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McNamara-O’Hara Service Contract Act

McNamara-O’Hara Service Contract Act. Compliance Principles Session # 801 Monday, April 26, 2004 11:15 a.m. to 12:15 p.m. SCA Compliance Principles. Timely payment of wages and fringe benefits (29 CFR 4.165) Bona fide fringe benefit plans (29 CFR 4.171)

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McNamara-O’Hara Service Contract Act

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  1. McNamara-O’HaraService Contract Act Compliance Principles Session # 801 Monday, April 26, 2004 11:15 a.m. to 12:15 p.m.

  2. SCA Compliance Principles • Timely payment of wages and fringe benefits (29 CFR 4.165) • Bona fide fringe benefit plans (29 CFR 4.171) • Health & Welfare fringe benefits (29 CFR 4.175) • Vacation fringe benefits (29 CFR 4.173) • Holiday fringe benefits (29 CFR 4.174) • Equivalent fringe benefits (29 CFR 4.177) • Temporary & part-time employment (29 CFR 4.176)

  3. Payment of Wages (29 CFR 4.165) • Wages • The prevailing rate established by the contract WD is the minimum rate of pay • Wages and hours worked must be calculated on a fixed and regularly recurring workweek of seven consecutive 24-hour workday periods • Payroll records must be kept on this basis • A bi-weekly or semi-monthly pay period may be used if advance notice is given to affected employees • The same hourly wage requirements apply to temporary, part-time, and full-time employees

  4. Payment of Fringe Benefits • Fringe Benefits (FB’s) • Cash payments in lieu of FB’s must be paid on the regular pay date. (29 CFR 4.165) • Payments into bona fide FB plans must be made no less often than quarterly (29 CFR 4.175(d)) • The cost of providing FB’s may not be credited towards meeting the SCA wage requirements under the contract (29 CFR 4.167)

  5. Bona Fide Fringe Benefits(29 CFR 4.171(a)) • Constitute a legally enforceable obligation that: • Must be communicated in writing to employees • Provides payment of benefits (e.g., life or health insurance, pension plan) to covered employees • Contains a definite formula for determining amount of contribution and benefits provided • Is paid irrevocably to an independent trustee or third person pursuant to a fund, trust, or plan • Meets criteria set forth by the IRS, ERISA, and FLSA

  6. Unfunded Self-insured Fringe Benefit Plans (20 CFR 4.171(b)) • Typically permit a contractor to make “out-of-pocket” payments to provide benefits as expenses arises • Are not normally considered bona fide plans or equivalent benefits for SCA purposes except for vacation, sick leave, and holiday plans • Require advance approval by the Administrator next page

  7. Unfunded Self-insured Fringe Benefit Plans • Require the following factors to be met: • Prescribed benefits can be provided • Represent a legally enforceable commitment • Carried out under a financially responsible program • Communicated to employees in writing

  8. Miscellaneous Fringe Benefits Provisions • Benefits required by Federal, State, or local law (e.g., workers’ compensation) are not FB’s for SCA purposes (29 CFR 4.171(c)) • Cost of furnishing board & lodging that is creditable towards wages may not be used to offset FB obligations (29 CFR 4.171(d) & 29 CFR 531) • The furnishing of “facilities” that are primarily for the benefit of the contractor (e.g., transportation expenses incident to employment) may not be credited towards wage or FB obligations (29 CFR 4.171(e)) • Contributions for social functions are not bona fide wages or FB’s (29 CFR 4.171(f))

  9. Health and Welfare Fringe Benefits • Three types of FB requirements: • “Standard” WD benefits ($2.36) • “Average cost” benefits ($2.56) • Collectively bargained (CBA) benefits • Types and amounts of benefits and eligibility requirements are strictly the contractor’s prerogative

  10. Health & Welfare Fringe Benefits(29 CFR 4.175(a)) • “Standard” benefits (per employee basis) • The most common type • Increased to $2.36 per hour on June 1, 2002 • Increased rate must be included in all “invitations for bids” opened, or other service contracts awarded on or after June 1, 2003 • Required to be paid on an individual employee basis for all hours paid for up to 40 hours in a workweek, including paid leave and holidays

  11. $2.36 per hour paid for per employee requirement: EmployeeHrs. paid forFB’sCashTotal Libby 80 $ 98.80 $90.00 $188.80 Jean *100 $150.80 $38.00 $188.80 Ann 20 0.00 $47.20 $ 47.20 Tim 80 $188.80 0.00 $188.80 Tom 60 $110.00 $31.60 $141.60 *340 $755.20 Cash equivalent payments and FB’s provided may vary from employee to employee so long as total amount for each employee equals, or exceeds $2.36 per hour for up to 40 hours a week. *20 hours of overtime excluded from payments. Total of $755.20/320 hours = $2.36 Standard H&W ContributionsBi-Weekly Payroll

  12. Health & Welfare Fringe Benefits(29 CFR 4.175(b)) • “Average Cost” Benefits • Contributions are permitted to vary depending upon employee’s marital or employment status • Total contributions must average at least $2.56 per hour per employee: • On the basis of all hours worked, including overtime hours • Excludes paid leave time and holidays • Compliance not determined on an individual basis

  13. Health and Welfare Fringe BenefitsContributions $2.56 “average cost” benefit - compliance through FB plan contributions and cash payments: EmployeeHours WorkedEmployer FB contributions Libby 250 $500 Jean 150 $450 Ann 250 $500 Tim 50 0 Tom 100 $150 800 $1600 1600 (total contributions) /800 (total hours)= $2.00 average next page

  14. Health & Welfare Fringe Benefits Contributions • Each employee must receive the following cash payments: Employee HoursShortfallTotal Libby 250 $.56 $140 Jean 150 $.56 $ 84 Ann 250 $.56 $140 Tim 50 $.56 $ 28 Tom100 $.56 $ 56 Total 800 $448 $1600 (FB’s) + $448 (Cash) = $2048/800 hours = $2.56 Note – Cash payments must be made equally

  15. Health and Welfare Fringe Benefits • Based on a CBA • Are required to be paid by a successor contractor under the provisions of section 4(c) of the SCA • Need not provide specifically the FB’s stipulated in the CBA. Equivalent benefits may be provided • Cash equivalent payments can be used to offset the FB’s due

  16. Vacation Fringe Benefits (29 CFR 4.173) • Are vested and become due after the employee’s anniversary date • They do not need to be paid immediately after the anniversary date, but must be discharged before, whichever occurs first: • The next anniversary date, or • The completion of the contract, or • The employee terminates employment

  17. “Continuous Service” (29 CFR 4.173(a) & (b)) • Determines contractor’s liability for vacation benefits by the total length of time an employee has been employed by: • Either the present contractor in any capacity, and/or • The predecessor contractors in the performance of similar contract functions at same Federal facility • Contractor’s liability can be determined from the contract WD

  18. Incumbent Contractor’s List(29 CFR 4.6(l)(2) & 4.173(d)(2)) • Must be furnished to the contracting officer ten days prior to contract completion • Identifies all service employees on last month’s payroll • Provides the anniversary date of employment of each employee

  19. Holiday Fringe Benefits(29 CFR 4.174) • If any work is performed by an employee in a workweek in which the holiday falls, the employee is entitled to holiday pay • Holiday pay is generally not applicable to days in which the Federal government is closed by proclamation, such as the day before Christmas or on snow days, i.e., any day not named as a holiday in the contract WD • Paid holidays can be traded for another day off with pay in accordance with a plan communicated to the employees involved

  20. Equivalent Fringe Benefits (29 CFR 4.177) • A contractor may • Furnish the FB’s listed in the contract WD, or • Furnish equivalent combinations of bona fide FB’s, or • Furnish equivalent combinations of bona fide FB’s and cash, or • Make equivalent cash payments • Must be equal in cost to the FB obligations • Must be separately stated in the employer’s records • May not be used to offset WD wage requirements

  21. Furnishing Cash Equivalents(29 CFR 4.177(c)) • An hourly cash equivalent can be determined: • For FB’s listed in weekly amounts ($120) by dividing the FB amount by hours worked, e.g., $120/40 hours = $3.00 per hour • For FB’s listed in non-cash amounts, e.g., one week paid vacation after one year of service, by multiplying the hourly rate by hours making up the vacation and dividing the cost by the annual non-overtime hours, e.g., $10 X 40 hours = $400/2080hours = $0.19 per hour

  22. Part-time Employees (29 CFR 4.176) • Part-time employees are paid a proportionate amount of the FB’s due full-time employees • Examples: • Full-time employee - one week (40 hours) of vacation, and eight hours of holiday pay. • Part-time employee (20 hours per week) would be entitled to one-half of the paid vacation benefits (20 hours) and holiday pay benefits (4 hours) • Same part-time employee would be entitled to the same hourly rate of the health & welfare benefits, but for only 20 hours

  23. SCA labor Standards/Contract Stipulations • SCA requires that stipulations be included in all covered contracts: • Minimum wages to be paid • Fringe benefits (FB’s) to be furnished • Safety and health provisions • Notice of required compensation • Statement of rates that may be paid to Federal employees for such services

  24. Discharging SCA Minimum Wage & Benefit Obligations • WD specifies MW and FB obligations • Excess FB payments do not offset MW • One FB may be substituted for another • Equivalent cash payment may be made in lieu of furnishing FB • Benefits required by Federal, State, or local law do not offset FB requirements

  25. More Benefit Obligations • Most WD's require health & welfare FB’s to be paid per hour up to 40 to each service employee (example: $2.36 per hour) • Some existing WD's require health & welfare FB’s to be paid on an average cost basis for all covered service employees on the contract (example: $2.56 per hour)

  26. Discharging Minimum Wage & Fringe Benefit Obligations • Example of separate requirements under SCA for payment of wages and FB’s: • Wage Determination: Employee Paid: Wage $10.25 Wage $10.75 FB’s $ 2.36 FB’s $ 1.86 Total $12.61 Total $12.61 • Under SCA, the contractor may not credit excess wage payment against the FB obligation

  27. Overtime Pay (29 CFR 4.180 - 4.182) • SCA does not provide for premium rates for overtime hours of work, but recognizes other Federal laws that do • FLSA has the broadest application • CWHSSA applies to contracts in excess of $100,000 that employ laborers and mechanics • Overtime pay is determined in the same manner under both laws

  28. Overtime Pay • Calculated at 1-1/2 times the employee’s basic hourly rate of pay for all hours worked in excess of 40 in a workweek • Liquidated damages can be assessed under CWHSSA at $10 per day when overtime not properly paid

  29. Compliance with CWHSSAOvertime Provisions An employee worked 44 hours on a covered contract as a janitor at a WD rate of $9 plus $2.36 in FB’s per hour. 40 hours X $2.36 = $ 94.40 FB’s 44 hours X $9.00 = $396.00 S/T wages 4 hours X $9.00 x 1/2 = $ 18.00 O/T premium Total $508.40

  30. Overtime Computation where Employee Employed at Two Rates During a workweek, an employee works 20 hours as an Electrician at $12.00 an hour and 24 hours as a Painter at $10.00 an hour. Electrician $12.00 X 20 hours = $240.00 Painter $10.00 X 24 hours = $240.00 Total Straight time wages $480.00 $480/44 hours = $10.91 (regular rate) Overtime due: $10.91 X 1/2 x 4 hours = $21.82

  31. Computing Liquidated Damages under CWHSSA Liquidated damages are computed at $10 per day per CWHSSA violation. Example: S M T W T F S TOTALS Regular Time 0 10 12 13 9 8 3 55 15 weekly hours of overtime were worked on three calendar days (Thursday, Friday, Saturday) without the payment of overtime. Liquidated damages computed @ $30.

  32. Withholding(41 U.S.C. 352(a); 29 CFR 4.6(i)) • Withholding actions may be necessary to recover back wages as SCA does not have a right of individual action (private lawsuit) • Government may institute court action against contractor or its surety to recover wage and fringe benefit underpayments • Subcontractor’s failure to make restitution becomes the prime contractor’s responsibility • Contractor will be notified in writing • Wage claims have priority

  33. Debarment(41 U.S.C. 354; 29 CFR 4.188) • Any person or firm found to have violated the SCA may be ineligible to receive further contracts for three years • Unless finding of “unusual circumstances” - burden is on contractor to establish • Comptroller General distributes debarred bidders list to all agencies

  34. SCA Procedures to Resolve Disputes • Refusal-to-pay cases • If factual issues in dispute, WHD notifies contractor of findings and offers opportunity to request a hearing before the ALJ • If questions of law in dispute, WHD issues ruling letter that may be appealed to ARB • If debarment action, contractor is offered opportunity to request an ALJ hearing

  35. ALJ Hearing Process • Contractor is served with a copy of the complaint • Office of the Chief ALJ is responsible for the scheduling of administrative hearings • ALJ decisions may be appealed (within 40 days) to the Administrative Review Board (ARB)

  36. Administrative Review Board (ARB) • Members appointed by the Secretary of Labor • Hears appeals of ALJ decisions • Acts on petitions to review final rulings of the WHD Administrator: • 60 days on coverage & interpretations • 20 days on WD matters • Enforcement proceeding may be an oral hearing in Washington, D.C., or, typically, by review of record in closed session

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