What Is The Service Contract Act (SCA)? (2026)

Overview of the McNamara-O'Hara SCA Law

The full name of the Service Contract Act is the McNamara-O'Hara Service Contract Act. This law, passed in 1965, sets wage standards for service employees working on federal contracts.

For contracts exceeding $2,500, contractors and subcontractors must pay service employees no less than:

• The prevailing wage for the industry and location
• The rates in a previous contractor’s collective bargaining agreement

For contracts less than or equal to $2,500, subcontractors and contractors must pay at least the federal minimum wage.

Covered Occupations and Contract Exemptions

The SCA applies to most employees in service roles. These are some examples:

• Employees responsible for the repair and maintenance of cars and other machines
• Cafeteria and food service employees
• Janitorial staff
• Security guards
• Employees in data processing and word processing

Some contracts are excluded from the SCA because they’re covered under other laws. The Department of Labor (DOL) lists the following contract types as exempt:

• Construction (protected under the Davis-Bacon Act)
• Supply/manufacturing (protected under the Walsh-Healey Act)
• Freight/passenger transportation
• Telecommunications
• Public utilities
• Direct services performed by an individual
• Work performed outside the United States

Bona fide executive, administrative, or professional employees who meet the 29 CFR Part 541 exemption tests aren’t generally covered under the SCA.

Wage Determinations and Prevailing Pay Rates

Qualifying service employees on federal contracts must be paid the “prevailing wage” and fringe benefits for their area and occupation. The prevailing wage is the wage paid to the majority of workers in the same geographic area and role.

If there is no single rate paid to a majority of workers, the DOL will use the median (and sometimes the mean) of Bureau of Labor Statistics study data.

The DOL issues wage determinations contract by contract, and most are updated at least annually. Successors must pay at least the same wages and fringe benefits as their predecessors.

Before creating fixed-term employment contracts, contractors and subcontractors can access prevailing wage information on the DOL’s wage determination website.

Required Fringe Benefits, Vacation, and Sick Leave

Most employees working on federal service contracts are entitled to health and welfare and other benefits. The employer pays these benefits.

However, if an employer would rather not pay for fringe benefits, they have the right to pay the equivalent value in cash. The DOL determines that cash equivalent, and it’s called the health & welfare rate.

In August of 2026, the DOL adjusted the health & welfare rate to the following:

• Contracts Covered by EO 13706 Sick Leave: $5.42/hour
• Contracts Not Covered by EO706 Sick Leave: $5.92/hour

The new rates apply to invitations for bids opened (and service contracts awarded) on or after August 10, 2026.

Vacation and Holidays

The SCA requires employers to give employees a “bank” of vacation hours on their first employment anniversary. Here’s how many paid vacation hours they’re entitled to per year of service:

• 1-5 Years: 80 hours
• 6-10 Years: 120 hours
• 11 Years+: 160 hours

Before their first employment anniversary, employees earn vacation time at the rate of 0.0192 per hour.

Employees are also entitled to several paid holidays throughout the year. Generally, if an employee performs any work during the week of the holiday, they are entitled to a paid holiday (regardless of whether they worked on the holiday itself).

Paid Sick Leave (EO 13706)

Executive Order 13706, which went into effect on September 7, 2015, required contractors to give employees up to 56 hours of paid sick leave each year.

Compliance, Recordkeeping and Penalties

In addition to providing required pay and benefits, contractors are required to give all employees a written notice of the minimum wage they’re entitled to.

Contractors and subcontractors must keep records of each employee’s hours worked, wage and benefit payments, and deductions for at least three years.

Penalties for non-compliance can be severe. The government may terminate the contract, debar the contractor from future federal contracts for up to three years and withhold contract funds to pay back wages. If need be, it will take legal action to recover compensation that employees are owed.

The Importance of Understanding the Law

ConsumerShield can help you create temporary or permanent employment contracts that are compliant with the SCA. Take a look at our collection of legal templates and guides today.