Service Contract Act Compliance: A Guide for Federal Service Contractors

If you perform services on a federal contract — janitorial, security, IT support, food service, grounds maintenance, administrative support, or nearly any other labor-intensive service — the Service Contract Act (SCA) applies to you. Ignorance of SCA requirements is not a defense. Violations can result in back wages, debarment, and contract termination.

This guide covers what SCA requires, how to read a wage determination, and how to build SCA compliance into your operations and your bids.

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What Is the Service Contract Act?

The McNamara-O'Hara Service Contract Act of 1965 (41 U.S.C. §§ 6701-6707) requires that workers employed on federal service contracts over $2,500 be paid no less than:

1. Prevailing wages for the locality and job classification as determined by the Department of Labor, OR
2. The rates in any collective bargaining agreement (CBA) covering similar work in the area

The statute is administered by the Department of Labor's Wage and Hour Division (WHD).

The SCA is incorporated into service contracts via FAR 52.222-41 (Service Contract Labor Standards). If this clause is in your contract, the SCA applies.

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What Contracts Does the SCA Cover?

SCA applies when:

• The contract is primarily for services (not goods or construction)
• The contract value exceeds $2,500
• The work is performed in the United States
• The contractor employs service employees

Common SCA-covered contract types:

• Janitorial and custodial services
• Food services and cafeteria operations
• Guard and security services
• Grounds maintenance and landscaping
• IT help desk and desktop support
• Administrative and clerical support
• Medical and clinical support (non-professional)
• Pest control, trash collection, laundry

SCA does NOT cover:

• Professional services where workers are exempt (bona fide executive, administrative, or professional exemptions under FLSA)
• Construction (covered by Davis-Bacon Act instead)
• Contracts for materials, supplies, or articles

Watch the professional exemption carefully. Software engineers, attorneys, accountants, and management consultants may be exempt from SCA. But IT help desk technicians, call center agents, and administrative staff are typically covered. When in doubt, consult counsel.

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Wage Determinations: The Core of SCA Compliance

A Wage Determination (WD) is a DOL document incorporated into your contract that specifies:

• The minimum hourly wage for each covered occupation in the contract's locality
• Required fringe benefits (health and welfare, vacation, holidays)

Wage determinations are locality-specific and occupation-specific. The WD for guard services in Washington, DC will differ from guard services in rural Texas.

How to Read a Wage Determination

Each WD is organized by occupation code. Key sections:

Section 1 — Occupations and Rates: Lists every covered job classification with its minimum wage rate. Example:

• Guard I: $19.47/hr
• Guard II: $21.83/hr
• Janitor: $17.92/hr
• Computer Operator II: $24.15/hr

Section 2 — Fringe Benefits: Specifies the required fringe benefit rate. The current standard H&W (Health and Welfare) rate is published annually. In 2024, it is $4.98 per hour for all hours paid (or pro-rated for health plan coverage provided).

Section 3 — Vacation: Covered employees must receive paid vacation based on tenure:

• After 1 year: minimum 1 week (40 hours) paid vacation
• After 5 years: minimum 2 weeks
• After 10 years: minimum 3 weeks

Section 4 — Holidays: 11 Federal holidays must be provided as paid holidays.

Where to Find Wage Determinations

Wage determinations are available at sam.gov/wage-determination (formerly wdol.gov). Your contracting officer will incorporate the applicable WD into the solicitation; it will be in Section J (List of Attachments).

Do not assume last year's WD still applies. DOL issues conformances for new job classifications and updates WDs annually. Your CO is required to incorporate the current WD.

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Health and Welfare (H&W) Benefits: Cash or Benefits

The H&W fringe rate can be satisfied two ways:

Option 1: Bona fide benefit plan Pay at least the H&W rate toward a bona fide benefit plan (health insurance, life insurance, pension, disability). The employee's share of the premium does not count — only the employer's contribution counts toward satisfying H&W.

Option 2: Cash payment Pay the cash equivalent of the H&W rate directly to the employee per hour paid. This is simpler administratively but costs more because it is additional taxable wages (vs. benefits which are pre-tax).

Important: You must pay H&W for all hours paid (including vacation and holidays), not just hours worked.

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Successor Contractor Obligations

When a federal service contract is recompeted and a new contractor takes over, SCA imposes specific obligations:

Collective Bargaining Agreement inheritance: If the predecessor had a CBA with its workers, the successor contractor must pay at least the same wage rates for 90 days while negotiating its own CBA.

Predecessor employee hiring: Successor contractors are not required to hire predecessor employees, but must honor the SCA rates if they do hire them.

This is a significant cost consideration when bidding on recompetes. During due diligence, obtain the predecessor's WD and CBA (if any) to understand your wage floor.

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SCA Records and Reporting Requirements

Records to maintain:

• Daily and weekly hours worked per employee
• Wages paid per employee
• WD in effect during contract performance
• Job classifications for all employees
• Any conformance requests and decisions

Records must be retained for 3 years after contract completion.

Posting requirement: FAR 52.222-41 requires you to post the appropriate labor law posters (available from DOL) and make the WD available to covered employees.

Payroll certifications: Some contracts require contractor certification that SCA wages were paid correctly.

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DOL Investigations and Audit Risk

The Department of Labor Wage and Hour Division investigates SCA complaints. Sources of complaints:

• Employee complaints (most common)
• Union complaints
• Competitor complaints (a competitor who suspects you bid below SCA rates)

What happens during a DOL investigation:

1. WHD investigator contacts your firm and reviews payroll records
2. May interview employees
3. Issues findings if violations are discovered

Penalties:

• Back wages: You owe every covered employee the difference between what you paid and what SCA required, for the full period of underpayment
• Debarment: Willful violations can result in a 3-year debarment from all federal contracts — one of the most severe penalties in federal contracting
• Contract termination: Agency can terminate the contract for SCA violations

The most common violations:

1. Paying wrong job classification rates (misclassifying employees)
2. Not paying required H&W fringe benefits
3. Not providing required vacation and holidays
4. Not updating wages when the WD is revised mid-contract

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Building SCA Into Your Bids

SCA compliance starts at bid preparation. Estimating errors here create contracts you cannot profitably perform.

Step 1: Obtain the applicable WD from the solicitation and identify all covered job classifications.

Step 2: Map your proposed staff to WD classifications. What is the WD rate for each position?

Step 3: Calculate H&W cost — the current H&W rate × all projected hours paid (not just hours worked).

Step 4: Calculate vacation and holiday pay. Federal holidays and accrued vacation are real costs often missed by inexperienced bidders.

Step 5: Include compliance overhead. SCA record-keeping requires administrative resources.

A common mistake: Bidding below SCA minimums to win, intending to pay "market wages." If your proposed staff wages fall below WD rates, you have committed to a non-compliant contract. Winning with below-SCA rates creates instant back-wage liability from day one.

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Key Takeaways

• SCA applies to virtually all labor-intensive federal service contracts over $2,500 — security, janitorial, IT support, food service, grounds, and administrative services.
• Wage Determinations specify minimum wages by job classification and locality — incorporated into every SCA-covered contract via FAR 52.222-41.
• H&W fringe benefit rate (currently $4.98/hr in 2024) must be paid for all hours paid — either through a bona fide benefit plan or as additional cash wages.
• Vacation and 11 federal holidays are mandatory SCA fringe benefits — not optional employer benefits.
• Successor contractors inherit predecessor CBA wage rates for 90 days — a critical cost consideration in recompete bidding.
• Debarment for willful violations is real — build SCA compliance costs into every bid and maintain meticulous payroll records.

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