The Wage Law That Follows Every Service Contract: SCA Compliance and Its Teeth

Published 2026 | TIKC NewsWire

If your company provides services to the federal government, from janitorial and landscaping to security, IT support, and food service, there is a wage law riding along with your contract whether you planned for it or not. It is the McNamara-O’Hara Service Contract Act, usually just called the SCA. It dictates the minimum wages and fringe benefits you must pay the people doing the work, and the enforcement behind it is serious. Underpay your workers, even by accident, and the consequences can reach your payments, your profit, and your eligibility to contract at all.

What the SCA requires

The SCA applies to most federal service contracts over $2,500. On covered contracts, you must pay service employees at least the prevailing wage and provide the fringe benefits determined by the Department of Labor for their locality and job classification. The applicable rates come in a wage determination that is incorporated into your contract. If you do not provide the required fringe benefits in kind, you generally must pay their cash equivalent. The obligation attaches to the work, so it also flows down to your subcontractors.

Where contractors go wrong

Most SCA violations are not schemes. They are mistakes, and they are expensive anyway. The classic errors include misclassifying employees into the wrong labor category to pay a lower rate, failing to pay the full fringe benefit amount, ignoring the wage determination when it is updated, and not tracking hours by the correct classification. On a recompete or an option year, a new wage determination can raise your costs, and a firm that fails to account for it can find itself both underpaying workers and underwater on the contract.

The enforcement has real teeth

The Department of Labor enforces the SCA, and its remedies bite. The government can withhold contract payments to cover back wages owed to underpaid workers. You can be ordered to pay those back wages in full. And in serious cases, a violator can be placed on a list making it ineligible for federal contracts for three years, a debarment that runs in parallel to the FAR system. On top of that, a knowingly false certification of SCA compliance can pull you into False Claims Act territory, where damages triple.

Build compliance into the bid, not the audit

The firms that stay clean treat the wage determination as a core input to pricing, not an afterthought. They classify employees accurately, track hours by classification, pay the correct fringe in cash or benefits, and re-price when a new wage determination lands. They keep the payroll records that prove it. When you build SCA compliance into how you bid and how you run the contract, you protect both your workers and your margin.

What to do now

• Read the wage determination. Know the classifications, prevailing wages, and fringe rates in your contract before you price it.
• Classify accurately. Put each employee in the correct labor category and pay accordingly.
• Pay the full fringe. Provide the required benefits or their cash equivalent, and document it.
• Re-price on updates. A new wage determination on an option or recompete can change your costs. Account for it.
• Keep payroll records. Accurate records by classification are your proof of compliance and your audit defense.

The SCA is a promise to the people who actually deliver your service. Keep that promise precisely, and you protect your workers and your company at once. Brick by brick.

FAQ

What is the Service Contract Act?

A federal law requiring contractors on covered service contracts to pay service employees at least the locally prevailing wage and fringe benefits set by the Department of Labor in a wage determination.

What contracts does it cover?

Most federal service contracts over $2,500, across fields like janitorial, security, landscaping, food service, and IT support. The obligations also flow down to subcontractors.

What happens if I underpay workers?

The government can withhold contract payments to cover back wages, order full back-wage payment, and in serious cases make the contractor ineligible for federal contracts for three years.

Can an SCA problem become a False Claims Act case?

Yes. A knowingly false certification of SCA compliance can create False Claims Act exposure, where damages are tripled.

Sources

U.S. Department of Labor, Wage and Hour Division. (2026). McNamara-O’Hara Service Contract Act (SCA) compliance.

Federal Acquisition Regulation. (2026). Subpart 22.10, Service Contract Labor Standards.

This article is general information, not legal advice.