Sporadically Engaged and Indirect Service Employees -- Is There Some Kind of De Minimis Rule When it Comes to SCA Coverage?

“de minimis: lacking in significance or importance: so minor as to merit disregard”.

—Merriam Webster Dictionary

On occasion, I am asked if there is some kind of de minimis rule with respect to the Service Contract Act (“SCA”) coverage, such that an employer of a worker who only spends brief  amount of working time  on the contract work is released from the burdens of recordkeeping and compliance. The short answer is there is no such blanket SCA safe harbor for the sporadically engaged employee. Of course, the longer answer is more complex.

First off, the SCA makes a distinction between employees who work directly on the contract (i.e., perform the services called for in the contract specifications) and those workers  whose services, although necessary to the performance of the contract, are nevertheless not directly engaged  in performing the specified contract services. https://www.awrcounsel.com/blog/2019/8/20/now-you-see-it-now-you-dont-service-contract-act-coverage-of-indirect-employees?rq=indirect. The distinction between these direct and indirect employees is a fine line and will be dependent on the terms of the contract specifications. For example, a contract for maintenance services will directly engage a janitor, while a contract for consulting services does not. But the janitor cleans the consulting workers offices and takes out the trash  and thus is indirectly related to performance of the work, albeit perhaps for only a portion of their workday. The janitor in either case is covered by the SCA, but the janitor  who is performing indirect services only needs to be paid at no less than the Fair Labor Standards Act (“FLSA”) minimum wage (currently $7.25 an hour) and there is no requirement that fringe benefits be furnished. The prevailing wages and fringe benefit rules don’t apply to the indirect worker, just the FLSA minimum wage.

However, assuming the employee works directly on the SCA covered contract performing the services expressly required by that contract, even if just for a few hours, then he or she is covered by the SCA. That means the worker must receive the SCA prevailing  wage rate and the fringe benefits called for by the Act. The SCA follows  the definition of working time set forth in the FLSA which requires payment for all hours “suffered or permitted to work.” That is an expansive definition, but a de minimis rule has developed  which specifies small increments of work of less than 10 minutes  in duration need not be paid or accounted for. See 29 C.F.R. 785.47. The Supreme Court put it this way: “When the matter in issue concerns only a few seconds or minutes of work beyond the scheduled working hours, such trifles may be disregarded.” Anderson v. Mt. Clemens Pottery Co, 328 U.S. 680 (1946). However, even a few hours of labor scattered sporadically across a work week is not ordinarily deemed to be de minimis. The SCA covered worker performing direct contract services must be paid the prevailing wage for that two hour period and also is entitled to fringe benefits. DOL investigators are tasked with recovering back wages of $25 or more, and that is in total, not per worker.

DOL has flirted with a 20% threshold for coverage in certain Davis-Bacon Act situations and Executive Order coverage of indirectly engaged workers. But there is no similar safe harbor for SCA coverage.

Indeed, the SCA rules can be very harsh in this situation. They require the employer to keep track of all hours worked on the contract in real time, and to pay for them appropriately. If the employer fails to keep track of actual hours worked on the contract, the SCA regulations carry an affirmative obligation that the employer maintain records of the actual jobs worked, or it is presumed that all hours worked were in furtherance of the contract and must be paid at the SCA prevailing rates. See 29 C.F.R. 4.169. So, yes, DOL can extract payment of SCA wages even for non-SCA work if the employer fails its recordkeeping obligations.

Finally, there are some difficult annualization rules with respect to furnishing health & welfare benefits, and some ambiguities in the furnishing of both vacation and holiday benefits to sporadically engaged workers. I will consider those subjects beyond the scope of this blog, but it does represent a serious issue for contractors  whose workers are sporadically engaged in performance of the contract work.