The Service Contract Act sets a floor wage for your contract, written into the wage determination attached to it, and paying below that floor makes you liable for the back wages. Service Contract Act compliance is therefore a bookkeeping job before it is anything else: proving you paid correctly, every pay period, for every labor category.
Take a janitorial contract at Fort Bragg. Wage determination 2015-4377, which covers Cumberland and Hoke Counties in North Carolina, lists Janitor (occupation code 11150) at $15.39 per hour in revision 32. Say your payroll records show $14.00, and 23 employees have been paid at that rate for fourteen months.
The math is immediate: $1.39 per hour, times 40 hours per week, times roughly 56 weeks, times 23 workers. That is about $71,600 in back wages before the DOL adds anything, and the health and welfare fringe is a separate obligation on top of it. The contracting officer withholds payment to cover the shortfall. Fourteen months of margin disappears because someone pulled the wrong revision from SAM.gov.
Every service contractor working on a federal contract over $2,500 faces this risk. The rules are specific. The penalties hit fast. The bookkeeping requirements go beyond anything a standard payroll system handles out of the box.
The Bottom Line
Service Contract Act compliance under 41 U.S.C. 6701-6707 requires government service contractors to pay prevailing wages and fringe benefits as determined by the Department of Labor for each job classification and geographic area. Amerifusion Bookkeeping works with service contractors to build payroll systems that track SCA wage determinations, fringe benefit obligations, and the record-keeping requirements that DOL investigators check first. Violations result in back pay, contract termination, and placement on a list that bars federal contract awards for three years from the date the list is published [41 U.S.C. 6706(b); FAR 22.1025].
What the Service Contract Act Requires
The Service Contract Act applies to every federal contract over $2,500 where the principal purpose is furnishing services through service employees [41 U.S.C. 6702]. Janitorial crews, security guards, facilities maintenance workers, food service staff, and groundskeepers all fall under SCA coverage. The law creates three obligations for every covered contractor: pay prevailing wages, provide fringe benefits, and maintain specific payroll records.
“Service employee” under the SCA means any person engaged in performing a service contract other than a bona fide executive, administrative, or professional employee as defined under the Fair Labor Standards Act [29 CFR 541]. Your project manager is likely exempt. Your floor technicians are not.
The contracting officer attaches a wage determination to every SCA-covered contract. That wage determination lists minimum hourly rates and fringe benefit amounts for each job classification the contract requires. Paying below those rates, even by a quarter, triggers DOL enforcement. The contractor must also tell employees what they are owed. FAR 52.222-41(g) gives a choice: notify each service employee, when they start on the contract, of the minimum monetary wage and any required fringe benefits, or post the wage determination attached to the contract.
Subcontractors carry the same obligations. If you subcontract a portion of an SCA-covered contract, your subcontractor must pay SCA wages and fringe benefits to their workers on that contract. FAR 52.222-41(l) requires the prime to insert the clause in all subcontracts subject to the statute, and the practical consequence is that monitoring subcontractor payrolls becomes the prime’s problem well before an investigator arrives.
What Is an SCA Wage Determination?
An SCA wage determination is a document issued by the DOL’s Wage and Hour Division listing the minimum hourly wage and fringe benefit rates for specific job classifications in a specific geographic area. Every SCA-covered contract includes one. Finding and applying the correct wage determination is the single most important step in SCA payroll compliance.
Wage determinations are published on SAM.gov and organized by state, county, and contract type. Two types exist. Area-wide wage determinations apply to a geographic region and cover standard service occupations (janitors, guards, maintenance workers). Contract-specific wage determinations are issued for individual contracts when the DOL determines that area-wide rates do not reflect local conditions.
Here is where contractors get into trouble. Wage determinations update annually. Under FAR 52.222-43(c), the wage determination current on the anniversary date of a multiple year contract, or at the beginning of each renewal option period, applies to the contract. A wage determination that was correct when you bid in 2024 is not necessarily correct in 2026. Your bookkeeping system needs to track which wage determination applies to each contract period and flag anniversary dates for updated rates.
The rest of that clause runs in your favor. FAR 52.222-43 is titled a price adjustment clause, and paragraph (d) adjusts the contract price to reflect the contractor’s actual increase or decrease in applicable wages and fringe benefits. When the health and welfare rate moved from $5.55 to $5.92 this August, that is 37 cents per hour per covered employee on every affected multiple year or option contract carrying this clause.
Paragraph (b) is the reason it works this way. You warranted that your prices contain no contingency for these increases, so you did not price for them and you are not expected to absorb them.
Track the delta by contract from the effective date and submit it. Contractors who treat a wage determination update as a cost event and never as a revenue event give this money away every year.
When your contract requires a job classification that does not appear on the attached wage determination, you must request a conformance. Submit Standard Form 1444 to the contracting officer no later than 30 days after the unlisted employee first performs any contract work [FAR 52.222-41(c)(2)(ii)]. The proposed rate must be at least equal to the rate for the closest matching classification on the wage determination. Do not guess. Do not assign a lower classification because the title sounds similar. DOL investigators compare actual job duties to classification descriptions, not job titles.
SCA Fringe Benefit Calculations
SCA fringe benefits are separate from and in addition to the hourly monetary wage. The wage determination specifies a health and welfare (H&W) rate per hour, plus requirements for paid holidays and paid vacation. Contractors must provide these benefits or pay the equivalent value in cash. Getting fringe benefit calculations wrong is the second most common SCA violation after wage underpayment.
The DOL sets the prevailing health and welfare fringe benefit rate under 29 CFR 4.52 and updates it annually by All-Agency Memorandum. Effective August 10, 2026, the rate is $5.92 per hour, and $5.42 per hour on contracts also covered by Executive Order 13706 [DOL All-Agency Memorandum 252, August 10, 2026]. Employees in Hawaii covered by the Hawaii Prepaid Health Care Act carry separate rates of $2.51 and $2.01. The previous rates, $5.55 and $5.09 under AAM 250, applied from July 7, 2025 until this revision.
Do not calendar this as a July event. The last four memoranda are dated June 2023, July 2024, July 2025 and August 2026. Read the rate off the wage determination attached to your own contract, which states it on its face along with the weekly and monthly equivalents.
The rate is due for all hours paid for, 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 [29 CFR 4.175(a)(1), applying 29 CFR 4.172]. The per-contract limit is the part contractors miss when an employee splits time across two covered contracts.
If EO 13706 covers your contract, the paid sick leave you provide under that order is separate from and in addition to the H&W fringe benefit. The wage determination puts it beyond argument: a contractor receives no credit toward its SCA obligations for any paid sick leave provided pursuant to EO 13706. The EO 13706 rate is the lower of the two because the sick leave portion is already being delivered through the order itself.
Contractors satisfy the H&W obligation in one of three ways:
- Provide health insurance with a cost to the employer at least equal to the H&W rate per hour worked. If you pay $800 per month for an employee’s health plan and the employee works 160 hours, that equals $5.00 per hour. The rate effective August 10, 2026 is $5.92 per hour. You owe the $0.92 difference per hour in cash or additional benefits.
- Pay the full H&W amount in cash added to the employee’s hourly wage.
- Provide a combination of benefits (health insurance, life insurance, disability, retirement contributions) totaling the required H&W rate per hour.
One rule catches contractors off guard: you cannot average fringe benefit costs across all employees. The regulation is explicit that the employer’s contribution on behalf of each individual employee governs, and it says so notwithstanding that the average contribution per employee equals or exceeds the required amount [29 CFR 4.175(a)(2)]. If one employee’s health plan costs $6.00 per hour and another’s costs $4.00 per hour, you owe the second employee the gap in additional cash or benefits. Averaging the two does not satisfy the SCA obligation.
| Fringe Benefit Component | Requirement | Bookkeeping Action |
|---|---|---|
| Health and welfare | $5.92/hour; $5.42 on EO 13706 contracts (AAM 252) | Track per employee per pay period. Calculate gap between insurance cost and required rate. |
| Paid holidays | Per WD; 11 named holidays is common [29 CFR 4.174] | Code holiday hours separately. Pay at SCA wage rate plus H&W. |
| Paid vacation | Per WD; 2 weeks at 1 year is common [29 CFR 4.173] | Track employee tenure. Accrue vacation hours. Pay at SCA wage rate plus H&W. |
Always apply the holiday and vacation schedule from your specific wage determination. Your contract’s WD controls. For scale, WD 2015-4377 revision 32 requires a minimum of eleven named paid holidays, and vacation of two weeks after one year of service, three weeks after eight years and four weeks after twenty. Those tenure steps run to the whole span of continuous service, including service with predecessor contractors doing similar work at the same federal facility [29 CFR 4.173]. An article that quotes one week after one year would understate a real obligation by half.
Your payroll system must track fringe benefit obligations at the employee level, not the company level. Each pay period, calculate the actual benefit cost per hour for each covered employee and compare it to the required rate. Record any cash-in-lieu payments as a separate line item on the paycheck.
This is not a matter of preference: 29 CFR 4.170(a) states that an employer cannot offset monetary wages paid above the determination rate against its fringe benefit obligation, and must keep records separately showing amounts paid for wages and amounts paid for fringe benefits. “We included it in the wage” is not an acceptable answer, and it is not a documentation gap. It is a violation.
Record-Keeping Requirements for SCA Contractors
The SCA requires contractors to maintain payroll records for every covered employee for three years from the completion of the contract [FAR 52.222-41(i); 41 U.S.C. 6707]. The DOL’s Wage and Hour Division has the authority to inspect these records at any time during the contract and for three years after. Incomplete records create the same enforcement exposure as underpayment because the contractor cannot prove compliance.
Required records include:
- Employee name, address, and Social Security number
- Work classification and the wage determination rate for that classification
- Hourly wage paid and total daily and weekly hours worked
- Total weekly compensation (wages plus fringe benefit payments)
- Fringe benefits provided (type, cost per hour, and any cash-in-lieu payments)
- Deductions from pay
- The applicable wage determination number and revision date
Standard payroll software (ADP, Gusto, Paychex) does not track SCA-specific fields out of the box. Most systems record hours worked and wages paid but do not capture the wage determination number, the required SCA rate per classification, or the per-employee fringe benefit gap calculation. Service contractors need either a payroll system configured for government contract compliance or a manual tracking spreadsheet that supplements the payroll output.
Choose one of the two notification routes in FAR 52.222-41(g) and document which one you used. Posting the wage determination at every work site covers a whole crew with one document, and a dated photograph of the posted determination is filed evidence. Individual notification works too, and it suits remote or mobile crews, but then you need a dated acknowledgment from each employee. What fails an investigation is doing neither and assuming the contract file covers it.
What Is the Difference Between the Service Contract Act and Davis-Bacon?
Service contractors sometimes confuse the Service Contract Act with the Davis-Bacon Act. Both require prevailing wages on federal contracts. Both use wage determinations from SAM.gov. The difference is the type of work covered, and applying the wrong law creates compliance failures in both directions.
| Factor | Service Contract Act | Davis-Bacon Act |
|---|---|---|
| Applies to | Service contracts (janitorial, security, maintenance, food service, IT support) | Construction contracts (building, alteration, repair of public works) |
| Contract threshold | Over $2,500 | Over $2,000 |
| Wage determination source | DOL Wage and Hour Division via SAM.gov | DOL Wage and Hour Division via SAM.gov |
| Fringe benefits | H&W rate per hour plus holidays and vacation per wage determination | Fringe benefit rate per hour per classification |
| Record retention | 3 years from contract completion | 3 years, with daily and weekly detail required |
| Governing statute | 41 U.S.C. 6701-6707 | 40 U.S.C. 3141-3148 |
| Enforced by | DOL Wage and Hour Division | DOL Wage and Hour Division |
| Penalties | Back pay, contract termination, 3-year debarment | Back pay, contract termination, 3-year debarment |
FAR 22.1003-3(a) exempts contracts for the construction, alteration or repair of public buildings or public works from the Service Contract Labor Standards statute. A contract covered by Davis-Bacon is not simultaneously subject to the SCA. Some contracts contain both service and construction components. In those cases, the contracting officer determines which law applies to each portion of the work, and the contractor must maintain separate payroll tracking for each.
Here is the practical issue for bookkeeping: a facilities maintenance contractor performing janitorial services (SCA) and building repairs (Davis-Bacon) on the same base needs two parallel payroll compliance systems. Workers performing both types of work in the same week need hours split between the two wage determination schedules. Your books must show which hours fall under which law. A single timesheet line item reading “maintenance work, 40 hours” fails under both statutes.
Frequently Asked Questions
What contracts does the Service Contract Act cover?
The SCA covers federal contracts over $2,500 where the principal purpose is furnishing services through service employees within the United States [41 U.S.C. 6702]. Janitorial, security, facilities maintenance, food service, and custodial contracts are the most common examples. Construction contracts fall under Davis-Bacon instead.
Where do I find the correct SCA wage determination for my contract?
Wage determinations are published on SAM.gov and organized by state, county, and contract type. The contracting officer attaches the applicable wage determination to your contract. For multiple year contracts, the wage determination current on the anniversary date or at the start of each option period applies, and the same clause adjusts the contract price for the change [FAR 52.222-43(c) and (d)].
Do SCA fringe benefits have to be paid per employee or averaged across the workforce?
Per employee. The DOL requires contractors to meet the health and welfare fringe benefit rate for each covered employee individually [29 CFR 4.175(a)(2)]. Averaging the cost of benefits across all employees does not satisfy the obligation, even if the average meets or exceeds the required rate.
What happens if I pay below the SCA wage determination rate?
The DOL requires back payment of all underpaid wages plus fringe benefits, and the contracting officer withholds contract payments to cover it. The debarment point deserves the statute rather than the summaries.
Under 41 U.S.C. 6706(b) a finding of violation puts the contractor on a published list, and no federal contract is awarded to it, or to any firm in which it has a substantial interest, until three years have elapsed from the date the list is published. The bar is not limited to willful violations. The single escape is that the Secretary recommends otherwise because of unusual circumstances.
How long must I keep SCA payroll records?
Three years from the date of contract completion [FAR 52.222-41(i); 41 U.S.C. 6707]. Records must include employee classifications, wage determination rates, actual wages paid, hours worked daily and weekly, fringe benefits provided, and any cash-in-lieu payments. The DOL Wage and Hour Division has authority to inspect these records at any time during that period.
Key Takeaways
- Match every employee to the correct wage determination classification. Compare actual job duties to DOL classification descriptions, not job titles. Request a conformance via SF 1444 for any classification not listed on the wage determination.
- Track fringe benefits per employee, per pay period. Effective August 10, 2026, the DOL H&W rate is $5.92/hour, or $5.42/hour on EO 13706 contracts, per DOL All-Agency Memorandum 252. The rate updates annually but not on a fixed month. The wage determination attached to your contract states the current figure on its face, and it is also published at dol.gov before each contract year. Calculate the gap between your actual benefit cost per employee and the required rate. Document cash-in-lieu payments as a separate paycheck line item.
- Update wage rates on multi-year contract anniversaries. The wage determination in your original contract does not lock in for the full performance period. FAR 52.222-43 requires incorporating current rates at each anniversary or option period.
- Build SCA-specific fields into your payroll system. Standard payroll software does not track wage determination numbers, required SCA rates per classification, or per-employee fringe benefit gap calculations. Configure these fields or maintain a supplemental tracker.
- Keep records for three years after contract completion. Incomplete records carry the same enforcement risk as underpayment. If you cannot prove you paid correctly, the DOL assumes you did not.
Get Your SCA Payroll Right the First Time
SCA payroll compliance is a bookkeeping problem. The wages, fringe benefits, and records all flow through your accounting system. If that system is not built for Service Contract Act compliance, every payroll run creates exposure. We work with service contractors to configure payroll tracking that matches DOL requirements before an investigator asks for documentation.
Start with our Compliance Readiness Check to identify where your current system falls short. Need to talk through your contract requirements? Book a discovery call with a CPA who works with government service contractors every day.
