Service Contract Act: Overcome the Challenges and Breathe Compliance Hope Lane & Cassee Ger April 24, 2018

Transcription

1 Service Contract Act: Overcome the Challenges and Breathe Compliance Hope Lane & Cassee Ger April 24, 2018 Aronson LLC Helios HR

2 About Aronson LLC Aronson LLC provides a comprehensive platform of assurance, tax, and consulting solutions to today s most active industry sectors and successful individuals. For more than 50 years, we have purposefully expanded our service offerings and deepened our industry specialties to better serve the needs of our clients, people, and community. From startup to exit, we help our clients maximize opportunity, minimize risk, and unlock their full potential. Aronson LLC Helios HR 2

3 Hope A. Lane, CPA Partner, Aronson - Government Contract Services Group Hope A. Lane, CPA, leads Aronson LLC's Government Contract Consulting practice. With more than 20 years of broad-based experience in the government contracting arena, she is well-known as one of the industry's most knowledgeable thought leaders in contract-related financial compliance and contract administration. Exclusively focused on government contracting, Hope possesses in-depth understanding and hands-on expertise. Prior to joining Aronson, she served in financial management positions with several regional federal contractors. Often described by her peers as forward-thinking, Hope is able to go beyond what a client asks for to deliver precisely what they need. As an avid advocate for the government contracting industry, Hope is a guest speaker and lecturer for associations and industry trade groups and a featured speaker at Aronson's executive briefings. She also serves as editor-in-chief of Aronson s government contracting blogs. As a leader in the firm, Hope advocates for continuous growth and mentorship and encourages others in the practice to innovate for the benefit of their clients. Hope earned her bachelor's degree in accounting from the University of North Carolina at Charlotte and is actively involved in professional organizations like the Professional Services Council, National Contract Management Association and Women Impacting Public Policy hlane@aronsonllc.com Aronson LLC Helios HR 3

4 About Helios HR At Helios HR, a leading human capital consulting and recruiting firm, we help organizations in transition attract, engage and retain top talent. With our unrivaled team of in-house experts, we have the capability and depth to provide on-demand customized solutions that meet the needs of today s ever evolving workplace. Our clients hire us because of our: Unparalleled knowledge of the market Deep bench of senior-level specialists Wide range of flexible services, including consulting, recruiting, interim placements and outsourcing Aronson LLC Helios HR 4

5 Cassee Ger, SPHR, SHRM-SCP HR Consultant, Helios HR Cassee has over eight years of HR experience in the government contracting industry. She has made it her mission to elevate the contribution of HR professionals to organizational success. Cassee has experience with many different government contracting engagements and environments to include working with Service Contract Act (SCA/SCLS) and unionized employees. Cassee has been a guest speaker for other SCLS related events and has contributed to blogs written about SCA, which can be found on Helios HR s website. Cassee earned her Master s degree in Human Resources and Employee Relations from the Pennsylvania State University and earned her Bachelors in Administration of Justice, from George Mason University. Cassee is actively involved in SECAF (Small and Emerging Contractors Advisory Forum) and is currently serving as a judge in the 10 th annual SECAF awards x 134 cger@helioshr.com Aronson LLC Helios HR 5

6 Agenda SCA Basics Pricing for SCA Required SCA Notifications SCA Coverage Accounting for Wages Managing Health & Welfare Contract Changes Compliance Failures

7 SCA Basics

8 What is SCA? Service Contract Labor Standards Formerly known as Service Contract Act of 1965 (SCA) FAR , 29 CFR Part 4, Section 4.6 Sets the minimum wages and fringe benefits that contractors and their subcontractors must pay service employees working on covered contracts. Similar to the Davis-Bacon Act (construction) and Walsh-Healey (supply) When does SCA apply? To contracts that are From any Federal Agency or any other Federal Government entity or District of Columbia; To be performed in the U.S, its territories and possessions; Principally for services (>50% of contract effort); Performed through the use of service employees; and In excess of $2,500. Aronson LLC Helios HR 8

9 SCA Wage Determinations SCA incorporates WDs that set the minimum wages and fringe benefits for job classifications for a specific geographical region. Minimum hourly Wage for the job position Minimum hourly Health & Welfare Benefit Minimum annual Vacation Benefit Minimum Holiday Benefit Note: As a rule, SCA does NOT provide for Sick Leave Benefit. (That benefit if given, is governed by the Contractor s company policy. An exception to this rule Collective Bargaining Agreements (CBAs) may contain a Sick Leave requirement or FAR Paid Sick Leave Under Executive Order Aronson LLC Helios HR 9

10 Pricing for SCA

11 Recognizing SCA Coverage & Identifying the WD Look for the inclusion of FAR or 29 CFR Part 4, Section 4.6 and The incorporation of WDs WD(s) should be incorporated into the request for proposal (RFP) based on the place of performance(s) Several WDs may be incorporated No WD in the RFP? Ask the CO to incorporate during Q&A phase Aronson LLC Helios HR 11

12 Pricing Strategy Bidding to the WD Using firm-wide fringe rate can be problematic too high or too low Ensure all allowable HW costs are recovered in pricing calculation! Odd WD: HW applies to all hours paid up to 40 hours a week which includes regular hours worked + paid leave (vacation and holiday). Pricing formulas should allow these costs to be recovered over regular billable hours. Even WD: HW applies to all regular and overtime worked hours (excluding vacation and holiday). SCA required vacation amounts vary by WD and are based on employee length of service on the contract, which is difficult to price. Difficulties of pricing multiple years Aronson LLC Helios HR 12

13 Right of First Refusal Priority of right of first refusal Obligation to offer the position to the incumbent employees before posting the position externally and/or recruiting for the role Successor not required to match prior wages, but the hourly rate must meet the WD requirements. Price to the WD Aronson LLC Helios HR 13

14 Considerations for Predecessor Employees Anniversary Date Challenges and workarounds CBA s Is there a CBA in place? If a predecessor contract is subject to CBA(s) then the successor contractor must maintain substantially the same services and benefits. Leave Did the predecessor contract offer more leave? Is the same accrual method or front load method being used? What about allowing employees to go negative in leave? Benefits How are they different? Eligibility dates, premiums, administration, etc. Keep employees happy, be transparent Aronson LLC Helios HR 14

15 Required SCA Notifications

16 SCA Notifications The Contractor and any subcontractor covered under an SCLS contract must notify each SCLS employee performing work on the contract of their minimum monetary wage and any fringe benefits. WD Notifications Minimum wage rate and regular rate (if different) Fringe benefit Equitable adjustments Methods of Notification Offer Letter Posting the WD During wage or fringe adjustments SCLS Posters Contractors must post the Notice to Employees Working on Government Contracts in a prominent and accessible place at the worksite. Challenges of posting 48 CFR Aronson LLC Helios HR 16

17 Executive Order (Sick Leave) Notifications Accrual Method - Contractors must provide an SCLS employee, in writing, the amount of paid sick leave the employee has accrued but not used: no less than monthly; at any time when the employee makes a request to use paid sick leave; upon the employee s request for such information, but not more often than once a week; upon a separation from employment; and upon reinstatement of paid sick leave. Source: DOL Aronson LLC Helios HR 17

18 SCA Coverage

19 SCLS Coverage for Temporary and Part-Time Employees. The SCLS makes no distinction between temporary, part-time, and full-time employees. H&W still applies for all classifications Requirements for Vacation, Sick Leave, and Holidays still apply How much do you give? Holidays pay employees a proportion of the holiday benefits based on the number of hours the temporary or part-time employee worked in the workweek prior to the workweek in which the holiday occurs. Vacation Contracts would use the number of hours the SCLS employee worked in the year preceding the employee s anniversary date of employment to determine vacation benefits s are entitled to wage and fringe benefit requirements as well, but why? A service employee is defined as any person engaged in the performance of a covered contract except those persons who individually qualify for an FLSA exemption as defined in 29 C.F.R What about interns? 29 CFR 4.176(a)(3). Aronson LLC Helios HR 19

20 Accounting for Wages

21 Segregating Wage Types and HW The time spent by the employee working in each classification should be segregated and paid according to the wage rate specified for each classification. What if I can t segregate the hours? Contractors must pay the employee the highest rate for all hours worked in that workweek. Fringe benefits under the SCLS must be furnished separately from, and in addition to, the specified monetary wages. 29 C.F.R CFR Aronson LLC Helios HR 21

22 Differing Wages Challenges: SCA Contracts vs Non-SCA/Commercial OCONUS Deployments Two Work Performance Locations Two or more different SCA Occupations Working in different capacities applies only to work in different job classifications (e.g.,courier and receptionist defined in the SCA Directory of Occupations), not to levels within the same job classification (e.g., secretary I and II). Aronson LLC Helios HR 22

23 Scenarios 1 Different Work Locations Virginia Guard I $ Guard II $16.81 H&W = $4.27 per hour Washington, DC Guard I $ Guard II $20.57 H&W = $4.27 per hour 2 OCONUS Washington, DC Guard I $ Guard II $20.57 H&W = $4.27 per hour Japan Market Rate for Guard $20.00 Market Rate for Guard 3 SCA vs. Non SCA Washington, DC Guard I $ Guard II $20.57 H&W = $4.27 per hour Washington, DC Market Rate for Guard $13.00 Aronson LLC Helios HR 23

24 Managing Health & Welfare

25 SCA Wage Determinations DOL issues two Standard WDs for each locality odd-numbered even-numbered Labor classifications, wage rates, H&W rate, holidays and vacation benefits are the same on both WDs. However, the method required to be used by employers in providing the H&W benefit is different for each WD The applicable method (odd or even) is determined by the WD incorporated into the RFP Aronson LLC Helios HR 25

26 SCA WD Odd Numbered Odd-numbered WDs (i.e., ) require a contractor to pay the H&W rate for all hours paid each week (work time and paid leave time) up to a maximum of 40 hours each week Referred to as the Fixed Cost Most frequently used Aronson LLC Helios HR 26

27 SCA WD Even Numbered Even-numbered WDs (i.e., ) require a contractor to pay a minimum contribution for benefits costing an average of the H&W rate for all hours worked (including overtime hours) by service employees on the contract Not as common, but some contracts still maintain even HW calculation Aronson LLC Helios HR 27

28 Benefits / Cash / 401(k) Excess wages over WD minimum may not be credited toward H&W requirements (29 CFR 4.170) Excess FB costs may not be credited toward wage requirements (29 CFR 4.167) Employer cost of benefits satisfying HW Health, Dental, Life, Vision, Jury Duty, AD&D, etc. Cash payments in lieu of fringe benefits must be paid on regular pay date (29 CFR 4.165(a)) Payments into bona fide FB plans (401(k)) must be made no less often than quarterly (29 CFR 4.175(d)) Aronson LLC Helios HR 28

29 Benefits / Cash / 401(k) Employer Cost of Benefits Cash 401(k) At least quarterly payments Pay on regular pay date At least quarterly Contributions Must be bona fide Third party SCA benefit administration costs may count towards HW Must separate from regular wages on paycheck More costly subject to FICA Only 100% employee-vested funds offset HW Aronson LLC Helios HR 29

30 401(k) Contributions Utilizing 401(k) contributions can be more cost effective than providing cash in lieu of benefits SCA contributions to 401(k) are based on a per contract/per employee calculation Aronson LLC Helios HR 30

31 Contract Changes

32 Modifications Revised WDs should be incorporated into the contract at each option, extension, substantial change in scope of work, or no less than every two years for multi-year contracts. If CO does not incorporate updated WDs, be proactive and request new WDs Contract price adjustments must be requested by contractors within 30 days of WD incorporation into the contract. Aronson LLC Helios HR 32

33 Price Adjustments When the contract is modified by the Contracting Officer to incorporate a revised WD, a contractor may be entitled to a price adjustment. Under cost-reimbursable contracts, contract price relies on reasonable, allowable, and allocable determinations Under fixed-price contracts, a contract price can be changed only under The Changes Clause, OR The SCA/FLSA Price Adjustment Clause (FAR ) Aronson LLC Helios HR 33

34 Price Adjustments The release of a new WD by DOL does not trigger a price adjustment. A price adjustment may be triggered when the contract is officially modified with a revised WD. Do not increase wages or HW benefits impacting your contract until after a new WD is incorporated, or it may jeopardize your ability to request a price increase. Price adjustments are limited to actual increased wage and H&W costs, and applicable FICA, unemployment taxes, and workers compensation. Price adjustments do not allow for general and administrative (G&A), overhead (OH), and/or profit Aronson LLC Helios HR 34

35 Compliance Failures

36 Mechanism for Monitoring Compliance Compliance does not come naturally Monitor compliance on a periodic basis (at least quarterly) and adjust calculation when contract changes An effective monitoring mechanism by contract will track wages and benefits in comparison to SCA WD requirements Odd WDs - Complying with HW requirements is based on the cost of actual benefits taken by each employee, not firm-wide fringe cost. Even WDs - Complying with HW requirements is based on the average cost of benefits taken by all covered employees, not firm-wide fringe cost. Aronson LLC Helios HR 36

37 Monitoring Subcontractor Compliance The Prime Contractor Must flow down the applicable SCA contract clauses to subcontractors (includes independent subcontractors i.e., 1099s) (29 CFR 4.155) Joint and severally liable for subcontractor s non-compliance with SCA (29 CFR 4.114(b)) SCA-covered subcontracts should include the following provisions: Indemnification Requirement of annual compliance certification Access to subcontractor books and records for SCA compliance verification Aronson LLC Helios HR 37

38 Beware of Multiple Pay Rates Employees working on multiple SCA-contracts Employees working on SCA-covered contracts and commercial contracts Employees working in multiple locations Employees working in multiple contract positions OCONUS-deployed employees Aronson LLC Helios HR 38

39 Understanding Interplay of Overlapping Changes Timing of HW increase and benefits cost changes Aronson LLC Helios HR 39

40 Open Enrollment Aronson LLC Helios HR 40

41 Benefit Cost Changes Medical, dental, vision are the most commonly thought of. Employer paid benefits such as life insurance or disability are often overlooked or forgotten about when they are updated. Open Enrollment Mid Year Changes Retirement Plan Changes Don t forget to capture all of your benefits changes, even if it s only changing by one cent. All benefits must contain a definite formula for determining the amount to be contributed by the contractor and a definite formula for determining the benefits for each of the employees participating in the plan. 29 C.F.R (a) Aronson LLC Helios HR 41

42 Messaging to SCLS Employees If it s hard for you to understand, imagine what your employees must be thinking. What should you communicate? Wages H&W Leave Benefits Fact or Fiction: SCLS regulations are easy to navigate and compliance is a walk in the park for most contractors. Do you have a communication strategy? Aronson LLC Helios HR 42

43 Messaging to SCLS Employees - Considerations Who is your audience? New employee. Are they new to SCLS? Incumbents When should I communicate? equitable adjustments job change wage change location change Methods of communication Create a generalized response to common questions to keep communications consistent Provide opportunity to employees for informational sessions, but be prepared to answer complex questions Transparency matters Aronson LLC Helios HR 43

44 What Happens When Contractors Don t Comply? Contractor: HWA Inc. Violation: Failed to make $1 million in wage payments to 206 employees. Penalty: Debarment for company and individuals (President John Wood and Vice President Barbara Wood) Take Away: Contractors must make minimum payments to workers based on an appropriate wage determination. Follow record keeping regulations. Be proactive about compliance. Determine who and which departments need to be involved. Multiple SCA violations will almost always result in a debarment proceeding for the company and company officials. Source: Aronson LLC Helios HR 44

45 Contact Hope Lane / Aronson LLC hlane@aronsonllc.com Aronson LLC Helios HR 45

46 Contact Cassee Ger / Helios HR ext. 134 cger@helioshr.com Aronson LLC Helios HR 46