If you perform services for the federal government, there is a good chance your contract includes labor standards that set minimum wages and fringe benefits for certain workers. These requirements trace back to the McNamara-O’Hara Service Contract Act of 1965, now commonly referred to as the Service Contract Labor Standards. Construction contracts have a parallel set of requirements under the Davis-Bacon Act of 1931 and related laws.
Labor law is detailed and enforced by the U.S. Department of Labor. This article provides general information only; talk to a qualified employment attorney or advisor about your specific obligations.
What the service contract labor standards require
In general, covered service contracts above a threshold require contractors and subcontractors to pay service employees at least the wages and fringe benefits specified in a wage determination issued by the Department of Labor for the locality where the work is performed. Contracts also include requirements for notifying employees, keeping records and complying with related rules.
Certain employees, such as those who meet criteria for bona fide executive, administrative or professional positions, are generally not covered as service employees. Classifying employees correctly matters.
Understanding wage determinations
A wage determination lists job classifications, such as administrative assistant or janitor, with minimum hourly wage rates and fringe benefit requirements for a geographic area. Wage determinations are published on SAM.gov and are attached to or incorporated into solicitations and contracts.
Wage determinations can change. They are often updated when a contract option is exercised or when a contract is extended, which can increase required wages during performance. Contract clauses describe how price adjustments may work in those situations.
When a job classification you need is not listed, the contract generally requires a conformance process to establish an appropriate rate, with Department of Labor involvement.
Successor contracts and collective bargaining
When a contractor takes over a service contract, it may be bound by wage and fringe benefit terms from a predecessor’s collective bargaining agreement, subject to specific rules. Other requirements can also apply when contracts change hands, such as obligations regarding offering employment to the predecessor’s workers under certain rules. Look for these issues early when pursuing a recompete.
Pricing with labor standards in mind
Labor standards directly affect your price. When preparing a proposal:
- Identify the wage determination and every applicable job classification.
- Price at least the required wage and fringe benefits, including health and welfare amounts and holidays and vacation where specified.
- Consider whether any collective bargaining agreement applies.
- Account for possible changes in option years and how adjustments work.
- Remember related requirements, such as any applicable minimum wage or paid sick leave rules under executive orders, and check their current status.
Underpricing labor to win a contract can lead to violations, back wages and serious consequences, including potential debarment.
Compliance during performance
Keep accurate payroll and timekeeping records, post required notices and make sure subcontractors understand that the requirements flow down to them. The Department of Labor’s Wage and Hour Division at dol.gov offers guidance and compliance resources for contractors.