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FEDERAL SERVICE CONTRACTORS
(Service Contract Act)
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A contract to perform services for a federal agency, unless one of the rare SCA exemptions applies, will typically contain a wage determination which specifies, for each occupation, the minimum hourly (or hourly equivalent) rate. Fringe benefits are also specified and must be furnished, or they may be paid as cash equivalents under very stringent rules. There are regulatory record keeping requirements.
Federal service contractors are usually subject to overtime standards of the Contract Work Hours and Safety Standards Act (CWHSSA) and the FLSA. With certain types of contracts, CWHSSA and FLSA overtime exemptions are possible.
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SCA violations usually result from failure of the prime contractor or subcontractors to understand the requirements. If a subcontractor is investigated by the U. S. Department of Labor, Wage and Hour Division, and is found to be in violation of SCA provisions, DOL will usually afford the sub an opportunity to pay the back wages. If the subcontractor does not promptly pay back wages, the prime contractor is required to pay (and/or withholding action is taken).
Lower-tier subs, staffing firms, and professional employer organizations are treated as described above regarding subcontractors; they are obligated to comply and are held responsible for violations, but their failure to resolve issues results in DOL action against the prime contractor.
If DOL determines that withholding action is necessary, the contracting agency is required to withhold funds from the prime contract. DOL holds the funds for the payment of back wages, pending the exhaustion of appeal rights or the resolution of appeals.
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If withheld funds from the prime contract do not satisfy the back wage obligations of the contractor(s), cross withholding from other prime contracts (held by the same prime contractor) is possible. Additionally, DOL may litigate to secure a back wage judgment against the contractor(s).
Beyond the restoration of unpaid wages and payment (as back wages) of the monetary equivalent of fringe benefits not furnished, there are other repercussions:
SCA and/or CWHSSA violations can result in debarment action against the prime contractor and/or the subcontractor. Many SCA contractors are just one investigation away from being placed on a list of ineligible bidders (for three years).
Under certain circumstances, such as fraudulent records or false evidence of back wages paid, the U. S. Department of Justice may file criminal charges against the offending contractor(s).
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SCA back wage liabilities commonly occur because of one or more of the following practices:
Misclassification of workers, resulting in payment of an insufficient wage rate
Failure to compensate for all hours of work
Fringe benefit equivalents paid in cash are not creditable because of inadequate records
Credit is taken for unauthorized fringe benefits furnished
Payment of wages on the basis of job rates or piece rates without maintaining required records and ensuring that all labor standards have been met
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Classification of workers as "subcontractors"
Commensurate rate not correctly computed (when an SCA contractor is certified under FLSA-section 14)
Utilization of owner-operators of vehicles or other equipment without maintaining adequate records and/or ensuring compliance with wage payment and fringe benefit standards
CWHSSA and FLSA back wages are owed when overtime compensation has not been paid or the regular rate has been incorrectly computed. This type of violation is especially probable when the contractor treats workers as "subcontractors"; employees are owner/operators of vehicles or equipment; employees are paid piece rates, job rates, or multiple rates; or salaried employees do not qualify for exemption.
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