Service Contract Act (SCA): Coverage, Wage Requirements, and Compliance for Federal Contractors

Last Updated: October 2026

The Service Contract Act (SCA) sets minimum wages and fringe benefits for service workers on federal contracts. If your company provides janitorial, security, food service, facilities maintenance, or similar services to a federal agency, the McNamara-O'Hara Service Contract Act likely applies to your contract.

The Department of Labor (DOL) actively enforces it. In fiscal year 2025, DOL's Wage and Hour Division recovered more than $37 million in back wages for 16,902 workers on SCA contracts, a 46% increase over the year before. The most common violation is underpaid fringe benefits, not underpaid hourly wages.

Below, we cover who the SCA applies to, what it requires, how wage determinations work, and how to stay compliant. If your team already runs prevailing wage payroll on construction projects, many of these concepts will be familiar. The biggest difference is how fringe benefits are structured.

What is the Service Contract Act? The McNamara-O'Hara Service Contract Act (SCA) is a 1965 federal law that requires contractors on most federal service contracts over $2,500 to pay service workers at least the locally prevailing wages and fringe benefits listed in a Department of Labor wage determination. DOL's Wage and Hour Division enforces it.

In this article

1. What Is the Service Contract Act?
2. Recent Service Contract Act Updates
3. When Does the Service Contract Act Apply?
4. What Does the Service Contract Act Require?
5. How SCA Wage Determinations Work
6. Successor Contractors and Collective Bargaining Agreements
7. SCA Recordkeeping and Posting Requirements
8. Who Enforces the Service Contract Act?
9. Service Contract Act vs. Davis-Bacon Act
10. SCA Compliance Checklist
11. Service Contract Act FAQs

What Is the Service Contract Act?

The Service Contract Act is a federal labor standards law for workers who perform services on federal contracts. It requires contractors to pay at least the wages and fringe benefits that prevail in the area where the work happens.

Congress passed the SCA in 1965. It is named for its sponsors, Senator Patrick McNamara and Representative James O'Hara, both of Michigan. The law's purpose is to stop contractors from winning federal bids by paying less than local wages. A 1972 amendment added successorship protections, so a new contractor can't cut the wages and benefits workers earned under a predecessor's union contract.

When Title 41 of the U.S. Code was reorganized in 2011, the SCA was recodified under the name "Service Contract Labor Standards." Both names refer to the same law.

The SCA is one of several federal contract labor laws. Construction, alteration, and repair work falls under the Davis-Bacon Act and its related acts instead.

Recent Service Contract Act Updates

Several SCA-related rules changed in 2025 and 2026. Here is what applies to service contractors as of October 2026.

Sources: Federal Register EO 13658 notice, Federal Register nondisplacement rescission, GSA FAR Part 22 deviation

When Does the Service Contract Act Apply?

The Service Contract Act applies to contracts with the federal government or the District of Columbia whose principal purpose is providing services in the United States through service employees. Subcontracts under those contracts are covered, too.

The SCA coverage tests

A contract is generally covered when all four of these are true:

1. It is a federal or District of Columbia contract, either a prime contract or a subcontract.
2. Its principal purpose is services, not construction or the purchase of goods.
3. The work is performed in the United States.
4. The services are performed by service employees.

The contract value determines which requirements apply:

• Contracts over $2,500: You must pay the wages and fringe benefits in the contract's wage determination.
• Contracts of any amount: You must pay at least the Fair Labor Standards Act (FLSA) minimum wage.

Common SCA-covered jobs

The SCA covers a wide range of service work. Common examples include:

• Security guards
• Janitors and custodial staff
• Food service workers and cooks
• Groundskeepers
• Maintenance and repair technicians
• Medical assistants
• Clerical and administrative support staff

Many contractors perform both kinds of federal work. A facilities company might hold an SCA-covered maintenance contract at a federal building and a Davis-Bacon renovation project at the same site.

Service Contract Act exemptions

Some contracts and workers fall outside the SCA. Statutory exemptions in FAR 22.1003-3 include:

• Construction, alteration, and repair contracts, which are covered by Davis-Bacon instead (Davis-Bacon has its own coverage exemptions)
• Certain transportation contracts
• Contracts for direct services to a federal agency by individuals

DOL has also issued administrative exemptions under FAR 22.1003-4 for certain services. These include some maintenance of automated data processing, scientific, and office equipment, as well as vehicle maintenance, financial services, hotel and conference services, and standard commercial transportation. Each exemption has specific conditions, so review the regulation before relying on one.

Some employees are exempt as well. The SCA defines a service employee as anyone working on the contract except people employed in a bona fide executive, administrative, or professional capacity, as defined in 29 CFR Part 541.

Subcontractors and flow-down

Prime contractors must include the SCA clauses in every covered subcontract. Your subcontractors then owe their service employees the same wage determination rates and fringe benefits that you do.

What Does the Service Contract Act Require?

The Service Contract Act requires covered contractors to pay each service employee at least the hourly wage for their job classification plus the fringe benefits listed in the contract's wage determination. SCA fringe benefits are split into three parts: health and welfare, vacation, and holidays.

This split is the biggest difference from Davis-Bacon, where each classification has one combined fringe benefit rate.

Minimum wages by job classification

Each wage determination lists job classifications and the minimum hourly rate for each one in that locality. Match every employee to the classification that fits the work they perform, not their internal job title.

If a job on your contract isn't listed on the wage determination, you must request a conformed classification and rate. The conformance report goes to the contracting officer within 30 days of the employee starting work.

Health and welfare (H&W)

Health and welfare is a fixed hourly fringe benefit amount set by DOL. Here are the rates for wage determinations issued on or after August 10, 2026.

Contracts that haven't incorporated a revised wage determination yet keep the prior rates of $5.55 (standard) and $5.09 (with EO 13706).

Key rules for H&W, from WHD Fact Sheet 67B:

• Hours that count: H&W is owed on all hours paid, including vacation, holiday, and sick hours, up to 40 hours per week and 2,080 hours per year.
• Per employee: You must meet the obligation for each employee individually. You can't average benefit costs across your workforce.
• How to pay it: You can provide bona fide benefits (such as health insurance or retirement contributions), pay cash in lieu of benefits, or combine the two.
• Separate from wages: Paying a higher hourly wage does not satisfy the fringe obligation. Cash fringe payments must be recorded separately from wages.

When the benefits you provide cost less than the required H&W rate, you owe the difference. Many contractors pay that difference as cash fringe. Certified Payroll Reporting supports SCA rates, and Points North clients pay the H&W difference through cash fringe, the same way they handle cash fringe on prevailing wage jobs.

Vacation

The wage determination sets the vacation requirement based on length of service. A common schedule is 2 weeks of paid vacation after 1 year of service, 3 weeks after 5 years, and 4 weeks after 15 years.

• Vesting: Vacation vests on the employee's anniversary date.
• Payment timing: Provide or pay the vacation before the next anniversary date, the end of the contract, or termination of employment, whichever comes first.
• Predecessor service counts: Under 29 CFR 4.173, length of service includes continuous time with predecessor contractors that performed similar work at the same federal facility.

If your company's paid time off policy already meets or exceeds the wage determination, you meet the requirement. If it falls short, you owe the employee the difference.

Holidays

Each wage determination names the paid holidays employees receive. Juneteenth was added to SCA wage determinations for contracts awarded on or after October 20, 2021.

An employee who works any part of the workweek in which a named holiday falls is entitled to that holiday benefit. There is no minimum length of employment.

Paid sick leave (Executive Order 13706)

Executive Order 13706 applies to SCA contracts resulting from solicitations issued on or after January 1, 2017. Covered employees earn 1 hour of paid sick leave for every 30 hours worked, and you can cap accrual at 56 hours per year.

This is why there are two H&W rates. Contracts subject to EO 13706 use the lower rate because paid sick leave is provided separately.

Overtime on SCA contracts

The SCA itself doesn't set overtime rules. Overtime comes from two other laws:

• Fair Labor Standards Act (FLSA): Overtime at 1.5 times the regular rate for hours over 40 in a workweek for nonexempt employees.
• Contract Work Hours and Safety Standards Act (CWHSSA): Applies to SCA contracts over $150,000 that are subject to the FAR.

According to DOL guidance on overtime for government contracts, you can exclude bona fide fringe benefit contributions and cash paid to meet SCA fringe requirements when calculating the regular rate. Overtime is calculated on the base hourly rate only. CWHSSA also applies to Davis-Bacon contracts over $150,000, so the same overtime framework carries over to overtime pay on prevailing wage projects.

Executive order minimum wages

The $15+ federal contractor minimum wage under Executive Order 14026 was revoked in March 2025. Executive Order 13658 still applies to a narrow group of older contracts. As of May 11, 2026, its minimum wage is $13.65 per hour.

How SCA Wage Determinations Work

An SCA wage determination is a DOL document that lists the minimum hourly wage for each job classification in a locality, along with the required health and welfare, vacation, and holiday benefits. Every covered contract over $2,500 includes one.

• Where to find them: Wage determinations are published on SAM.gov. They moved there when WDOL.gov was retired in 2019.
• How rates are set: DOL bases most rates on Bureau of Labor Statistics Occupational Employment and Wage Statistics (OEWS) data for the occupation and locality. When a predecessor contractor had a collective bargaining agreement, the wage determination reflects the rates in that agreement instead.
• When a new one applies: A revised wage determination applies to your contract only after the contracting officer incorporates it. This typically happens at award, option exercise, extension, or the contract's annual anniversary.

Don't raise rates before a revised wage determination is in your contract. Paying a new rate early can affect your ability to get a price adjustment from the contracting agency.

Manage SCA and prevailing wage rates in one system

Certified Payroll Reporting supports SCA wage and H&W rates alongside your Davis-Bacon and state prevailing wage rates, so one payroll team can manage both.

Successor Contractors and Collective Bargaining Agreements

Under Section 4(c) of the SCA, a successor contractor performing substantially the same services in the same locality must pay at least the wages and fringe benefits in the predecessor's collective bargaining agreement (CBA). This includes any increases scheduled in that agreement.

There are two exceptions. Section 4(c) obligations don't apply if DOL finds, after a hearing, that:

• The CBA wages and fringe benefits are substantially at variance with those that prevail in the locality, or
• The CBA was not the result of arm's-length negotiations.

Successorship is about wage rates, not hiring. The nondisplacement rule under Executive Order 14055, which would have required successors to offer jobs to the predecessor's workers, was rescinded effective December 22, 2025.

Construction contractors with union crews work under similar rules. Collective bargaining agreements in construction set the rates those crews are owed, and union pay scales need updating in payroll each time an agreement changes.

SCA Recordkeeping and Posting Requirements

SCA contractors must keep detailed payroll records for 3 years from the completion of the work and make them available to DOL on request. Unlike Davis-Bacon, the SCA does not require you to submit weekly certified payroll reports.

Under 29 CFR 4.6(g), your records for each service employee must include:

• Name, address, and Social Security number
• Job classification or classifications
• Wage rates paid and fringe benefits provided, including any cash paid in lieu of benefits
• Daily and weekly hours worked
• Deductions and total compensation
• Wages and fringe benefits for any conformed classifications not listed on the wage determination

You must also tell employees what they are owed. Either give each service employee notice of the required wages and fringe benefits or post the wage determination at the worksite. You must also display DOL's poster WH-1313, Notice to Employees Working on Government Contracts, in a prominent place.

The same habits that support certified payroll recordkeeping for government contractors will keep your SCA records audit-ready.

Who Enforces the Service Contract Act?

DOL's Wage and Hour Division enforces the Service Contract Act. WHD investigates complaints, conducts compliance reviews, and works with contracting agencies to recover back wages.

SCA enforcement results from WHD's government contracts data:

WHD concluded fewer SCA cases in FY2025 than in FY2024, but recovered 46% more in back wages for 64% more workers. According to the Congressional Research Service, the average SCA violation involves about 30 employees owed about $2,750 each. Underpaid fringe benefits are the most common violation.

Penalties for SCA violations

Under 41 U.S.C. 6705 and 6706, consequences for violating the SCA can include:

• Liability for underpayments: You owe affected employees the full amount of any underpaid wages or fringe benefits.
• Withheld contract payments: The government can withhold accrued contract payments to cover back wages.
• Contract cancellation: The agency can cancel the contract and charge you for any added cost of completing the work with another contractor.
• Legal action: The federal government can sue the contractor, subcontractor, or sureties to recover remaining amounts.
• Debarment: Violators can be barred from federal contracts for 3 years.

Prepare for a DOL review

Learn what investigators look for and how to organize your records in Certified Payroll Audits: What to Expect and How to Prepare.

Service Contract Act vs. Davis-Bacon Act

The Service Contract Act covers federal service work, and the Davis-Bacon Act covers federal construction, alteration, and repair work. Both are prevailing wage laws enforced by DOL's Wage and Hour Division, but they differ in thresholds, fringe benefit structure, and reporting.

Some contracts include both types of work. For example, a facilities maintenance contract might include a renovation project. In that case, the SCA covers the service work and Davis-Bacon covers the construction work, and each set of employees is paid under its own wage determination.

On the construction side, Davis-Bacon wages include one combined fringe rate per classification, and Davis-Bacon certified payroll is submitted weekly.

Running SCA and prevailing wage work?

Many Points North clients run SCA contracts alongside Davis-Bacon and state prevailing wage projects. Certified Payroll Reporting supports SCA rates in the same system, including paying the health and welfare difference as cash fringe.

SCA Compliance Checklist

Use this checklist to stay compliant on every SCA-covered contract:

1. Confirm the contract is covered and includes FAR clause 52.222-41.
2. Check that the correct wage determination is attached to the contract.
3. Match every service employee to a wage determination classification.
4. Submit a conformance request within 30 days for any classification not listed.
5. Set up each classification's wage rate and the H&W rate in payroll.
6. Decide how you will meet H&W: bona fide benefits, cash in lieu, or a combination.
7. Track vacation eligibility by anniversary date, including service with predecessor contractors.
8. Provide the paid holidays named in the wage determination.
9. Apply EO 13706 paid sick leave if your contract includes it.
10. Notify employees of their wages and benefits, and post the WH-1313 poster.
11. Flow the SCA clauses down to every covered subcontract.
12. Keep payroll records for 3 years after the work is completed.
13. Watch for revised wage determinations at each option, extension, or anniversary.

Stay Compliant on SCA Contracts

The Service Contract Act comes down to three things: pay every service employee the correct wage determination rate, provide the full health and welfare, vacation, and holiday benefits, and keep records that prove it. Rates change every year, and fringe benefit underpayments are the most common violation, so accurate rate setup in payroll matters.

If your company runs both SCA and prevailing wage payroll, Certified Payroll Reporting from Points North supports both sets of rates in one system.

Service Contract Act FAQs