Winning a federal government contract is a major achievement, whether you stood out for your past performance, pricing strategy, or innovative solution.  If that contract is subject to the Service Contract Act of 1965 (SCA), your next challenge is even more critical: ensuring compliance.

Designed to protect service workers on federal contracts, the SCA requires that government contractors pay fair wages and provide mandated fringe benefits. These obligations are enforced through Department of Labor (DoL) Wage Determinations, which set minimum wage rates by occupation and location. If your business sells services to the federal government, failing to comply with the SCA can result in fines, contract penalties, or disbarment.

This is where having a reliable, DCAA-compliant ERP system for government contractors becomes invaluable.

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What the Service Contract Act Requires

Under the SCA, you must pay service employees at least the wage rates and fringe benefits outlined in the Wage Determination that accompanies your contract. These rates are updated annually and reflect local labor standards—or, in some cases, are derived from a prior contractor’s collective bargaining agreement (CBA).

Employees working on the contract before you took over are entitled to keep their seniority, meaning their benefits and vacation accrual must continue as if the previous contractor had remained in place. Ignoring this can lead to major compliance issues with the Department of Labor.

This complexity is exactly why many companies are investing in ERP solutions built for government contracting—tools that automate compliance tracking and help manage labor categories, wage rates, and benefit schedules.

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Common SCA Compliance Pitfalls

Even well-intentioned contractors can fall out of compliance with the SCA. Here are a few of the most common (and costly) mistakes:

1. Employee Misclassification

Assigning workers to incorrect labor categories in an effort to reduce labor costs can lead to major fines. This is one of the most frequent audit findings and usually stems from a misunderstanding of job duties or creative bidding strategies.

2. Late Wage or Fringe Payments

Timeliness matters. Both wages and fringe benefit payments (whether made in cash or through a benefits provider) must be paid in sync with each pay period.

3. Poor Recordkeeping

If you’re paying fringe benefits as a cash equivalent—often referred to as a Health & Welfare (H&W) supplement—you must document every payment carefully. Failure to maintain accurate records is one of the top causes of SCA violations.

Using a government contractor ERP system with timesheet and payroll integration helps eliminate these issues by ensuring every wage and fringe benefit payment is logged accurately.

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Calculating and Paying Fringe Benefits the Right Way

To determine whether you’re meeting your SCA fringe benefit obligations:

Add up the total cost of all fringe benefits you provide (e.g., health insurance, retirement plans).

Divide that amount by the number of hours worked by SCA-covered employees.

If the per-hour value is less than the required H&W rate, the difference must be paid as a cash supplement—separate from the base wage. It must also appear on employees’ paychecks and be backed by documentation.

Important: You cannot simply increase the employee’s hourly wage to cover the shortfall. That’s a direct violation of the SCA and a red flag in audits.

Again, this highlights the need for ERP software tailored for government compliance, particularly one that handles fringe benefit tracking, wage calculations, and DCAA audit trails.

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Handling Mixed Work Assignments

Things get even trickier when employees split time between SCA-covered and non-SCA contracts. While different rules apply to non-SCA work, it's often simpler—and safer—to continue providing the H&W supplement across all hours. This reduces compliance risk and simplifies labor cost allocation, a feature supported by many advanced ERP systems for federal contractors.

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Simplify Compliance with WrkPlan ERP

If you’re looking for a solution designed specifically for government contractors, consider WrkPlan—an ERP and contract management system built to support SCA compliance, DCAA audit requirements, and project-based accounting.

WrkPlan ERP for government contractors helps with:

• Automatic posting of SCA vacation based on seniority
• Accurate calculation and tracking of fringe benefits and cash equivalents
• Detailed timekeeping and labor distribution
• Audit-ready documentation and reporting

The system ensures compliance with SCA regulations while simplifying your cost accounting structure, HR functions, and contract billing.

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Final Thoughts

SCA compliance isn’t just a legal requirement—it’s a reflection of your professionalism and commitment to your workforce. As a government contractor, staying compliant with the Service Contract Act protects your contracts, your employees, and your company’s reputation.

With a DCAA-compliant ERP system like WrkPlan, you can automate the most challenging aspects of SCA compliance and focus on what really matters: delivering outstanding service to your federal clients.

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Learn more at www.WrkPlan.com or call 888-602-5408 to schedule a demo.