Service Contract Act of 1965: An Overview

Passed in 1965, the McNamara-O’Hara Service Contract Act (SCA) is a federal prevailing wage law that requires contractors who perform services on covered contracts in excess of $2,500 to pay service employees a local prevailing wage and to furnish fringe benefits. The SCA was originally intended to “close the prevailing wage gap” between federal construction projects (subject to the Davis-Bacon Act) and federal procurement projects (subject to the Walsh-Healey Public Contracts Act).

SCA projects typically have a defined Health & Welfare Fringe Benefit (H&WFB) hourly rate and stipulate the payment of certain holidays and a vacation schedule based on years served. Specifics are often laid out in project wage determinations.

Unless specified otherwise in an applicable Wage Determination or Collective Bargaining Agreement (WD/CBA), the following factors are taken into consideration when determining the fringe benefit eligibility of a particular employee, with “continuous service” of certain definition:

  • The total length of time spent by an employee in the continuous service of the present (successor) contractor. This includes both the time spent performing commercial work and the time spent performing on the Government contract(s) itself.
  • Where applicable, the total length of time spent in any capacity as an employee in the continuous service of any predecessor contractor(s) who carried out similar contract functions at the same Federal facility.

Health & Welfare Rate

Most SCA WD/CBAs contain Health & Welfare Fringe Benefit (H&WFB) requirements of a fixed rate per hour on behalf of each service employee, although an “average cost” WD/CBA may dictate otherwise.

This Fringe Benefit may be due each service employee on the basis of all hours paid (including paid vacations, holidays and sick leave), or all hours worked, up to a maximum of 40 hours per week. The appropriate fringe benefit hourly amount is specified in each WD/CBA.

Salaried employees may earn the equivalent of forty hours H&WFB for each week of employment, regardless of hours worked or paid.


SCA WD/CBAs typically specify particular holidays for which payment is required. Full Time employees who are eligible to receive payment for a named holiday receive a full day’s pay (8 hours) unless a different standard is used in the WD/CBA.

Unless otherwise required in an applicable WD/CBA, holiday obligations for Part Time and Temporary employees who work an irregular schedule of hours may be met by paying such employees a proportion of the holiday benefit, based on the number of hours worked in the week prior to the week the holiday occurs.


SCA WD/CBAs also require an employer to furnish employees a specified amount of paid vacation time (or equivalent benefit) upon completion of a defined length of service. The benefit need not be provided by the employer on the date of vesting, but the required benefit must be furnished before the employee’s next anniversary date or before the current contract is completed, whichever occurs first.

Vacation benefit requirements must be complied with, in full, on an annual basis.


The Service Contract Act is a federal prevailing wage law. There is also the Davis Bacon Act, 26 states with prevailing wage laws, and over one hundred localities with their own prevailing wage or living ordinance requirements. Each may have their own provisions, wage determinations, overtime definitions, and penalties for non-compliance.

A project’s funding authority typically determines which set of rules a contractor must follow. Compliance is the contractor’s responsibility to know which regulations apply. Having a knowledgeable third party with the appropriate prevailing wage experience and tools goes along way.