Compliance with Service Contract Act and Related Requirements

1. This UBA Employer Webinar Series is brought to you by United Benefit Advisorsin conjunction with Jackson Lewis For a copy of the following presentation, please visit our website at www.UBAbenefits.com. Go to the Wisdom tab and then to the HR webinar series page.

2. Presented by: Leslie Stout-Tabackman 703-483-8345 leslie.stout@jacksonlewis.com July 14, 2015 - United Benefits Advisors- Compliance with the Service Contract Act and Related Requirements

3. Important Legal Notice • This presentation is to provide general information and updates regarding the Service Contract Act and related requirements for federal contractors. • These materials are not intended to provide legal advice on specific compliance issues. Company personnel should consult either with in-house counsel, or as directed, with an outside counsel for legal advice about whether, based on specific facts and circumstances, the company complies with the applicable prevailing wage and related requirements.

4. Leslie Stout-Tabackman Leslie Stout-Tabackman is a Shareholder in Jackson Lewis’ Washington, D.C. Region office. She regularly counsels and represents clients with matters before the U.S. Department of Labor’s (DOL) Wage and Hour Division, including Fair Labor Standards Act (FLSA) issues and prevailing wage and benefits issues arising under the Service Contract Act (SCA) and the Davis-Bacon Act (DBA). Her prevailing wage practice includes counseling federal contractors and providing comprehensive training on SCA and DBA prevailing wages and benefits requirements and related contracting procedures from the solicitation and bid stage through completion of the contract. She regularly represents clients facing DOL FLSA, SCA and DBA audits and has advised and represented clients on these matters before the DOL’s Administrative Review Board Leslie is a member of the D.C. Bar Association, Labor and Employment Section and the American Bar Association, Section of Labor and Employment Law, Federal Labor Standards Legislation Committee. She is admitted to practice in the U.S. District Court for the District of Columbia and the District of Columbia Court of Appeals Leslie received her B.A. from Colgate University, and earned her J.D. degree from The American University, Washington College of Law summa cum laude where she served as Editor--In--Chief of the American University Law Review, received the Outstanding Graduate Award, and was elected to the Washington College of Law’s Honor Society.

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6. SCA: Purpose • The McNamara-O’Hara Service Contract Act of 1965, as amended, covers most federal service contracts in excess of $2,500 (41 USC § 351 et seq. and 29 CFR Part 4). • Provides minimum labor standards protection to service employees. • Wage Determinations issued that set wage rates and benefits for classes of employees used in service contracts. • Purpose is to remove wages as a bid factor in competition for federal service contracts

7. What is Covered? • Contracts entered into by federal and District of Columbia agencies in which the principal purpose of the contract is to furnish services in the U.S. through the use of “service employees.” • Above $2,500 threshold – for IDIQ and task order contracts must aggregate $ amounts of purchase orders and task orders under umbrella contracting vehicle on annual basis. • SCA provisions apply to subcontractors at all tiers under SCA-covered prime contracts.

8. SCA Does Not Apply to… • Services performed outside the U.S. (except in territories administered by the U.S., as defined in the Act). • Contracts administratively exempted by DOL in special circumstances because of the public interest or to avoid serious impairment of government business. • Contracts exempted by statute or regulation. • Contracts covered by other prevailing wage laws (although there can be mixed coverage).

9. Who is Covered? • “Service employee” includes any worker engaged in performing services on a covered contract except for those who are exempt under the Fair Labor Standards Act (“FLSA”). • Includes independent contractors, part-time ,and temporary employees of both the prime contractor and subcontractors • Employees whose services are necessary to the performance of the contract, but who are not directly engaged in the performance of specified contract services, may be excluded from coverage.

10. Covered Employees • All employees are covered unless exempt from the overtime and minimum wage requirements under the “white collar” exemptions of the FLSA: • Executive exemption • Administrative exemption • Professional exemption • Computer employees • Exemptions have three tests - must meet all three for exemption to apply: • Salary level/amount • Salary basis • Duties

11. Key SCA Requirements • Wages and fringe benefits minimum rates are separately specified and must be paid/provided separately to workers • Determined by the DOL in WDs • Includes holidays, vacation, and bona fide health and welfare fringe benefits or cash equivalent • Posting requirements—notice and WD rates and benefits. • Recordkeeping requirements.

12. Penalties for Non-Compliance • Back wages and benefits. • A “hold” on contract payments by agency. • Contract cancellation and reprocurement costs. • Debarment for three-year term from all government contracts unless showing of “unusual circumstances.”

13. Liability for Non-Compliance • Personal liability for corporate officials and others who exercise control, supervision or management of contract performance. • Joint and several liability for prime contractors and subcontractors. • Prime contractor responsible for SCA flow-down provisions to subcontractors.

14. Enforcement • DOL is the enforcement agency, and relies on audits. • DOL can and will expand audit to multiple contractors and/or multiple locations where initial audit shows violations that may be systemic or are found to be willful. • No private cause of action, although an employee or union may file a qui tam action under the Civil False Claims Act.

15. Wage Determinations • Wage Determinations (WDs) contain: • Job classifications • Hourly wage rates for each job classification • Required vacations benefits • Required holiday benefits • A Health & Welfare (H&W) hourly rate • Sometimes special premium rates, uniform allowances

16. Wage Determinations (cont.) • WDs are issued by state and county and reflect wages specific to that county. • There are two types of WDs: • Prevailing—based on wage surveys • 4(c)—based on previous contractor’s collective bargaining agreement (“CBA”)

17. Wage Determinations (cont.) • WDs are developed by DOL based on available data showing the rates that are prevailing in a specific locality. • WDs are reviewed periodically, as new data become available. • Most WDs are updated once a year. • Executive Order 13658 sets current minimum WD hourly wage for covered contracts at $10.10 with annual increases – now listed at top of WDs. • H&W rate is increased annually, usually in July. • Based on Bureau of Labor Standards employer costs for employee compensation

18. Classifications and Wage Rates WD Example lWD 05-2103 (Rev.-15) was first posted on www.wdol.gov on 12/30/2014 ************************************************************************************ REGISTER OF WAGE DETERMINATIONS UNDER | U.S. DEPARTMENT OF LABOR THE SERVICE CONTRACT ACT | EMPLOYMENT STANDARDS ADMINISTRATION By direction of the Secretary of Labor | WAGE AND HOUR DIVISION | WASHINGTON D.C. 20210 | | | | Wage Determination No.: 2005-2103 Diane C. Koplewski Division of | Revision No.: 15 Director Wage Determinations| Date Of Revision: 12/22/2014 Note: Executive Order (EO) 13658 establishes an hourly minimum wage of $10.10 for 2015 that applies to all contracts subject to the Service Contract Act for which the solicitation is issued on or after January 1, 2015. If this contract is covered by the EO, the contractor must pay all workers in any classification listed on this wage determination at least $10.10 (or the applicable wage rate listed on this wage determination, if it is higher) for all hours spent performing on the contract. The EO minimum wage rate will be adjusted annually. Additional information on contractor requirements and worker protections under the EO is available at www.dol.gov/whd/govcontracts. States: District of Columbia, Maryland, Virginia Area: District of Columbia Statewide Maryland Counties of Calvert, Charles, Frederick, Montgomery, Prince George's, St Mary's Virginia Counties of Alexandria, Arlington, Fairfax, Falls Church, Fauquier, King George, Loudoun, Prince William, Stafford OCCUPATION CODE - TITLE FOOTNOTE RATE 01000 - Administrative Support And Clerical Occupations 01011 - Accounting Clerk I 15.08 01012 - Accounting Clerk II 16.92 01013 - Accounting Clerk III 22.30 01020 - Administrative Assistant 31.41

19. Fringe Benefits WD Example • ALL OCCUPATIONS LISTED ABOVE RECEIVE THE FOLLOWING BENEFITS: • HEALTH & WELFARE: $4.02 per hour or $160.80 per week or $696.79 per month. • VACATION: 2 weeks paid vacation after 1 year of service with a contractor or successor; 3 weeks after 5 years, and 4 weeks after 15 years. Length of service includes the whole span of continuous service with the present contractor or successor, wherever employed, and with the predecessor contractors in the performance of similar work at the same Federal facility. (Reg. 29 CFR 4.173). • HOLIDAYS: A minimum of ten paid holidays per year, New Year's Day, Martin Luther King Jr's Birthday, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas Day. (A contractor may substitute for any of the named holidays another day off with pay in accordance with a plan communicated to the employees involved.) (See 29 CFR 4174).

20. The Process • Contracting agency is responsible for selecting appropriate WD(s) and incorporating WD(s) into contract. • Contractor should not independently select the WD(s)—risk following the wrong WD and risk losing price adjustment. • New WD(s), as applicable during course of contract, should be selected by contracting agency and incorporated into contract. • If job descriptions for the WD positions do not match job descriptions of the contract work, contractor must seek a “conformance” from DOL through the CO.

21. When Are New WDs Applicable? • Anniversary date of contract in multi-year contract (non-appropriated funds contracts require new WDs every two years rather than annually). • Extension of contract (but not if contractor just granted extra time to fulfill original commitment) or exercise of option. • Major modification or amendment of contract affecting labor requirements. • New WDs should be provided by CO by incorporation into contract (typically via a modification).

22. Collective Bargaining Agreements • If predecessor SCA contractor had a collective bargaining agreement (“CBA”) for same type of work at same site, CBA rates and benefits must be followed for first year of contract—CBA information to be provided by CO and typically is issued as the WD. • Contractor can challenge CBA rates and benefits if: • Rates and benefits are “substantially at variance” with locally prevailing rates, or • CBA not reached as a result of “arm’s-length” negotiations

23. Classification of Workers • All non-exempt workers on an SCA contract must be classified to determine correct wage rates for the position. • Employers should: • review all workers on the contract and compare to the job classifications on the contract WD • review actual job duties and compare with the job descriptions in the SCA Directory of Occupations • If a job is not on the WD, must conform it by filing SF 1444 “Request for Authorization of Additional Classification and Rate.”

24. SCA Hours Worked • Hours worked subject to SCA wages (and benefits) are hours worked on covered contract. • Employer must segregate time and keep records of time spent on SCA-covered and non-SCA covered work each workweek or else all work may need to be paid at SCA rate. • Employer must track and keep proof of SCA-covered work performed by employees who perform work in different classifications or else all work may need to be paid at the highest SCA rate.

25. Payment of Wages • SCA wages must be paid to SCA workers (including temporary workers and independent contractors) for all SCA hours worked at the worker’s job classification at the rate listed in the contract WD. • If an SCA worker performs work during the workweek in more than one classification, the employer should track hours in each classification and pay the worker in accordance with hours worked and wage rates in each classification.

26. Fringe Benefits • H&W rate, vacation and holidays. • Unless otherwise specified on the applicable WD, health and welfare payments are due for all hours, including paid vacation, sick leave and holiday hours; up to a maximum of 40 hours per week and 2,080 hours per year on each contract. • Employer may provide H&W rate through bona fide fringe benefits or in cash payments. • Must be provided to all SCA workers including part-time workers, temporary workers and independent contractors.

27. Examples of Fringe Benefit Plans • Life Insurance. • Health Insurance. • Disability Insurance. • Pension/401(k). • Sick leave. • Vacation, holidays, PTO provided in excess of WD requirements.

28. Funded Fringe Benefit Plans • Contractors may take credit (without prior approval from DOL) for bona fide fringe benefit fund contributions made to third-party trustees or insurers that: • Are irrevocably paid, and • Are made regularly, not less often than quarterly • Credit is for employer payments made for/on behalf of individual workers eligible to participate in the plan, program, or fund. • Cannot take credit for employee premiums or employer overhead/administrative costs (paid separately). • If plan is self-funded (e.g. self-insured medical insurance) and meets requirements for approval, plan to seek approval letter from DOL.

29. Payment of Fringe Benefits • Cash payments in lieu of fringe benefits must be paid on the regular pay date. • Fringe benefit cash payments must be separately listed on payroll or DOL will not give credit. • Higher wage payments (above the SCA rate) may not be used to offset fringe benefit payments due to employees. • Payments into bona fide fringe benefit plans must be made no less often than quarterly.

30. Payment of Fringe Benefits (cont.) • The cost of providing fringe benefits may not be credited towards meeting the SCA wage or benefit requirements under the contract. • If participation in the FB plan requires a contribution from the employee’s wages, the employee’s consent is necessary. • Employer cannot count any benefits mandated by law toward the H&W benefit required (e.g., social security taxes, unemployment compensation, worker’s compensation). • ACA required health insurance is not considered a benefit mandated by law.

31. Health and Welfare (H&W)Fringe Benefits • Three types of FB requirements: • “Fixed cost” per employee benefits • “Average cost” benefits • Collectively bargained (CBA) benefits • Types and amounts of benefits and eligibility requirements are contractor’s prerogative.

32. “Fixed Cost” Benefits • $4.02 per hour effective July 22, 2014. • Included in all “invitations for bids” opened, or • Other service contracts awarded on or after July 22, 2014 • Required to be paid on a “per employee” basis. • For all hours paid up to 40 hours in a workweek, and 2,080 hours a year • Includes paid leave and holidays

33. “Average Cost” Benefits • Contributions may vary depending upon employee’s marital or employment status. • Total contributions must average at least $4.02 per hour per employee: • Must be calculated and paid for all hours worked • Excludes paid leave time and holidays • Compliance is determined on a group basis, not an individual basis.

34. Collectively Bargained Fringe Benefits • Based on CBA. • Required to be paid by successor contractor under section 4(c) of SCA. • Need not provide specifically the FBs set out in the CBA. • Equivalent benefits or cash equivalent payments can be used to provide the FBs due.

35. Equivalent Fringe Benefits • Contractor may provide FBs: • By furnishing the benefits listed in WD, or • Furnishing equivalent combinations of bona fide FBs, or • Making equivalent cash payments: • Equal in cost • Separately stated in employer’s record • Not used to offset wage requirements • But, ACA requires most employers to offer health insurance to covered employees.

36. Vacation • Amount of vacation due employees is listed on the WD. • Some employers’ vacation policies may be in conflict with or fail to meet the SCA’s vacation requirements. • SCA doesn’t provide for carryover of vacation even though many employers allow it • Vacation is determined based on anniversary date of employee, not calendar year or employer’s fiscal year

37. Vacation (cont.) • SCA vacation is not required to be provided on accrual basis but can be granted in a lump amount on employee’s anniversary date. • California requires accrual • Check other state laws • Part-time employees are entitled to pro-rata vacation; temps and independent contractors must also receive vacation or cash equivalent.

38. Vacation (cont.) • “Continuous service” determines employee’s eligibility for vacation benefits and is determined by the length of time an employee: • Worked for the contractor in any capacity (includes non-SCA work), and/or • Worked for the predecessor contractor in performance of same or similar contract at same facility

39. Vacation (cont.) • Vacation becomes vested and due on anniversary date, but need not be used or paid out until the earliest of: • The employee’s next anniversary date • The date of contract completion, or • The employee terminates employment

40. Holidays • Named holidays are listed on WD. • Number and named holidays can vary among WDs so always check WD for each contract • Employee entitled to holiday pay if he/she works during holiday workweek. • Employee is also entitled to holiday pay if he/she is on paid vacation or sick leave during holiday workweek. • Holiday benefits must be provided regardless of whether the employee works the day before or after the holiday (as some employers require).

41. Notice and Posting Requirements • Employer performing work covered by the SCA is required to: • Provide each employee working on the contract notice of the SCA payment and fringe benefit requirements for the different classes of service employees • Post the “Employee Rights on Government Contracts” notice (including any applicable WD) at the site of the work in a prominent and accessible place where it may be easily seen by employees 

42. Recordkeeping • Some of the records required under the SCA are also required under the Fair Labor Standards Act. • Contractors and subcontractors are required to maintain certain records for each employee performing work on the covered contract. Basic records, such as name, address, and Social Security number of each employee must be maintained for three years from completion of the work. • In addition, records on the following must be maintained for three years: • The correct work classification(s), wage rate(s), and fringe benefits provided (or cash equivalent payments provided in lieu of fringe benefits) • The total daily and weekly compensation of each employee

43. Recordkeeping (cont.) • The number of daily and weekly hours worked by each employee • Any deductions, rebates, or refunds from each employee’s compensation • Any list of a predecessor contractor’s employees which had been furnished showing employee’s length of service information • A list of wages and fringe benefits for those classes of workers conformed to the WD attached to the contract • The contractor shall also make available a copy of the contract upon request from the Wage and Hour Division

44. Contract Work Hours and Safety Standards Act (“CWHSSA”) • Requires overtime pay for laborers and mechanics at a rate of one-and-a-half times the required basic rate of pay for hours worked on covered contracts in excess of 40 in a workweek. • Covers contracts over $100,000 that require or involve the employment of “laborers” and “mechanics” on certain prevailing wages contracts including SCA covered service contracts. • Liquidated damages can be assessed at a rate of $10 per day for each worker not paid proper overtime. • Misclassification of employees who work OT can result in violations.

45. E.O. 13495 • President Obama signed E.O. 13495 “Nondisplacement of Qualified Workers under Service Contracts” as one of three pro-labor Executive Orders as soon as he took office in January 2009. • Federal contractors awarded a follow-on contract for the “same or similar services at the same location” must offer the predecessor contractor’s employees (other than managers and supervisors) the “right of first refusal” for positions in which they are qualified. • Requirement became effective January 18, 2013 and is applicable to solicitations issued on or after that date.

46. Same or Similar Service in Same Location • “Same or Similar Service”: • “Either identical to or has characteristics that are alike in substance to a service performed at the same location on a contract that is being replaced by the Federal Government or a contractor on a Federal service contract” • “Same location”: • Not defined in rules • Depends on geographic area in which performance has occurred and will occur • May be determined by reference to contract SOW or other contract provision

47. Workforce Notification • Workforce Notification: • Responsibility of the predecessor contractor to provide to the contracting officer a seniority list of the workforce that performed work under the service contact (contract and subcontracts) as of the date the list is submitted • Responsibility of the contracting officer to provide seniority list provided to the agency by the predecessor contractor to the successor contractor (immediately but not before contract award) and to employees or their representatives upon request • Responsibility of the predecessor contractor to provide to predecessor contractor’s employee written notice of their possible right to an offer of employment

48. Bona Fide Offer of Employment • Bona Fide Offer of Employment: • Successor contractor must make a bona-fide offer of employment to each qualified employee • In writing or orally – as a practical matter we recommend that all offers be made in writing • Offer must remain open for a minimum of ten days • Good faith offer of employment can be for lower wages and benefits • Offer may be for a different position other than job the employee held with predecessor contractor

49. Bona Fide Offer of Employment • Bona Fide Offer of Employment: • A contractor may determine the size of the workforce necessary to fulfill the service contract and only has to offer employment to the number of employees it deems necessary to fulfill the contract • Obligation to offer employment to the predecessor’s employees continues for 90 days • Must exhaust the list of qualified employees until all positions are filled and for any additional openings that occur within the first 90 days of a contract • Contractor may determine the order in which employees are offered employment

50. Exceptions • Exceptions: • Managerial and Supervisory Positions • Employee retained by the predecessor – but the successor must presume that the employee will be terminated absent “a reasonable belief” based on “credible information” provided by a “knowledgeable source” (i.e., the predecessor or the employee) • Employee worked under a federal service contract and nonfederal service contracts as part of a single job • Employee who is not qualified for any job opening