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 contractors worth less than $2,500, subcontractors and contractors must pay at least the federal minimum wage.

Wage Determinations and Prevailing Pay Rates

Qualifying service employees on federal contractors 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.

The Department of Labor (DOL) calculates prevailing wages. 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.

Employers must pay a certain amount of money per hour worked (based on the DOL’s wage determination) into a fund. Fringe benefit payments come out of that fund.

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

Executives, administrative employees, and professional employees aren’t generally covered under the SCA.

Some contracts are excluded from the SCA because they’re covered under other laws. For instance, construction, manufacturing, and transportation contracts are exempt from the SCA.

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, ban the contractor from future federal contracts, 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

If you’re a subcontractor or contractor, make sure you fully understand Service Contract Act requirements before hiring employees. If you don’t, you and your company may face significant penalties.

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