aronsonllc.com/blogs/fedpoint/ – News and trends and insight for today’s savvy government contractor












Awards / Accolades / Affiliations

The Gazette of Politics & Business Exceptional 53 Business Award In 2012, Aronson received the PB53 award for the third year in a row. The program acknowledges the top businesses and organizations in Maryland based on criteria that includes the company’s annual revenue, employee growth, noteworthy product or service innovations, community service efforts and more.

Accounting Today Top Firm In 2013, Aronson was once again named to Accounting Today’s list of the top 100 firms in the country. Accounting Today is a leading provider of online business news for the tax and accounting community.

Washington Business Journal Top 25 Aronson is ranked #12 on the Washington Business Journal’s Top 25 Accounting Firms in the DC Metropolitan area.

INSIDE Public Accounting Top 100 Once again, Aronson has earned a spot in the top 100 of this prestigious list, released by INSIDE Public Accounting. This is the longest running, most comprehensive and accurate independent analysis focusing on management and operations of America’s large local, regional and national firms.

Washington Business Journal Best Places to Work Aronson has been recognized five times as one of the Metro area’s “Best Places to Work.” The award recognizes a company’s achievements in creating a positive work environment that attracts and retains employees through a combination of employee satisfaction, working conditions and company culture.

Montgomery County Chamber Corporate Social Responsibility AwardIn 2010, Aronson was honored to receive the MCCC’s Corporate Social Responsibility Award based on the depth and breadth of the company’s energetic commitment to support young people, in the areas of education, housing and health.







Barbara Connell is a Senior Consultant in Aronson LLC's Government Contract Services Group, where she works with government contractors to provide customized solutions that ensure success and compliance. As a Senior Consultant, Barbara assists clients with GSA Schedule contract acquisition and maintenance, Service Contract Act compliance, and a variety of government contract compliance areas. Barbara brings a unique technical approach to complex compliance issues with her background in data analytics/informatics. She develops data analytics/informatics solutions on behalf of her clients to analyze commercial sales practices (CSP), monitor for GSA price reductions, calculate federal labor law back wages owed to employees, and more.

As an expert in her field, Barbara is a regular contributor to Aronson's Fed Point blog and she is a featured speaker for Aronson on Service Contract Act compliance. Most notably, Barbara presented on SCA Compliance in Real Business Government Contractor Environments at NCMA’s 2016 World Congress held in Orlando, Florida. Barbara earned a bachelor's degree from the Pennsylvania State University, where she majored in marketing with a minor in information systems management.

Senior Consultant, Government Contract Services Group

240.364.2657

[email protected]

Barbara Connell


240.364.2657

Contact Barbara Connell / Aronson LLC

[email protected]

https://www.linkedin.com/in/barbaraconnell



Questions





Government & Nonprofit

Webinar: Service Contract Act (SCA) Compliance in Real Business Government Contractor Environments