Time for a pulse-check: How healthy is your compliance with SCA?

While seemingly simple on its face, contractor compliance with the Service Contract Labor Standards, formerly known as the Service Contract Act (SCA), is often more challenging than anticipated. (At Baker Tilly, we are old school and prefer the simplicity of “SCA”, so we are sticking with it.) The intent of the SCA regulation is simple, pay service employees a federally mandated minimum wage and benefit amount. However, the reality of complying with the SCA is anything but simple; it requires fluid collaboration between accounting, finance, contracts, human resources, operations and legal departments.

When Congress created the SCA in 1965, the service contracting environment looked very different than it does today. In 1965, service contractors were dedicated to a single contract and typically a single location. Technological influences have changed the landscape. There are more opportunities for SCA employees to work remotely and on different types of work. SCA employees often work on multiple contracts, some of which may not be SCA covered. Each of these factors complicate contractor compliance.

Consequences of non-compliance can be harsh, ranging from issuing employee back payments, to contractor suspension or worse, debarment. In 2019, the Wage and Hour Division (WHD) reported back pay amounts specifically related to SCA noncompliances to be $64.9 million, more than double the amount reported five years ago. In addition to federally enforced consequences for non-compliance, a company must also consider their public perception. A contractor caught not paying their employees federally mandated minimum wage and benefits will quickly fail the front-page news test.

What are contractors who are subject to a complex regulation, which is receiving increased audit attention to do?

Responsible contractors should first perform a self-review of current practices as a preventative measure. By looking closely at their policies, procedures, and workflows contractors will highlight risk-prone areas. The cornerstones of an SCA self-review are identification of covered contracts and identification of covered employees. Seem easy? Not so fast…

Identify covered contracts. A contract is only subject to SCA if both the FAR clause 52.222-41