Key Takeaway

The Service Contract Act requires more than wages and Health & Welfare. Most contracts also obligate you to provide paid vacation that vests on each employee's service anniversary and paid holiday pay for a standard list of federal holidays, typically 11 days per year. These benefits are separate from H&W, must be paid in addition to it, and are calculated at the employee's regular hourly rate.

If you've spent any time looking at a Service Contract Act Wage Determination, you've probably noticed it lists more than hourly wage rates and the Health & Welfare amount. There's also a section on vacation and holidays. Those aren't optional, and they aren't the same as H&W.

Vacation and holiday pay are their own separate fringe benefit obligations under the SCA. They have their own rules for eligibility, vesting, and payment, and they trip up new contractors more often than any other piece of the SCA puzzle besides the H&W calculation itself.

This guide explains how each works, in plain English, so you know what you owe and when.

How Does SCA Vacation Pay Work?

Under the SCA, vacation is a vested benefit, not an accrued one. That distinction matters more than it sounds.

In a typical private-sector job, vacation accrues a little bit with every paycheck. After two months you might have a few days banked. SCA vacation works differently. Your employees earn nothing during their first 12 months of service. Then, on their service anniversary, they become entitled to a full block of vacation time all at once, often two weeks for the first tier.

The exact schedule is set by your contract's Wage Determination. A typical standard area-wide schedule looks something like this: two weeks of paid vacation after one year of service, three weeks after five years, and four weeks after 15 years. Some Wage Determinations use different tiers, so always read your specific document rather than assuming.

What Counts as "Service"?

This is where most new contractors get tripped up. "Length of service" under the SCA is not just the time the employee has worked for your company. It includes time the employee spent performing similar work on the same federal property under any predecessor contractor.

So if you win a follow-on contract and inherit five employees who were already working that location for the previous contractor, their clock didn't restart on day one with you. An employee who had three years of service with the predecessor brings those three years with them when calculating their vacation tier.

This is part of the broader successor contractor obligations under SCA Section 4(c), and it's one of the most expensive surprises for contractors who don't ask the right questions before bidding. The DOL's Field Operations Handbook covers the specifics in Chapter 14.

When Does Vacation Have to Be Paid?

Once vested, vacation must be either taken or paid out in cash by the earliest of three events: the employee's next anniversary date, the completion or expiration of the contract, or the employee's termination.

You cannot carry vested vacation indefinitely. You also cannot pay less than the employee's current regular hourly rate for it. If an employee earned vacation while making $22.50/hour and you give them a raise to $24.00 before they take it, you owe the higher rate.

What If an Employee Quits Before Their Anniversary?

In most cases, an employee who leaves before reaching their next anniversary forfeits the vacation that would have vested on that date. This is the default rule under 29 CFR 4.173. The main exception is when a Collective Bargaining Agreement governing the contract requires a pro-rata payout, in which case the CBA terms control.

How Does SCA Holiday Pay Work?

Holidays are more straightforward than vacation, but they come with their own quirks.

The standard list of paid holidays in most Wage Determinations is 11 days:

New Year's Day, Martin Luther King Jr.'s Birthday, Washington's Birthday (Presidents' Day), Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.

That standard list isn't universal. Some Wage Determinations include additional days (Inauguration Day for contracts performed in the D.C. metro area, for example), substitute different observances, or carry holiday provisions tied to a Collective Bargaining Agreement. Always check the holiday section of your specific Wage Determination rather than relying on the standard list.

Who Gets Paid for the Holiday?

A covered employee is generally entitled to holiday pay if they worked or were paid for any part of the workweek in which the holiday fell. There is no SCA-imposed "must work the day before and the day after" rule, despite that being a common (and incorrect) carryover from private-sector policy.

For a full-time employee on a standard 40-hour schedule, holiday pay equals 8 hours at the employee's regular rate of pay. Part-time employees receive pro-rated holiday pay based on their normal scheduled hours for that day.

What If the Holiday Falls on a Non-Workday?

If a federal holiday falls on a Saturday, Sunday, or any other day the employee normally wouldn't work, the employer has two options: provide an alternate paid day off (typically the closest workday), or pay the employee in cash for the holiday.

Both satisfy the requirement. Most contractors choose whichever aligns with the federal observance schedule for that year.

Do Vacation and Holiday Hours Count Toward H&W?

Yes, and this is one of the most commonly missed details in H&W calculations. Under odd-numbered Wage Determinations, the H&W obligation is owed for "all hours paid for," which includes vacation and holiday hours up to the 40-hour weekly cap.

So if an employee works 32 hours and takes 8 hours of holiday in the same week, the H&W obligation for that week is calculated on the full 40 hours, not just the 32 worked.

This compounding catches contractors who think of vacation and holidays as standalone benefits. Every paid hour of vacation or holiday triggers an additional H&W obligation on top of the wage payment for that hour.

Common Vacation and Holiday Mistakes

Restarting the service clock on a new contract. Length of service for vacation tier purposes includes predecessor contracts at the same location. Treating takeover hires as zero-service employees is a frequent audit finding.

Forgetting that vacation must be paid out at termination. Vested vacation that hasn't been used is owed in cash on the employee's final paycheck. This applies whether the employee quit, was laid off at contract end, or was terminated for cause.

Paying holidays at a stale wage rate. When wages go up due to a Wage Determination revision or a contract anniversary increase, holiday and vacation pay must reflect the new rate. The rate in effect when the time is paid (not when it was earned) is what matters.

Forgetting the H&W ripple. Cash payments for unused holidays or vacation still count as "hours paid for" when calculating the H&W obligation, since they replace what would have been compensated time.

Not segregating fringe payments on pay stubs. Per 29 CFR Part 4, payroll records must separately identify wages from fringe benefits, including vacation and holiday pay. Lumping them together can cause the DOL to presume the entire amount was wages, leaving you liable for the fringe portion all over again.

Why This Gets Messy at Scale

Vacation and holiday compliance is manageable for one employee on one contract. The complexity grows fast when you have employees with different anniversary dates spread across the calendar, multiple contracts each with its own Wage Determination and possibly different vacation schedules, takeover hires whose predecessor service has to be verified and credited correctly, and rate changes that need to flow through to the right vacation and holiday payments at the right effective dates.

A spreadsheet can usually keep up with one of those moving parts. Two or three at once is where things start breaking down, and the gaps don't surface until a DOL investigator asks for documentation.

Bottom Line

Vacation and holiday pay are required SCA fringe benefits, not optional perks. They have their own rules separate from H&W, and those hours feed back into the H&W calculation in ways that are easy to miss. Get the vacation tier wrong, miss a successor service credit, or forget to cash out vested vacation at termination, and you've created back-pay liability that compounds across every employee affected.

For a broader view of how vacation and holiday obligations fit into your overall SCA compliance program, see our SCA Compliance FAQ and our step-by-step compliance checklist. If you're managing all of this manually today, SimpleFringe is purpose-built to track vacation tiers, holiday eligibility, and the H&W ripple effect across every contract you run.