In 2020, the United States government spent approximately $1.1 trillion on contractual services and supplies, according to the Bureau of the Fiscal Service. Being a government contractor offers a range of benefits, such as good income, flexible work, timely payments and stable employment. However, companies that do business with the federal government must comply with specific labor laws and regulations. It is important to thoroughly review and understand these laws prior to accepting a government contract.
Federal Contractor Wage and Benefits Requirements
Prevailing wage requirements, applicable to government contractors, are enforced by the Wage and Hour Division. On August 31, 2020, the Department of Labor (DOL) established a minimum wage for contractors of $10.95, effective January 1, 2021. Executive Order 13658 also required the minimum cash wage, paid to tipped employees performing work in connection with covered contracts, to increase to $7.65 an hour.
The Davis-Bacon and Related Acts requires contractors and subcontractors to pay their mechanics and laborers, employed under federal contracts, at a minimum, the wages and fringe benefits that are prevalent in the area based on similar projects. This includes federally-funded contracts that are in excess of $2,000 for the construction, repair or alteration of public works or buildings.
The McNamara-O’Hara Service Contract Act (SCA) requires any contractor or subcontractor that performs services on federal accounts in excess of $2,500 to pay employees at least the wage rates and fringe benefits prevalent locally, or the rates outlined in the predecessor contractor’s bargaining agreement. If a contract is equal to or less than $2,500, a contractor is required to pay workers the federal minimum wage.
Contractors and subcontractors that work more than the standard 40-hour workweek are entitled to additional pay. The Contract Work Hours and Safety Standards Act requires mechanics and laborers to be paid at least one and one-half times their standard pay rate for all hours worked over 40 hours in a given workweek. The Act also prohibits hazardous, unsanitary or dangerous work conditions on federal projects.
Employees that work on federal or federally-assisted projects are entitled to fair compensation without the fear of intimidation, force or threat. The Copeland Anti-Kickback Act prevents contractors and subcontractors from persuading an employee to give up any amount of his or her compensation that he or she is entitled to under a contract of employment. Any employer found to be in violation of this act may be subject to fines and other penalties.
On September 30, 2016, the U.S. DOL implemented Executive Order 13706 establishing paid sick leave for federal contractors This order requires contractors that enter into contracts with the federal government to provide eligible employees with up to seven days of paid sick leave each year. These sick days may be used for a wide range of purposes, including for family care and absences stemming from stalking, domestic violence and sexual assault.
Most hourly employees that work on government contracts are subject to the Service Contract Act (SCA), also known as the Serve Contract Labor Standards. Under the SCA, employees are entitled to certain fringe benefits which are subject to particular requirements. Fringe benefits must be provided separately from employee wages and must be paid in the form of benefits that are of equivalent value.
Some of the most common types of fringe benefits available to employees under government or government-assisted contracts include the following:
Payment for Time Not Worked – This may include paid lunch periods, paid rest periods, clothes-change times, sick leave, holidays, voting time, personal time and similar types of scenarios in which an employee may receive payment for time not worked.
Employee Services – Some companies may offer unique employee services on a continuing basis, such as medical, food and housing. An organization may offer fringe benefits in the form of cafeteria programs, educational tuition, career counseling, medical services, housing aid, low-cost loans, daycare centers for children or the use of company vehicles for personal use.
Protection Against Workplace Hazards – Employees often face a number of hazards each day, depending on the area of work. Fringe benefits may include protection against the hazards of injury, illness, permanent disability, unemployment, old age and death.
Legal Payments – Employees that work under government contracts may also be protected against major life hazards. Under this category, an employee may receive payments when faced with unemployment or a lay-off. Fringe benefits may also include employee insurance and benefits for aging individuals under social security.
Retirement and Old Age Benefits – Aging employees may be entitled to certain fringe benefits as they approach retirement age. This may include deferred income plans, old-age assistance, provident fund, pension, medical benefits, old age counseling and jobs to children of deceased employees.
Next, employee wages must be paid in excess of the worker’s wage determination (WD) and all benefits must be considered “bona fide.” Offering fringe benefits can be beneficial for companies as they create long-term competitiveness. Under certain circumstances, a contract may offer cash in lieu of benefits, such as in the case of underspent fringe benefits. However, offering cash is generally not recommended.
Speak with an Employee Benefits Consultant Today
Government contractors face strict laws and regulations, especially rules pertaining to employee wages and benefits. Unfortunately, some contractors may overlook the labor standards requirements that are incorporated into their government contracts, resulting in costly fees and penalties. Not only do government contractors have to ensure that their employees are being properly paid the appropriate pay rate and overtime, but they must also manage employee benefits that may be incorporated into their contract.
Inadequate record-keeping, failure to pay accurate prevailing wages, failure to submit certified weekly payrolls and not paying required holiday and vacation pay can all lead to serious audits. Government contractors who violate established laws and regulations may be required to make aggrieved employees “whole.”
For more information about employee benefits for government contractors or to speak with an experienced employee benefits consultant about building a successful employee benefits package, contact the employee benefits experts at Business Benefits Group today.