Service Contract Act (SCA) of 1965: Coverage, Requirements & Compliance Guide

Table of Contents#

What Is the Service Contract Act (SCA) of 1965?
Full Coverage of the SCA 1965 2.1 Eligible Federal Contracts 2.2 Covered Worker Categories 2.3 Explicit Exceptions to SCA Coverage
Core SCA Requirements for Contractors 3.1 Prevailing Wage Obligations 3.2 Mandatory Fringe Benefits 3.3 Required Recordkeeping Practices 3.4 Worker Notification and Posting Rules 3.5 Successor Contractor Requirements
Common SCA Compliance Mistakes to Avoid
Penalties for SCA Non-Compliance
Final Takeaways
References

What Is the Service Contract Act (SCA) of 1965?#

The SCA (formally codified as the Service Contract Labor Standards statute in 41 U.S.C. Chapter 67) is a federal labor law administered by the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD). It was enacted to address a widespread problem in mid-20th century federal contracting: contractors cutting worker pay and benefits to submit the lowest bid, leading to high worker turnover, poor service quality, and exploitation of low-wage workers.

The core mission of the SCA is to ensure that workers performing services on federal contracts receive pay, benefits, and working conditions equal to the prevailing local standards for similar work in the private sector. The law applies to both prime contractors and their subcontractors working on covered federal projects.

Full Coverage of the SCA 1965#

To determine if the SCA applies to your contract or workforce, review the three core coverage rules below:

Eligible Federal Contracts#

The SCA applies to all contracts with the U.S. federal government or District of Columbia that meet all of the following criteria:

The total value of the contract (including all option periods) exceeds $2,500
The principal purpose of the contract is to furnish services through the use of service employees
The contract is for work performed within the U.S. (some overseas contracts are covered if specified in the contract terms)

Common covered contract types include janitorial, security, food service, IT support, building maintenance, transportation, clerical support, call center, and equipment repair contracts. Indefinite-delivery, indefinite-quantity (IDIQ) and blanket purchase agreement (BPA) contracts are also covered if their total expected value exceeds the $2,500 threshold.

Covered Worker Categories#

All service employees performing work on a covered contract are protected by the SCA, except for workers who meet the Fair Labor Standards Act (FLSA) white-collar exemption criteria for executive, administrative, or professional roles (these roles require a minimum salary of $684 per week and primarily perform non-manual, high-level decision-making duties).

Covered workers include:

Full-time, part-time, temporary, and seasonal workers
Workers directly employed by the prime contractor or a subcontractor
Misclassified independent contractors who meet the DOL’s definition of an employee
Common SCA-covered roles include janitors, security guards, food service staff, mechanics, IT helpdesk technicians, administrative assistants, and delivery drivers.

Explicit Exceptions to SCA Coverage#

The SCA does not apply to the following contract types, which are governed by other federal labor laws:

Contracts valued at $2,500 or less
Construction, alteration, or repair of public buildings/works (covered by the Davis-Bacon Act)
Freight/personnel carriage contracts where published industry tariff rates apply
Contracts performed exclusively by bona fide executive, administrative, or professional exempt employees
Public utility service contracts
Postal contract station operation contracts

Core SCA Requirements for Contractors#

If your contract is covered by the SCA, you must meet all of the following mandatory requirements:

Prevailing Wage Obligations#

Contractors must pay all covered workers at least the hourly wage rate specified in the applicable Wage Determination (WD), a DOL-issued document included as an addendum to every covered federal contract that lists local prevailing pay rates for every job classification in a given geographic area.

If no WD exists for a worker’s specific job duties, you must submit a conformance request to the WHD to receive an approved pay rate before the worker starts their role.
All hours worked over 40 in a single workweek must be paid at 1.5 times the worker’s regular rate of pay, per FLSA rules that apply alongside SCA requirements.
Wage Determinations are updated annually, so you must adjust pay rates to match updated WD terms every time your contract is renewed or a new WD is published.

Mandatory Fringe Benefits#

For all covered contracts over $2,500, contractors must provide workers with fringe benefits equal to at least the rate listed in the applicable WD, or pay the cash equivalent of the fringe benefit amount as additional wages.

As of 2024, the default federal minimum SCA health and welfare fringe benefit rate is $4.98 per hour worked, though local WDs may specify a higher rate.
Eligible fringe benefits include health insurance, retirement plan contributions, paid vacation, paid holidays, life insurance, and sick leave.
Note: Executive Order 13706 requires an additional 56 hours (7 days) of paid sick leave per year for all workers on covered federal contracts, which is separate from SCA-mandated fringe benefits.

Required Recordkeeping Practices#

Contractors must keep the following records for at least 3 years after the end of the contract term, and make them available to DOL auditors upon request:

Full names, addresses, job classifications, and social security numbers of all covered workers
Daily and weekly hours worked for each employee, including overtime, pre-shift prep time, and on-call hours if required by the contract
Total wages paid and fringe benefits provided (or cash equivalent paid) to each worker per pay period
Copies of the applicable Wage Determination, conformance requests, and all payroll registers
Proof of fringe benefit contributions (e.g., insurance invoices, retirement plan deposit receipts)

Worker Notification and Posting Rules#

You must post the official DOL SCA "Notice to All Workers Performing on Federal Service Contracts" in a prominent, easily accessible location at all worksites, in English and any other language spoken by a large share of your workforce.
You must provide every worker with a written notice of their hourly pay rate, fringe benefit rate, and scheduled pay dates before they start working on the SCA-covered contract, and notify them of any changes to these terms in writing.

Successor Contractor Requirements#

If you win a contract that was previously held by another SCA-covered contractor, you are required to pay all workers who performed work on the prior contract at least the same wage and fringe benefit rates they were receiving at the end of the previous contract term, even if the new WD for your contract lists lower rates. This rule is designed to prevent pay cuts for workers when a contract changes hands.

Common SCA Compliance Mistakes to Avoid#

Most SCA violations stem from avoidable administrative errors or gaps in compliance processes. The most common pitfalls include:

Misclassifying non-exempt workers as FLSA-exempt administrative/executive staff to avoid SCA pay requirements
Assigning workers to lower-paying job classifications in the WD that do not match their actual job duties
Failing to include SCA compliance clauses in subcontractor agreements (prime contractors are liable for all subcontractor SCA violations)
Forgetting to update pay rates when annual Wage Determination updates are released
Paying fringe benefit amounts as cash without notifying workers in writing of their right to receive benefits instead
Failing to track all compensable hours, including pre-shift training, travel time, and on-call time

Penalties for SCA Non-Compliance#

The DOL conducts regular random audits of SCA-covered contracts, and workers can also file anonymous complaints to trigger investigations. Penalties for violations include:

Back pay awards: You may be ordered to pay all underpaid wages and fringe benefits to affected workers, plus interest, for up to 3 years of prior violations.
Civil fines: Up to $2,500 per willful violation, plus additional fines for recordkeeping failures.
Contract termination: The federal agency that awarded the contract may terminate your agreement for default if you have repeated or severe violations.
Debarment: You can be barred from bidding on any federal contracts for up to 3 years, or longer for intentional, repeated violations.
Criminal penalties: Falsifying payroll records or lying to DOL auditors can result in criminal fines and up to 5 years of prison time.

Final Takeaways#

SCA compliance is non-negotiable for any business working on federal service contracts. Proactive steps to reduce compliance risk include:

Reviewing the Wage Determination for every contract before you submit a bid to ensure you can meet pay and benefit requirements
Conducting regular internal audits of worker classifications, payroll records, and subcontractor compliance
Training HR and payroll staff on SCA rules and annual WD update processes
Consulting a federal contracting labor attorney or the DOL WHD if you have questions about conformance, classification, or other ambiguous requirements

By prioritizing SCA compliance, you protect your workers, avoid costly penalties, and preserve your eligibility for future federal contracting opportunities.

References#

U.S. Department of Labor Wage and Hour Division. (2024). Service Contract Act (SCA) Overview. Retrieved from https://www.dol.gov/agencies/whd/government-contracts/service-contract-act
U.S. Code Title 41, Chapter 67: Service Contract Labor Standards. Retrieved from https://www.law.cornell.edu/uscode/text/41/chapter-67
U.S. General Services Administration. (2023). Service Contract Act Compliance Guide for Federal Contractors. Retrieved from https://www.gsa.gov/policy-regulations/policy/worker-protection/service-contract-act
Executive Order 13706: Establishing Paid Sick Leave for Federal Contractors. (2015). Retrieved from https://www.federalregister.gov/documents/2015/09/30/2015-24149/establishing-paid-sick-leave-for-federal-contractors