Fact Sheet #67C: Application of the McNamara-O’Hara Service Contract Act (SCA) to U.S. Postal Service Mail Haul Contracts

This fact sheet provides general information concerning the application of the McNamara-O’Hara Service Contract Act to U.S. Postal Service (USPS) mail haul contracts.

General Provisions of the McNamara-O’Hara Service Contract Act (SCA)

Coverage

The SCA applies to contracts entered into by Federal and District of Columbia agencies that have as their principal purpose furnishing services in the U.S. through the use of “service employees.” The definition of “service employee” includes any employee engaged in performing services on a covered contract other than a bona fide executive, administrative, or professional employee who meets the exemption criteria set forth in 29 CFR Part 541.

Contracts for mail hauling are expressly identified as a type of SCA-covered contract in the Department’s regulations. Mail haul contracts are typically USPS contracts with contractors that deliver mail between post office locations. See 29 CFR § 4.130(a)(31).

Basic Provisions/Requirements

SCA contract clauses require contractors and subcontractors performing services under covered prime contracts in excess of $2,500 to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality, or the rates (includes prospective increases) contained in a predecessor contractor’s collective bargaining agreement. The Department of Labor issues SCA wage determinations for Federal contracting agencies to incorporate them, along with the required contract clauses, into covered contracts. The fringe benefit requirements (usually “health and welfare,” vacation, and holiday benefits) are separate and in addition to the hourly monetary wage requirement under the SCA.

On contracts equal to or less than $2,500, at least the federal minimum wage established by section 6(a)(1) of the Fair Labor Standards Act applies ($7.25 per hour effective July 24, 2009, under the “Fair Minimum Wage Act of 2007”).

Contractors and subcontractors must notify employees performing SCA contract work of the compensation due them under the applicable SCA determination in the covered contract, and must post the “Notice to Employees Working on Government Contracts,” Department of Labor Publication WH-1313, at a prominent and accessible place at the worksite.

Required Compensation

Contractors and subcontractors must pay service employees working on covered contracts the prevailing wages and fringe benefits set forth in the SCA wage determinations issued by the Department. Wages are usually listed in the wage determination as hourly wage rates. 29 CFR § 4.166. However, contractors may pay service employees by mile, task, or other basis, so long as that rate, when converted to an hourly basis, is equal to or greater than the rate per hour listed in the wage determination. 29 CFR § 4.166.

Required fringe benefits are also listed in the wage determination and include, but are not limited to, health, welfare, pensions, holidays, and vacation. Fringe benefits do not include any benefits required by any other Federal, State, or local law (e.g., workers’ compensation, unemployment insurance). Fringe benefits must be furnished separate from and in addition to the specified monetary wages in the wage determination. 29 CFR § 4.170. In lieu of providing the fringe benefits listed in the applicable determination, contractors and subcontractors may satisfy their fringe benefit obligation by providing employees any equivalent combinations of bona fide fringe benefits or by making equivalent or differential payments in cash. 29 CFR § 4.177. Contractors and subcontractors may not include the cost of fringe benefits or equivalents furnished as a credit toward the hourly wage. 29 CFR § 4.177(a)(1).

The term “service employee” encompasses owner-operators and other independent contractors. Under the SCA, a person’s status as an owner-operator or independent contractor is immaterial in determining coverage under the SCA, and all such persons performing the work of service employees must be compensated in accordance with the SCA. 29 CFR § 4.155. Owner-operator contracts that contemplated that only the owner-operator will work on the contract may be exempt from the SCA. See 29 CFR § 4.123(d)(2).

Travel and Wait Time

Service employees working on covered contracts must be paid the compensation set forth in the applicable wage determination for certain travel and wait time. Compensable hours worked include the following:

• Time spent by an employee in travel as part of their principal activity, such as travel from Post Office to Post Office (i.e., worksite to worksite) during the workday;
• Time spent on preparatory activities, including fueling trucks, attending meetings to receive instructions, pre- and post-trip inspections, picking up or delivering a trailer at a designated place or picking up tools, and the travel from that designated place to the workplace;
• Time spent waiting for items to be loaded or unloaded, for maintenance or repairs to be performed (whether scheduled or not), and other similar activities where the workers are required to remain on duty, and;
• Time spent driving a contract vehicle to the Post Office or a point designated in the contract.

However, scheduled periods during which an employee is completely relieved from duty, and which are long enough to enable the employee to use the time effectively for their own purpose, are not considered hours worked that must be compensated.

Required Records

SCA contractors and subcontractors are required to keep certain records, many of which are similar to those employers are required to keep under the Fair Labor Standards Act (FLSA). The records required to be kept include:

• The name, address, social security number, classification, rate of monetary wages paid, fringe benefits provided, and the number of daily and weekly hours worked, of each service employee.
• Any deductions, rebates, or refunds from the total daily or weekly compensation of an employee.

Records must be maintained for three years from the completion of work on a contract and, upon request, be made available for inspection and transcription by authorized representatives of the Wage and Hour Division (WHD). 29 CFR §§ 4.6(g), 4.185.

Typical Compliance Problems for Mail Haul Contractors

The most typical violations of the SCA the Department sees from mail haul contractors include:

• Paying service workers a wage rate below the rate stipulated in the contract;
• Paying a "trip rate" which is insufficient to cover the stipulated rate and fringe benefits for all hours worked;
• Failing to pay for down time and start-up time needed for breakdown, dock waiting time, safety checks, gassing and warm-up of the vehicle;
• Failing to separately state fringe benefits; and
• Paying certain owner-operators as though they were not subject to the SCA.

Frequently Asked Questions

Q. Would the wage determination applicable to the location where the trip originates or where the trip terminates be used?

A. The wage determination generally will be determined based on where the work (trip) starts, i.e., the "head-out" point. For example, if the designated route is from Baltimore, Maryland to Dover, Delaware, and the driver is required to pick up a load in Baltimore and deliver it to Dover, the Baltimore rates would be applicable. If the driver then is required to transport a load from Dover to Baltimore, the Dover rate of pay listed on the wage determination would be applicable to that work.

Q. Is it necessary to inform the service employees working on a contract of the wage rates and fringe benefits attached to the contract?

A. Each service employee commencing work on the contract must be notified of the minimum monetary wage and of any fringe benefits required to be paid pursuant to the contract. This notice requirement may be satisfied by posting the wage determination attached to the contract in a location where service employees may readily view it. 29 CFR §§ 4.6(e), 4.183, 4.184.

Q. Is a contractor allowed to make “cash” fringe benefit payments?

A. Yes, cash payments may be substituted for bona fide fringe benefits in whole or in part, provided that the total of the cash payments and any bona fide fringe benefits provided is equivalent to the total fringe benefit value specified in the wage determination. 29 CFR § 4.177.

Q. How long is a contractor allowed to wait to pay its employees between pay periods? For example, can I wait until USPS processes payment of late slips before compensating drivers for their hours worked?

A. Each service employee must be paid unconditionally by the contractor all wages due free and clear no later than one pay period following the end of the regular pay period in which such wages were earned or accrued. A pay period may not be of any duration longer than semi-monthly. 29 CRF §§ 4.6 (h), 4.165. A contractor must comply with these payment obligations even if the USPS has not yet processed late slips, and a contractor therefore cannot wait until USPS processes payment of late slips before compensating drivers for their hours worked.

Q. Would carriers be exempt from overtime rates?

A. The SCA does not have an overtime requirement. 29 CFR § 4.180.

Contractors may be subject to the FLSA, which contains an overtime requirement for hours worked in excess of 40 in a workweek. However, section 13(b)(1) of the FLSA provides for an exemption from the FLSA’s overtime pay requirements for certain motor carriers. FLSA regulations regarding the motor carrier exemption are set forth at 29 CFR Part 782. WHD’s Fact Sheet #19 outlines this exemption. For general information regarding overtime compensation, please see FLSA regulations at 29 CFR Part 778 and WHD’s Fact Sheet #23.

Q. Under what circumstances would "off-duty" time be considered compensable hours for a long-haul team driver? Would this inquiry be very fact-specific, depending in part upon how much the driver is able to use the time for their own benefit and for their own purposes?

A. Under the SCA, compensable hours, commonly referred to as hours worked, are determined following the FLSA regulations at 29 C.F.R. Part 785, which are incorporated into the SCA regulations at 29 CFR § 4.178. WHD’s Fact Sheet # 22 also provides general information concerning what constitutes hours worked under the FLSA. The determination of hours worked tends to be a fact-specific inquiry. However, as a general principle, off-duty time, including waiting time and on-call time, is compensable unless the employee is completely relieved from duty and such time periods are long enough to permit the employee to be able to use the time effectively for their own purposes. 29 CFR § 785.14-785.17. The compensability of rest and meal periods is governed by the regulations at 29 CFR § 785.18-785.19. Sleep time is governed by the regulations at 29 CFR § 785.20-785.22.

Q. If a fringe benefit determination requires full-time employees be given 40 hours of paid vacation each year, is a part-time employee working a regular scheduled workweek of only 16 hours entitled to the full 40 hours of paid vacation? Similarly, if the wage determination requires specific holiday pay as part of the required fringe benefits, would a part-time employee be due the same holiday pay as full-time employees?

A. Part-time employees are only entitled to an amount of fringe benefits specified in an applicable determination which is proportionate to the amount of time spent in covered work. 29 CFR § 4.176. Thus, where the paid vacation for full-time employees is 40 hours each year, a part-time employee working a regular scheduled workweek of 16 hours would only be entitled to 16 hours of paid vacation time or its equivalent each year. In the case of holidays, the part-time employee in this instance working a regularly schedule workweek of 16 hours would be entitled to two-fifths (i.e., a pro-rata share) of the holiday pay due full-time employees. See 29 CFR § 4.176 (a) (1) and (2).

Q. How are independent owner-operator expenses treated as part of the calculation of an effective rate per hour? What categories of expenses must be included?

A. In determining how certain costs (such as fuel and maintenance costs) should be considered for purposes of determining whether the applicable prevailing wage rate has been paid, contractors should note that costs that are primarily for the benefit or convenience of the contractor must be paid by the contractor, not by the service employee, if payment of such costs by the service employee would reduce the employee's hourly wage rate below the applicable SCA prevailing wage. Determining whether particular expenses are primarily for the benefit or convenience of the contractor requires balancing the benefits to the contractor versus the benefits to the owner-operator or other service employee. As noted above, the term “service employee” includes owner-operators.

As a general matter, deductions from the wages required under the SCA, other than those specifically authorized by law (e.g., tax withholdings), are not permitted. See 29 CFR § 4.165(a)(1). The regulations allow, however, for deductions for the reasonable cost or fair value of “board, lodging, or other facilities,” as defined in 29 CFR Part 531, in situations where “such facilities are customarily furnished to employees, for the convenience of the employees, not primarily for the benefit of the employer, and the employees’ acceptance of them is voluntary and uncoerced.” See 29 CFR §§ 4.167 and 4.168(a). Thus, if the board, lodging, or other facilities are primarily for the benefit or convenience of the contactor, the costs of providing these items are properly the expense of the contractor and cannot be deducted from SCA wages or treated as a bona fide fringe benefit. See 29 CFR §§ 4.167 and 4.171(e); see also 29 CFR § 4.168(b) (the cost of maintaining and furnishing uniforms is a business expense of the employer under specified conditions). Further, the SCA’s wage requirements are not met when a service employee “kicks back” any portion of their wages, directly or indirectly, to the employer or to another for the employer’s benefit. See 29 CFR § 4.168(a).

Part 531, incorporated in part into the SCA regulations at 29 CFR§ 4.167, makes clear that the cost of furnishing facilities found by the WHD Administrator to be primarily for the benefit or convenience of the contractor cannot be included in computing wages. See 29 CFR § 531.3(d)(1). The Part 531 regulations provide numerous examples of “facilities” primarily for the benefit or convenience of the employer, including tools of the trade and other materials and services incidental to carrying on the employer’s business. See 29 CFR §§ 531.3(d)(2) and 531.32(c). The examples in the regulations indicate that the balancing of the benefits is “based on whether the employment-related cost is a personal expense that would arise as a normal living expense.” See Arriaga v. Florida Pac. Farms, LLC, 305 F.3d 1228, 1243 (11th Cir. 2002).

In light of these principles, a contractor may not require its service employees to bear the cost of items or services that are for the primary benefit or convenience of the contractor if bearing such costs would reduce the service employee’s hourly wage rate below the SCA minimum. Thus, for example, a mail haul contractor who enters into an SCA-covered agreement must either pay the expenses incurred by a covered owner-operator in connection with performance of the subcontract or compensate the owner-operator at a rate sufficient to ensure the owner-operator receives an SCA-compliant hourly wage rate after paying those expenses. Such expenses include, but are not limited to fuel, oil, and maintenance. In circumstances where the precise amount of expenses cannot be determined, it may be appropriate to use a fleet-wide average per-mile expense rate, based upon a contractor’s own information or generally available and recognized industry expense information.

Q. If a contractor has only one or two part-time employees on the contract, is it still required to keep records on them? If so, what type?

A. Yes, records such as name, addresses, social security number, work classification, rate of monetary wages paid, fringe benefits provided, and number of daily and weekly hours worked must be maintained on all service employees. See 29 CFR § 4.6(g)(i) - (vi).

Q. Are non-asset-based companies (also referred to as third-party logistics companies or brokerages) that contract with the United States Postal Service to provide mail haul services required to comply with the SCA, including by flowing down SCA requirements when contracting with an asset-based third party to provide the services?

A. Yes. A company that enters into a contract with the United States Postal Service in excess of $2,500 to provide mail haul services must comply with the SCA’s requirements, including paying service employees performing on the contract the applicable prevailing wages rates and fringe benefits and flowing down the SCA contract clauses to subcontractors (including any asset-based third party that performs mail haul services under the prime contract). See 29 CFR § 4.6(b), (j); 4.104; 4.114.

Reference Materials

• The McNamara-O’Hara Service Contract Act (http://www.dol.gov/whd/recovery)
• Title 29, Code of Federal Regulations (C.F.R.): Parts 4, 531, 541, and 785 (http://ecfr.gpoaccess.gov) or (http://www.wdol.gov)
• U.S. Department of Labor, Prevailing Wage Resource Book, May 2015 https://www.dol.gov/agencies/whd/government-contracts/service-contracts/guidance
• Fact Sheet #67 The McNamara-O'Hara Service Contract Act