Now You See It; Now You Don’t -- Service Contract Act Coverage of Indirect Employees
“It is a riddle, wrapped in a mystery, inside an enigma….”
-- Winston Churchill
One of the more frequent questions service contractors ask is exactly which workers are covered by the Service Contract Act (“SCA”) prevailing wage and fringe benefits requirements. The simple, albeit uninformative answer, is that the SCA covers all “service employees” working on or in connection with a government service contract.
Of course, the SCA is a remedial law that is interpreted liberally in favor of worker protections. All workers who perform the contract-specified services called for in the contract must be paid SCA prevailing wages and benefits. This includes temporary, part-time, and contingent workers. However, some employees work in overhead or support functions, or otherwise are not engaged directly to perform the services set forth in the contract specifications. The divide between those directly engaged to perform contract services and those who perform indirect services necessary to the performance of the work is not a bright line. It will depend on the contract language, the contract specifications, and the facts on the ground.
Accordingly, if a contractor had a US Government service contract to provide a benefits hotline, or HR services, or data services for a government server farm, or custodial services, then the service workers who perform those services would be working directly on the government contract and, of course, would be covered by the SCA. They would be performing the services called for in the contract and thus must be paid SCA prevailing wages and benefits. But if those same services were incidental to the performance of the contract, and not called out in the contract specifications, the answer might be different. Those indirect employees not engaged to work on or in connection with the contract (i.e., simply providing overhead or support services to those who do work directly on the contract), might only have to be paid only the Fair Labor Standards Act (“FLSA”) minimum wage, and there might be no fringe benefit requirements.
Here are the pertinent regulations:
§ 4.150 Employee coverage, generally.
The Act, in section 2(b), makes it clear that its provisions apply generally to all service employees engaged in performing work on a covered contract entered into by the contractor with the Federal Government, regardless of whether they are the contractor's employees or those of any subcontractor under such contract. All service employees who, on or after the date of award, are engaged in working on or in connection with the contract, either in performing the specific services called for by its terms or in performing other duties necessary to the performance of the contract, are thus subject to the Act unless a specific exemption (see §§ 4.115et seq.) is applicable. All such employees must be paid wages at a rate not less than the minimum wage specified under section 6(a)(1) of the Fair Labor Standards Act ( 29 U.S.C. 206(a)(1)), as amended. Payment of a higher minimum monetary wage and the furnishing of fringe benefits may be required under the contract, pursuant to the provisions of sections 2 (a)(1), (2), and 4(c) of the Act.
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§ 4.152 Employees subject to prevailing compensation provisions of sections 2(a)(1) and (2) and 4(c).
(a) Under sections 2(a)(1) and (2) and 4(c) of the Act, minimum monetary wages and fringe benefits to be paid or furnished the various classes of service employees performing such contract work are determined by the Secretary of Labor or his authorized representative in accordance with prevailing rates and fringe benefits for such employees in the locality or in accordance with the rates contained in a predecessor contractor's collective bargaining agreement, as appropriate, and are required to be specified in such contracts and subcontracts thereunder. All service employees of the classes who actually perform the specific services called for by the contract (e.g., janitors performing on a contract for office cleaning; stenographers performing on a contract for stenographic reporting) are covered by the provisions specifying such minimum monetary wages and fringe benefits for such classes of service employees and must be paid not less than the applicable rate established for the classification(s) of work performed. Pursuant to section 4.6(b)(2), conforming procedures are required to be observed for all such classes of service employees not listed in the wage determination incorporated in the contract….
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§ 4.153 Inapplicability of prevailing compensation provisions to some employees.
There may be employees used by a contractor or subcontractor in performing a service contract in excess of $2,500 which is subject to the Act, whose services, although necessary to the performance of the contract, are not subject to minimum monetary wage or fringe benefit provisions contained in the contract pursuant to section 2(a) because such employees are not directly engaged in performing the specified contract services. An example might be a laundry contractor's billing clerk performing billing work with respect to the items laundered. In all such situations, the employees who are necessary to the performance of the contract but not directly engaged in the performance of the specified contract services, are nevertheless subject to the minimum wage provision of section 2(b) (see § 4.150) requiring payment of not less than the minimum wage specified under section 6(a)(1) of the Fair Labor Standards Act to all employees working on a covered contract, unless specifically exempt. However, in situations where minimum monetary wages and fringe benefits for a particular class or classes of service employees actually performing the services called for by the contract have not been specified in the contract because the wage and fringe benefit determination applicable to the contract has been made only for other classes of service employees who will perform the contract work, the employer will be required to pay the monetary wages and fringe benefits which may be specified for such classes of employees pursuant to the conformance procedures provided in § 4.6(b).29 C.F.R. 4.150 - 4.153.
And here is the guidance offered in the Field Operations Handbook (“FOH”):
Employees who do not perform the services required by a contract in excess of $2,500 principally for services, but whose duties are necessary to the performance thereof, as, for example, clerical employees who handle paper work in connection with the contract (such as billing or payrolls), must be paid not less than the MW specified under Section 6(a)(1) of the FLSA assuming such minimum wage obligations apply. See 41 USC 351(b)(1)and 29 CFR 4.153.
FOH 14b05(c).
In short, the line between those workers performing the direct services called for in the service contract, and those performing other services necessary to performance of the work but not called for in the contract, can be a blurry one. It depends on the contract statement of work and specifications, and it may depend on the workers’ actual job duties. DOL, of course, gets to make the final call as to coverage. And they are the Department of Labor and not the department of business. Contractors and the Government agencies should expect DOL to liberally interpret the law to try to effectuate SCA coverage.