SCA Compliance Glossary

27 essential Service Contract Act terms every government contractor needs to know, with plain-English definitions and links to official DOL sources. Written by Matt Corzine, who spent 13 years at GSA National working with SCA compliance daily.

McNamara-O'Hara Service Contract Act (SCA)

A federal law enacted in 1965 that establishes minimum wage and fringe benefit standards for service employees working on federal contracts exceeding $2,500.

DOL: Service Contract Act Overview ↗ (opens in a new tab)

Wage Determination (WD)

A formal document issued by the Department of Labor (DOL) that specifies the minimum hourly wages and fringe benefits for various job classifications in a specific geographic area.

DOL: SCA Wage Determinations ↗ (opens in a new tab)

See also: When a new H&W rate actually reaches your contract

Service Employee

Any person engaged in the performance of a covered contract other than individuals employed in a bona fide executive, administrative, or professional capacity.

29 CFR Part 4 Subpart C: Covered Employees ↗ (opens in a new tab)

Health and Welfare (H&W)

A mandatory fringe benefit amount, typically set annually by the DOL, that must be provided in addition to the employee's base hourly wage. DOL's current published rate is $5.92/hour ($5.42 with EO 13706 paid sick leave) under AAM 252, effective August 10, 2026. The rate your contract owes is the one in its incorporated Wage Determination, which for most existing contracts is still $5.55 or $5.09 until a modification is issued.

DOL AAM 252: 2026 H&W Rate Update ↗ (opens in a new tab)

See also: What "H&W" on your paycheck means

Fringe Benefits

Compensation provided to service employees in addition to monetary wages, which usually includes health and welfare, paid vacation, and holiday leave.

29 CFR 4.170: Furnishing Fringe Benefits ↗ (opens in a new tab)

Wage and Hour Division (WHD)

The specific unit within the Department of Labor responsible for administering and enforcing the SCA, including issuing Wage Determinations and conducting compliance investigations.

DOL: Wage and Hour Division ↗ (opens in a new tab)

Conformance

The formal process used to establish a legally binding wage rate and job classification for positions that are necessary for contract performance but are not listed on the existing Wage Determination.

DOL: SCA Conformance Process ↗ (opens in a new tab)

SF 1444

The Standard Form titled "Request for Authorization of Additional Classification and Rate," used by contractors to initiate the conformance process. Must be submitted within 30 days after an unlisted worker begins performance.

FAR 22.406-3: Additional Classifications ↗ (opens in a new tab)

Bona Fide Fringe Benefit

A benefit provided under a written, legally enforceable plan or program (such as health insurance or retirement plans) that meets specific DOL criteria to be credited against a contractor's fringe benefit obligations.

29 CFR 4.171: Bona Fide Fringe Benefits ↗ (opens in a new tab)

Cash-in-Lieu

A compliance method where a contractor pays the monetary equivalent of required fringe benefits directly to the employee as additional wages instead of providing benefits through a plan.

29 CFR 4.177: Discharging Obligations by Equivalent Means ↗ (opens in a new tab)

See also: The hybrid fringe model: meeting SCA H&W in-house

Third-Party Administrator (TPA)

An outside firm a contractor hires to administer benefits and, often, the SCA Health & Welfare accounting behind them: enrollment, monthly reconciliation, plan documents, and records. Hiring a TPA does not change who owes the obligation. The contractor remains responsible for compliance and for producing records in a DOL audit.

29 CFR 4.171: Bona Fide Fringe Benefits ↗ (opens in a new tab)

See also: SCA compliance software vs. a trust or TPA

Health & Welfare (H&W) Trust

An irrevocable trust into which a contractor deposits its Health & Welfare fringe contributions so they can be credited against the SCA obligation and used for employee benefits. A trust is one compliant way to meet the obligation, alongside employer-paid benefits and cash-in-lieu. Contributions count only when they go to a bona fide plan or trust.

29 CFR 4.171: Bona Fide Fringe Benefits ↗ (opens in a new tab)

See also: SCA compliance software vs. a trust or TPA

EAP Exemption

A status for employees working in "Executive, Administrative, or Professional" capacities who meet specific salary and duty tests, making them exempt from SCA coverage.

29 CFR Part 541: EAP Exemptions ↗ (opens in a new tab)

Locality

The defined geographic area (often a county or group of counties) used to determine the prevailing wage rates and fringe benefits applicable to a specific contract.

29 CFR 4.54: Locality Determinations ↗ (opens in a new tab)

Prevailing Wage

The minimum hourly rate specified in a Wage Determination for a particular job classification in a specific locality, based on local economic data gathered by the Bureau of Labor Statistics.

DOL: SCA Wage Determinations ↗ (opens in a new tab)

Section 4(c)

A provision of the SCA requiring a successor contractor to pay no less than the wages and fringe benefits established in a predecessor contractor's collective bargaining agreement. This obligation is self-executing: it applies as a matter of law.

29 CFR 4.163: Section 4(c) ↗ (opens in a new tab)

Collective Bargaining Agreement (CBA)

A negotiated agreement between an employer and a labor union that can supersede standard prevailing Wage Determinations under Section 4(c) of the Act.

DOL Fact Sheet #85: CBAs Under the SCA ↗ (opens in a new tab)

Successor Contractor

A contractor who is awarded a federal contract that succeeds a previous contract for substantially the same services at the same location.

DOL Fact Sheet #85: CBAs and Successor Contractors ↗ (opens in a new tab)

Arm's-Length Negotiations

A requirement that a CBA must be the result of genuine, good-faith bargaining between a union and a predecessor contractor to be valid for SCA successorship purposes.

29 CFR 4.11: Arm's Length Proceedings ↗ (opens in a new tab)

Substantial Variance

A condition where the wage and benefit rates in a CBA are determined by the DOL to be significantly different from those prevailing for similar services in the same locality.

29 CFR 4.10: Substantial Variance Proceedings ↗ (opens in a new tab)

Directory of Occupations

A DOL publication containing standardized occupational titles and descriptions used to classify service employees for Wage Determination purposes.

DOL: SCA Directory of Occupations (5th Edition) ↗ (opens in a new tab)

e98

An electronic portal used by government contracting officers to request a specific Wage Determination from the DOL when one is not readily available for the contract's locality and services.

SAM.gov: Wage Determinations ↗ (opens in a new tab)

Flow-Down Requirements

The obligation of a prime contractor to include all applicable SCA clauses and Wage Determinations in their agreements with subcontractors.

FAR 52.222-41: Service Contract Labor Standards ↗ (opens in a new tab)

Joint and Several Liability

A legal principle where a prime contractor can be held fully responsible for back wages and benefits if their subcontractor fails to comply with SCA requirements.

29 CFR 4.114: Subcontracts ↗ (opens in a new tab)

Debarment

A severe penalty for SCA violations that bars a contractor from being awarded federal contracts for a period of three years. The WHD considers violation history, willfulness, and record falsification when seeking debarment.

29 CFR 4.188: Debarment Proceedings ↗ (opens in a new tab)

See also: How to handle a DOL investigation for SCA compliance

Price Adjustment Clause (FAR 52.222-43)

A contract clause that allows contractors to request an adjustment to their contract price to account for increased labor costs resulting from a new or revised Wage Determination. Recovery is limited to actual increases in wages, benefits, and associated taxes.

FAR 52.222-43: Price Adjustment ↗ (opens in a new tab)

See also: The 2026 H&W rate is out. Your contract does not know yet.

Anniversary Date

The date an employee began work for a contractor (or its predecessor) at a specific facility, used to determine when they become vested for vacation benefits under the SCA.

DOL Fact Sheet #67b: Meeting SCA Requirements ↗ (opens in a new tab)

See also: When a new H&W rate actually reaches your contract