Understanding the McNamara-O’Hara Service Contract Act

The McNamara – O’Hara Service Contract Act (SCA) was enacted in 1966 and was amended in 1976 and is the most recent of contract labor standards laws administered by the Wage and Hour Division of the U.S. Department of Labor.  The intention of the SCA was to ensure service employees on federal service contracts are paid no less than the wage rates and fringes prevailing in the locality. The Department of Labor provides wage determinations on a contract by contract basis.  The SCA also has additional requirements in regards to reporting and tracking the payment of fringe benefits.

The SCA applies to all contractors and subcontractors who enter into Prime contracts with U S government agencies that are over $2,500 and for the purpose of providing services. However, the SCA excludes any contract whose principal purpose is something other than services.  These statutory exemptions set forth in 29 CFR Part 541 include:

  • Contracts for construction, alteration, and/or repair of public buildings or public works, including painting and decorating (those covered by the Davis-Bacon Act(http://www.dol.gov/whd/contracts/dbra.htm));
  • Work required in accordance with the provisions of the Walsh-Healey Public Contracts Act(http://www.dol.gov/whd/contracts/pca.htm);
  • Contracts for transporting freight or personnel where published tariff rates are in effect;
  • Contracts for furnishing services by radio, telephone, telegraph, or cable companies subject to the Communications Act of 1934;
  • Contracts for public utility services;
  • Employment contracts providing for direct services to a federal agency by an individual or individuals;
  • Contracts for operating postal contract stations for the U.S. Postal Service;
  • Services performed outside the U.S. (except in territories administered by the U.S., as defined in the Act); and
  • Contracts administratively exempted by the Secretary of Labor in special circumstances because of the public interest or to avoid serious impairment of government business. [1]

In addition to competitive wages, the company engaged in a contract with a U.S. agency is required to pay the employee for fringe benefits at a specified rate or provide medical coverage with a major medical plan. The current rate for health and welfare benefits is $2.56 per hour.

If your company decides to pay cash to the employee to obtain medical coverage, the company will pay employment taxes on the monies paid to the employee. Whereas, if the company paid for the coverage or had the employee participate in an employer plan, the health benefits could be set up as a pre-tax deduction and save both the employer and employee taxes.  The additional taxes paid as a result of giving an employee cash may render the company’s bid uncompetitive.

In addition to the payment of the monies, the company is also responsible for tracking the amount of money that is paid to each employee, by hour, by contract and will need to be able to produce those reports when called upon by Department of Labor.  The company is also responsible for providing safe and healthy work conditions.  These conditions are subject to inspection by the Occupational Safety and Health Administration.

Failure to comply with these requirements will cost the company fines and penalties as well as the payment of any back fringes that were not paid.  The company will remain liable for all penalties and payments even if the responsibility of tracking and paying the fringe benefits had been outsourced.  The Department of Labor has begun to increase the amount of audits of fringe benefits and has increased the whistleblower blower fees to encourage the reporting of non-compliance.

Review you contracts carefully to determine if you are required to follow the SCA.  Remember it is not an option, but mandatory.  Seek professional advice when reviewing your contracts for compliance issues.

References:

United States Department of Labor; Wage and Hour Division http://www.dol.gov/whd/govcontracts/sca.htm


[1] Code of federal regulations

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