Service Contract Act and Davis Bacon Act compliance: Hourly wages questions and answers
In a recent Deltek webinar, titled “Compliance Check-in: A Guide to SCA & DBA Compliance”, Baker Tilly government contractor advisors discussed multiple facets of the Service Contract and Davis Bacon acts. To clarify hourly wages concerns, the following questions were addressed:
1. What are the requirements to pay out vacation to an employee after one year?
Vacation, as stipulated by the wage determination, for a covered-employee vests on the employee’s anniversary date and is due to the employee (used by the employee with any unused balanced paid out) no later than the following anniversary date.
2. If the H&W portion is increased, can the contractor decrease the employees pay rate to recover the amount of the health and welfare (H&W) increase if the resulting pay rate is above the wage determination (WD) or The Fair Labor Standards Act of 1938 (FLSA) minimum wage amount?
A contractor is only required to pay the wage rate as specified by the prevailing wage determination. A contractor may reduce the wage rates to align with the WD; however, wages in excess of WD rate may not be used as a credit against H&W due. Please note than any reduction in wages will likely cause some amount of discontent among covered-employees and should be managed carefully.
3. And if it is acceptable to reduce the pay rate, would the contractor still be able to request a funding adjustment to recover the additional H&W cost?
When a new wage determination (WD) is incorporated into a contract, contractors have 30 days to file a request for equitable adjustment to recoup costs associated with any increase in wages or H&W due to the new WD.
4. How do you handle Independent Contractors (specifically vacation and holiday requirements) who work on a sporadic basis on an SCA contract? The type of work they perform would be considered non-exempt and therefore subject to SCA.
Holiday or vacation pay obligations to temporary and part-time employees working an irregular schedule of hours may be discharged by paying such employees a proportion of the holiday or vacation benefits due full-time employees based on the number of hours each such employee worked in the workweek prior to the workweek in which the holiday occurs, or with respect to vacations, the number of hours which the employee worked in the year preceding the employee’s anniversary date of employment.
5. Does "fee-based" mean an employee is paid hourly instead of salary?
Fee based can mean an employee is paid per service, (e.g., like a consultant.).
6. If employees have the option for benefits yet elect none, is providing cash in-lieu (to get the SCA minimum due) still compliant with both the ACA and SCA?
Offering the option of benefits (for the purposes of this answer we will assume benefits include the option to participate in a healthcare plan) and providing cash in-lieu when the value of benefits falls below the minimum health and welfare due is SCA compliant. However, in order to be ACA compliant, the contractor must offer “affordable” healthcare to all employees who work more than 30 hours per week. “Affordable” in this instance means employee participation in healthcare is less than 9.5% of their household income.
7. If we provide health insurance that meets affordable care act requirements, but the premium the employer has to pay is less than the SCA H&W rate, do we need to pay the difference in the premium in cash to the employee or not?
Contractors who do not provide bona fide benefits that meet the minimum H&W rate are required to pay the remaining difference in cash. Health insurance is not the only benefit that will reduce H&W due to the employee. Benefits such as employer paid dental, vision, life insurance, profit sharing, employer 401K contributions, STD, LTD, education assistance, paid sick leave, paid jury duty, and bereavement can help to reduce H&W due to covered employees.
8. What portions of salary paid staff working in SCA labor categories are viewed by DOL to address compliance with SCA H&W requirements?
If salaried employees are non-exempt, they are eligible to receive health and welfare in accordance with the prevailing wage determination. This health and welfare obligation can be satisfied by bona fide benefits or cash in-lieu.
9. What types of benefits are included in the bona fide fringe benefits besides healthcare coverage? Does this include 401(k) contributions as well as training and tuition reimbursement, life insurance, etc.?
Bona fide fringe benefits include, but are not limited to the following: health insurance, dental, vision, life insurance, profit sharing, employer 401K contributions, STD, LTD, education assistance, paid sick leave, paid jury duty, and bereavement.
10. If we pay the employee more than the SCA wage minimum and exceed the H&W insurance minimum and pay the employee a salary is there any reason we must break out H&W and pay?
Yes, SCA wages and H&W must be reported separately in the pay records and on the pay stub. If the two are reported together it allows the possibility of DOL making a claim that a contractor did not pay H&W.
For more information on this topic, or to learn how Baker Tilly government contractor specialists can help, contact our team.
