We regularly review the news releases issued by the Department of Labor (“DOL”) Wage and Hour Division (“WHD”) to see if there are lessons to be learned. Last week (on July 25), WHD announced that it “recovered $1,091,515 in back wages for 43 employees of a . . . federal contractor that paid them rates lower than required by federal law.” See announcement at this link https://www.dol.gov/newsroom/releases/whd/whd20240725-1

What did they mean that the “rates [were] lower than required by federal law”? In a nutshell, the WHD investigation focused on a federal contractor that was providing services to the Government under a contract covered by the Service Contract Act (“SCA”). It found that the contractor misclassified its SCA-covered employees and paid them wages that were below the minimum rates that should have been paid to those workers if they had been properly compensated pursuant to the Wage Determination in its contract.

As a consequence, the contractor was required to provide backpay to make up the shortfall. In addition, the investigators determined that the workers received below-minimum overtime pay and so it was also found to have violated the Contract Work Hours and Safety Standards Act (“CWHSSA”). CWHSSA violations not only require the contractor to issue back payments, the contractor also may be required to pay liquidated damages for each calendar day an individual employee worked overtime and was not compensated as required. If one employs a large number of workers who work many hours of overtime, the damages (presently $32 per day per employee) can add up to a substantial amount.

Hence, these mistakes can lead to expensive consequences. So how should a contractor avoid making such errors? In our experience, it can be quite difficult to properly classify employees, even for a large, experienced contractor such as the one in this case.

So, let’s step back and review the requirements. Among other things, the SCA requires service contracts to include a specification of rates to be paid to covered service employees. Except for the case when the employees are compensated in accordance with a Collective Bargaining Agreement, the wage rates for the contract will be set forth in a DOL-issued Wage Determination (“WD”) that lists employee classifications and their applicable minimum wage rates for the geographic area covered by the WD.

The garden variety WD will contain classifications for various kinds of positions such as clerical workers, security personnel, food service employees, and there are even classifications for morticians and embalmers. Except for very odd cases, it’s a contractor’s job to figure out what work will be required for a contract and establish roles and functions to be done by the workers who will perform the Government’s requirements. Then, once the contractor has identified the jobs that will be required, it must then review the WD and determine what minimum wage rates must be paid to the workers who are covered by the SCA (typically nonexempt nonmanagerial workers paid on an hourly basis). This process often is referred to as “mapping.”

Let’s consider an example. Suppose a contractor is performing a food service contract that calls for the operation of a cafeteria. This particular cafeteria has two stations. One station furnishes hot entrees and sides (think meat loaf and green beans) that are prepared in a large kitchen but served by employees who plate the food from a steam table. Another station resembles a fast-food burger joint. There you might have someone who is grilling burgers and making fries and other employees who take orders, bag the items, and hand the food to the customer.

So, you look at the WD and see a listing of food service classifications and their wage rates. These categories include, among others, Cook I, Cook II, Fast Food Shift Leader, Fast Food Worker, and Food Service Worker. While these classification titles are vaguely descriptive, it is not sufficient to simply guess based on a title. The best practice is to review DOL’s SCA Directory of Occupations, a link to which is found at sam.gov under the heading “SCA Resources.” Here’s the link to the sam.gov page: https://sam.gov/content/wage-determinations. Here’s the link to the current edition of the SCA Directory: https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/SCADirectVers5.pdf

The Directory sets forth brief descriptions of the kinds of work covered by the listed classifications. There’s not enough room in this blog to quote the various descriptions potentially applicable in this example. However, I will represent to you that the definitions have a lot of overlap from classification to classification. The person who works the grill could fall under a couple of classifications, The same is true for the folks who make the meat loaf and green beans. We have represented food service clients investigated for misclassifying workers in which, for example, we argued with the investigator over whether a person should have been a Cook I as opposed to a Cook 2 based on the amount of food they were making.

So, like I said above, this isn’t easy and if you’re new to all this or your business is bidding on a new contract, you owe to yourself to carefully categorize the kinds of workers who will be performing the requirements. If you do this at the proposal stage, you’ll be more likely to price your work accurately. And, you’ll hopefully be able to defend your classifications if DOL comes knocking at the door.