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© Aronson LLC | © Helios HR |
Service Contract Act: Overcome the
Challenges and Breathe Compliance
Hope Lane & Cassee Ger | April 24, 2018
© Aronson LLC | © Helios HR 2
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.
3© Aronson LLC | © Helios HR
Hope A. Lane, CPA, leads Aronson LLC's Government Contract Consulting practice. With more than 20
years of broad-based experience in the government contracting arena, she is well-known as one of the
industry's most knowledgeable thought leaders in contract-related financial compliance and contract
administration.
Exclusively focused on government contracting, Hope possesses in-depth understanding and hands-on
expertise. Prior to joining Aronson, she served in financial management positions with several regional
federal contractors. Often described by her peers as forward-thinking, Hope is able to go beyond what a
client asks for to deliver precisely what they need.
As an avid advocate for the government contracting industry, Hope is a guest speaker and lecturer for
associations and industry trade groups and a featured speaker at Aronson's executive briefings. She also
serves as editor-in-chief of Aronson’s government contracting blogs. As a leader in the firm, Hope
advocates for continuous growth and mentorship and encourages others in the practice to innovate for the
benefit of their clients.
Hope earned her bachelor's degree in accounting from the University of North Carolina at Charlotte and is
actively involved in professional organizations like the Professional Services Council, National Contract
Management Association and Women Impacting Public Policy.
Partner, Aronson - Government Contract Services Group
Hope A. Lane, CPA
301.231-6266
© Aronson LLC | © Helios HR 4
About Helios HR
At Helios HR, a leading human capital consulting and recruiting firm, we help organizations in
transition attract, engage and retain top talent. With our unrivaled team of in-house experts, we
have the capability and depth to provide on-demand customized solutions that meet the needs
of today’s ever evolving workplace.
Our clients hire us because of our:
• Unparalleled knowledge of the market
• Deep bench of senior-level specialists
• Wide range of flexible services, including consulting, recruiting, interim placements and
outsourcing
5© Aronson LLC | © Helios HR
Cassee has over eight years of HR experience in the government contracting industry. She has made it
her mission to elevate the contribution of HR professionals to organizational success. Cassee has
experience with many different government contracting engagements and environments to include working
with Service Contract Act (SCA/SCLS) and unionized employees.
Cassee has been a guest speaker for other SCLS related events and has contributed to blogs written
about SCA, which can be found on Helios HR’s website.
Cassee earned her Master’s degree in Human Resources and Employee Relations from the Pennsylvania
State University and earned her Bachelors in Administration of Justice, from George Mason University.
Cassee is actively involved in SECAF (Small and Emerging Contractors Advisory Forum) and is currently
serving as a judge in the 10th annual SECAF awards.
HR Consultant, Helios HR
Cassee Ger, SPHR, SHRM-SCP
703-860-3882 x 134
Agenda
• SCA Basics
• Pricing for SCA
• Required SCA Notifications
• SCA Coverage
• Accounting for Wages
• Managing Health & Welfare
• Contract Changes
• Compliance Failures
© Aronson LLC | © Helios HR 8
What is SCA?
Service Contract Labor Standards
Formerly known as Service Contract Act of 1965 (SCA)
FAR 52.222-41, 29 CFR Part 4, Section 4.6
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)
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.
© Aronson LLC | © Helios HR 9
SCA Wage Determinations
SCA incorporates WDs that set 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 Benefit
Note: 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 FAR 52.222-62 Paid Sick Leave Under Executive Order 13706.
© Aronson LLC | © Helios HR 11
Recognizing SCA Coverage & Identifying the WD
• Look for the inclusion of FAR 52.222-41 or 29 CFR Part 4, Section 4.6 and
• The incorporation of WDs
• WD(s) should be incorporated into the request for proposal (RFP) based on the place of
performance(s)
• Several WDs may be incorporated
• No WD in the RFP? Ask the CO to incorporate during Q&A phase
© Aronson LLC | © Helios HR 12
Pricing Strategy
• Bidding to the WD
• Using firm-wide fringe rate can be problematic – too high or too low
• Ensure all allowable HW costs are recovered in pricing calculation!
– Odd WD: HW applies to all hours paid up to 40 hours a week which includes regular hours worked
+ paid leave (vacation and holiday). Pricing formulas should allow these costs to be recovered
over regular billable hours.
– Even WD: HW applies to all regular and overtime worked hours (excluding vacation and holiday).
• SCA required vacation amounts vary by WD and are based on employee length of service on
the contract, which is difficult to price.
• Difficulties of pricing multiple years
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Right of First Refusal
• Priority of right of first refusal
– Obligation to offer the position to the incumbent employees before posting the position externally
and/or recruiting for the role
– Successor not required to match prior wages, but the hourly rate must meet the WD requirements.
– Price to the WD
© Aronson LLC | © Helios HR 14
Considerations for Predecessor Employees
• Anniversary Date
– Challenges and workarounds
• CBA’s
– Is there a CBA in place?
– If a predecessor contract is subject to CBA(s) then the successor contractor must maintain substantially the same services and benefits.
• Leave
– Did the predecessor contract offer more leave?
– Is the same accrual method or front load method being used?
– What about allowing employees to go negative in leave?
• Benefits
– How are they different? Eligibility dates, premiums, administration, etc.
• Keep employees happy, be transparent
© Aronson LLC | © Helios HR 16
SCA Notifications
• The Contractor and any subcontractor covered under an SCLS contract must notify each SCLS employee performing work on the contract of their minimum monetary wage and any fringe benefits.
• WD Notifications
– Minimum wage rate and regular rate (if different)
– Fringe benefit
– Equitable adjustments
• Methods of Notification
– Offer Letter
– Posting the WD
– During wage or fringe adjustments
• SCLS Posters
– Contractors must post the Notice to Employees Working on Government Contracts in a prominent and accessible place at the worksite.
– Challenges of posting
48 CFR 52.222-41
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Executive Order 13706 (Sick Leave) Notifications
• Accrual Method - Contractors must provide an SCLS employee, in writing, the amount of
paid sick leave the employee has accrued but not used:
– no less than monthly;
– at any time when the employee makes a request to use paid sick leave;
– upon the employee’s request for such information, but not more often than once a week;
– upon a separation from employment; and
– upon reinstatement of paid sick leave.
Source: DOL
© Aronson LLC | © Helios HR 19
SCLS Coverage for Temporary and Part-Time Employees.
• The SCLS makes no distinction between temporary, part-time, and full-time employees.
– H&W still applies for all classifications
• Requirements for Vacation, Sick Leave, and Holidays still apply
• How much do you give?
– Holidays – pay employees a proportion of the holiday benefits based on the number of hours the
temporary or part-time employee worked in the workweek prior to the workweek in which the
holiday occurs.
– Vacation – Contracts would use the number of hours the SCLS employee worked in the year
preceding the employee’s anniversary date of employment to determine vacation benefits.
• 1099’s are entitled to wage and fringe benefit requirements as well, but why?
– A “service employee” is defined as any person engaged in the performance of a covered contract
except those persons who individually qualify for an FLSA exemption as defined in 29 C.F.R. §
4.155. 29 CFR 4.176(a)(3). What about interns?
© Aronson LLC | © Helios HR 21
Segregating Wage Types and HW
• The time spent by the employee working in each classification should be segregated and
paid according to the wage rate specified for each classification.
• What if I can’t segregate the hours?
– Contractors must pay the employee the highest rate for all hours worked in that workweek.
• Fringe benefits under the SCLS must be furnished separately from, and in addition to, the
specified monetary wages.
29 CFR 4.169.
29 C.F.R. § 4.170.
© Aronson LLC | © Helios HR 22
Differing Wages
• Challenges:
– SCA Contracts vs Non-SCA/Commercial
– OCONUS Deployments
– Two Work Performance Locations
– Two or more different SCA Occupations
• Working in different capacities applies only to work in different job classifications (e.g.,courier and
receptionist defined in the SCA Directory of Occupations), not to levels within the same job
classification (e.g., secretary I and II).
© Aronson LLC | © Helios HR 23
Scenarios
Washington, DC
27101 ‐ Guard I $15.38
27102 ‐ Guard II $20.57
H&W = $4.27 per hour
Virginia
27101 ‐ Guard I $15.03
27102 ‐ Guard II $16.81
H&W = $4.27 per hour
Washington, DC
27101 ‐ Guard I $15.38
27102 ‐ Guard II $20.57
H&W = $4.27 per hour
Washington, DCMarket Rate for Guard $13.00
Washington, DC
27101 ‐ Guard I $15.38
27102 ‐ Guard II $20.57
H&W = $4.27 per hour
Japan
Market Rate for Guard
$20.00
Market Rate for Guard
Different Work
Locations
SCA vs. Non SCA
OCONUS
1
3
2
© Aronson LLC | © Helios HR 25
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
• The applicable method (odd or even) is determined by the WD incorporated into the RFP
© Aronson LLC | © Helios HR 26
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
© Aronson LLC | © Helios HR 27
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
– Not as common, but some contracts still maintain even HW calculation
© Aronson LLC | © Helios HR 28
Benefits / Cash / 401(k)
• 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)
• Employer cost of benefits satisfying HW – Health, Dental, Life, Vision, Jury Duty, AD&D, etc.
• 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 (401(k)) must be made no less often than quarterly (29
CFR § 4.175(d))
© Aronson LLC | © Helios HR 29
Benefits / Cash / 401(k)
Employer Cost of Benefits Cash 401(k)
At least quarterly payments Pay on regular pay date At least quarterly Contributions
Must be “bona fide” Must separate from regular wages on
paycheck
Only 100% employee-vested funds offset
HW
Third party SCA benefit administration
costs may count towards HW
More costly – subject to FICA
© Aronson LLC | © Helios HR 30
401(k) Contributions
• Utilizing 401(k) contributions can be more cost effective than providing cash in lieu of
benefits
• SCA contributions to 401(k) are based on a per contract/per employee calculation
© Aronson LLC | © Helios HR 32
Modifications
• Revised WDs should be incorporated into the contract at each option, extension, substantial
change in scope of work, or no less than every two years for multi-year contracts.
• If CO does not incorporate updated WDs, be proactive and request new WDs
• Contract price adjustments must be requested by contractors within 30 days of WD
incorporation into the contract.
© Aronson LLC | © Helios HR 33
Price Adjustments
• When the contract is modified by the Contracting Officer to incorporate a revised WD, a
contractor may be entitled to a price adjustment.
• Under cost-reimbursable contracts, contract price relies on “reasonable, allowable, and
allocable” determinations
• Under fixed-price contracts, a contract price can be changed only under
– The Changes Clause, OR
– The SCA/FLSA Price Adjustment Clause (FAR 52.222-43)
© Aronson LLC | © Helios HR 34
Price Adjustments
• The release of a new WD by DOL does not trigger a price adjustment.
• A price adjustment may be triggered when the contract is officially modified with a revised
WD.
• Do not increase wages or HW benefits impacting your contract until after a new WD is
incorporated, or it may jeopardize your ability to request a price increase.
• Price adjustments are limited to actual increased wage and H&W costs, and applicable FICA,
unemployment taxes, and workers compensation.
• Price adjustments do not allow for general and administrative (G&A), overhead (OH), and/or
profit
© Aronson LLC | © Helios HR 36
Mechanism for Monitoring Compliance
• Compliance does not come naturally
• Monitor compliance on a periodic basis (at least quarterly) and adjust calculation when
contract changes
• An effective monitoring mechanism by contract will track wages and benefits in comparison
to SCA WD requirements
– 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.
© Aronson LLC | © Helios HR 37
Monitoring Subcontractor Compliance
The Prime Contractor
• Must “flow down” the applicable SCA contract clauses to subcontractors (includes
independent subcontractors – i.e., 1099s) (29 CFR 4.155)
• “Joint and severally” liable for subcontractor’s non-compliance with SCA (29 CFR 4.114(b))
• SCA-covered subcontracts should include the following provisions:
– Indemnification
– Requirement of annual compliance certification
– Access to subcontractor books and records for SCA compliance verification
© Aronson LLC | © Helios HR 38
Beware of Multiple Pay Rates
• Employees working on multiple SCA-contracts
• Employees working on SCA-covered contracts and commercial contracts
• Employees working in multiple locations
• Employees working in multiple contract positions
• OCONUS-deployed employees
© Aronson LLC | © Helios HR 39
Understanding Interplay of Overlapping Changes
• Timing of HW increase and benefits cost changes
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Benefit Cost Changes
• Medical, dental, vision are the most commonly thought of.
• Employer paid benefits such as life insurance or disability are often overlooked or forgotten
about when they are updated.
– Open Enrollment
– Mid Year Changes
– Retirement Plan Changes
• Don’t forget to capture all of your benefits changes, even if it’s only changing by one cent.
• All benefits must contain a definite formula for determining the amount to be contributed by
the contractor and a definite formula for determining the benefits for each of the employees
participating in the plan.
29 C.F.R. § 4.171(a)
© Aronson LLC | © Helios HR 42
Messaging to SCLS Employees
• If it’s hard for you to understand, imagine what your employees must be thinking.
• What should you communicate?
– Wages
– H&W
– Leave
– Benefits
• Do you have a communication strategy?
Fact or Fiction: SCLS regulations are easy to navigate and
compliance is a walk in the park for most contractors.
© Aronson LLC | © Helios HR 43
Messaging to SCLS Employees - Considerations
• Who is your audience?
– New employee. Are they new to SCLS?
– Incumbents
– When should I communicate?
• equitable adjustments
• job change
• wage change
• location change
• Methods of communication
• Create a generalized response to common questions to keep communications consistent
• Provide opportunity to employees for informational sessions, but be prepared to answer complex questions
• Transparency matters
© Aronson LLC | © Helios HR 44
What Happens When Contractors Don’t Comply?
• Contractor: HWA Inc.
• Violation: Failed to make $1 million in wage payments to 206 employees.
• Penalty: Debarment for company and individuals (President John Wood and Vice President
Barbara Wood)
• Take Away:
– Contractors must make minimum payments to workers based on an appropriate wage
determination.
– Follow record keeping regulations.
– Be proactive about compliance. Determine who and which departments need to be involved.
– Multiple SCA violations will almost always result in a debarment proceeding for the company and
company officials.
Source: https://www.dol.gov/opa/media/press/whd/WHD20110262.htm
© Aronson LLC | © Helios HR 45
Contact Hope Lane / Aronson LLC
301.231.6266
https://www.linkedin.com/in/hopelanecpa
https://twitter.com/Aronsonllc
© Aronson LLC | © Helios HR 46
Contact Cassee Ger / Helios HR
703.860.3882 ext. 134
https://www.linkedin.com/in/cassee-ger-sphr-shrm-cp-83209525
@Helioshr