We are guessing that you did not hear this morning that the U.S. Department of Labor has published final regulations widening coverage of the Service Contract Act, the law that requires workers on federal service contracts to receive prevailing wages, health and welfare benefits, and paid holidays and vacations.
More correctly, you probably did hear about the regulations themselves, since they were covered in The New York Times and on National Public Radio. But, none of the reports we heard mentioned government contractors or the Service Contract Act.
Okay, let’s explain.
A law called the Fair Labor Standards Act requires employers to pay the federal minimum wage to all non-exempt workers. And, if those non-exempt workers work more than 40 hours in a workweek, they must be paid time-and-a-half for those extra hours. Exempt employees, on the other hand, are not entitled to overtime pay.
For the most part, the Labor Department gets to define who is exempt or non-exempt. Typically, an exempt workers is one who meets the duties test for the Executive, Administrative or Professional exemption and also is paid on a salary basis. Since August 2004, the minimum salary that such an employee had to earn to be exempt was $455 per week, which equates to $23,660 per year for a full-time worker.
This morning, DOL announced that the minimum salary that an employee will have to earn to be exempt will increase on December 1, 2016 to $913 per week, which equates to $47,476 per year for a full-time worker. That’s a little more than double the current amount. Anyone who earns less than $913 per week will no longer qualify for the Executive, Administrative or Professional exemption come December. If they work more than 40 hours in a week, they will be entitled to overtime pay. DOL estimates that 5 million workers will be affected. Of course, through better scheduling of workers, improving timekeeping, tighter supervision of hours worked, giving pay raises to those close to the new salary threshold, hiring more workers and working the existing workforce no more than 40 hours per week, employers can avoid new overtime costs.
Now, back to the Service Contract Act.
Executive, Administrative and Professional employees who are exempt from the FLSA also are exempt from the SCA. Such employees do not have to receive prevailing wages, health and welfare benefits, and paid holidays and vacations. By narrowing who is exempt from the FLSA, DOL has automatically broadened who is covered by the SCA. In particular, first line supervisors who previously qualified for the Executive or Administrative exemption and entry-level scientists and nurses who previously qualified for the Professional exemption may be affected. Also, workers who are engaged part-time, who job share, or work sporadically, may no longer qualify as exempt because they don’t meet the new salary threshold.
Having more SCA-covered workers may raise a contractor’s costs for overtime and SCA fringe benefits. Arguably, if your contract contains the clause at Federal Acquisition Regulation 52.222-43, “Fair Labor Standards Act and Service Contract Labor Standards—Price Adjustment (Multiple Year and Option Contracts)” you may be able to get a price adjustment. However, there are defenses the government is likely to assert. On the other hand, contractors may have an argument that requiring all of these additional workers be SCA-covered is a change to the contract, which would entitle a contractor to even broader relief.
In short, there’s a lot to do to ensure compliance with both the FLSA and SCA, as well as to submit any necessary claims to the government. Therefore, run—don’t walk—to the phone or computer and contact a lawyer who focuses on these areas.
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