Accounting for SCA Contracts

3. Who We Are Left Brain Professionals is a boutique accounting firm that serves government contractors. We specialize in accounting systems and strategic services.

4. Copyright © 2014-2022 Left Brain Professionals Inc. Our Practice Areas ACCOUNTING SYSTEMS • Accounting System Design & Implementation • Monthly Support Packages STRATEGIC SERVICES • DCAA Audit Support • CFO & Controller Services

5. Our Team Robert E. Jones Principal GovCon Accounting Advisor CPA, CPCM, NCMA Fellow Steven Bressler GovCon Accounting Associate Steve@LeftBrainPro.com Robert@LeftBrainPro.com Copyright © 2014-2022 Left Brain Professionals Inc.

6. Learning Objectives Copyright © 2014-2022 Left Brain Professionals Inc. • Identify key SCA contract accounting requirements. • Explain the creation of different or additional indirect rate pools. • Describe the proper treatment of wages in lieu and its impact on indirect rates.

8. Copyright © 2014-2022 Left Brain Professionals Inc. Background This session focuses on the accounting aspect of SCA contracts which touches on some of the unique compliance requirements of SCA contracts. This is not HR or legal advice. You should seek HR and legal guidance from a professional well-versed in SCA contracts.

9. Copyright © 2014-2022 Left Brain Professionals Inc. Background McNamara-O'Hara Service Contract Act of 1965 Contracts for services in excess of $2,500 1. Minimum monetary wages 2. Minimum fringe benefits 3. Safe working conditions 4. Posting of requirements at worksite

10. Copyright © 2014-2022 Left Brain Professionals Inc. Key SCA Contract Accounting Requirements Tracking SCA vs non-SCA hours, wages, and benefits Need a timekeeping system that accurately identifies intermediate and final cost objectives (SF 1408) SCA contracts or CLINs need to be clearly identified for reporting purposes Separate GL accounts for SCA vs Non-SCA wages and benefits

11. Copyright © 2014-2022 Left Brain Professionals Inc. Calculating Fringe Benefit Amounts for H&W H&W is the total of all benefits not legally required except vacation and holiday Key is to pay Wages in Lieu (WIL) for dollars not spent on benefit

12. Copyright © 2014-2022 Left Brain Professionals Inc. Calculating Fringe Benefit Amounts for H&W • Death • Disability • Advanced age • Retirement • Illness • Medical expenses • Hospitalization • Supplemental unemployment benefits

13. Copyright © 2014-2022 Left Brain Professionals Inc. Wages In Lieu Does not affect, replace, or alter the base wages Must be separately reported on pay stub Treated as Fringe (similar to paid absences) for rate calculations since it is a payment in lieu of benefits Wages subject to employment taxes (employEE and employER) Can be paid into a qualifying retirement plan to avoid employment taxes* *There are some very specific requirements so we recommend working with an advisor that understands SCA compliance.

15. Copyright © 2014-2022 Left Brain Professionals Inc. Wage Determinations Written determination (WD) by geography for listed labor categories Includes Health & Welfare (H&W) amount as well as any special requirements WD should be identified in the RFP Any increases in wages or benefits covered by a WD will be handled as a mod

17. Copyright © 2014-2022 Left Brain Professionals Inc. Typical Problems 1. Underpayment of service workers due to misclassification. 2. Erroneously considering workers exempt without regard to 29 C.F.R. Part 541 rules. 3. Failure to make timely payment of wages or fringe benefit contributions. 4. Lack of proper record keeping when cash payments are made to satisfy fringe benefit requirements.

18. Copyright © 2014-2022 Left Brain Professionals Inc. Typical Problems 5. Failure to notify service employees of the applicable wage and fringe benefit requirements, or failure to post the “Notice to Employees Working on Government Contracts” at a prominent and accessible place at the worksite. 6. Failure to use the conformance procedure for unlisted classes of employees. 7. Failure to segregate and keep records on hours spent on contract work and non-contract work for employees who do both. 8. Failure to implement rate increases (if any) in a new wage determination in a multi-year contract subject to annual appropriations.

19. Copyright © 2014-2022 Left Brain Professionals Inc. Compliance Complexities SCA-covered employees working in more than one location SCA-covered employees working in more than one position SCA-covered employees working on SCA-covered and Non-SCA covered contracts SCA-covered employees working both CONUS and OCONUS

20. Poll Copyright © 2014-2022 Left Brain Professionals Inc. Complexities of SCA contracts include all of the following except: A. Employees working on multiple contracts. B. Employees paid more than the minimum wage. C. Employees working in multiple locations. D. Misclassified workers.

22. Copyright © 2014-2022 Left Brain Professionals Inc. Indirect Rate Pools Splitting Fringe SCA vs Non-SCA Fringe SCA Fringe will usually be higher because of the higher cost of benefits (including the wages in lieu) as compared to the lower wages of a skilled or unskilled workforce.

23. Copyright © 2014-2022 Left Brain Professionals Inc. Indirect Rate Pools Splitting Overhead Contractor Site vs Client Site SCA work often involves work at a client site Client does not want to pay your overhead (facilities, equipment, and supplies) when they are providing most or all of these items.

28. Copyright © 2014-2022 Left Brain Professionals Inc. Requirements Split pools must be properly aligned with the split base SCA benefits over SCA wages Non-SCA benefits over Non-SCA wages Contractor Site expenses over Contractor Site wages Client Site expenses over Client Site wage

30. Copyright © 2014-2022 Left Brain Professionals Inc. Feedback from an SCA Client 1. If the contract includes Executive Order 13706 requiring you pay sick time, the H&W amount is different so pay attention to the requirements. 2. If you win a contract and are hiring people from the incumbent contractor, to support the same contract, you are required to honor the time they worked on the previous contract. This could impact your vacation cost. This is also true if you are transferring people internally from one SCA contract to another. It gets a little tricky since not all contracts have sick time. 3. Some counties have more holidays than others.

31. Copyright © 2014-2022 Left Brain Professionals Inc. Feedback from an SCA Client 4. If the contract contains FAR 52.222-43, SCA rates should not be escalated. In this case SCA rates will be escalated when the contracting officer incorporates the updated SCA revision into the contract. If you escalate employees pay before it is incorporated into the contract you may not be eligible for an equitable adjustment. 5. For SCA Employees, if they leave the company you are required to pay Vacation Time remaining. You are not required to pay sick time, but if you don’t and they return within 8 months, you must re-instate the sick time they earned. 6. As the wages are different by county, and the differences can be significant, pay close attention to the work location.

33. Copyright © 2014-2022 Left Brain Professionals Inc. Resources SAM.gov | Wage Determinations McNamara-O'Hara Service Contract Act (SCA) | U.S. Department of Labor (dol.gov) Service_Contract_Act_Wage_Deteminations.ppt (live.com) SCA_CompliancePrinciples.ppt (live.com) Fact Sheet #67: The McNamara-O’Hara Service Contract Act (SCA) | U.S. Department of Labor (dol.gov) Complying with the Service Contract Act (shrm.org)

34. Connect with us Download the presentation Left Brain Professionals Inc. @LeftBrainPro Email us Support@LeftBrainPro.com @LeftBrainPro Left Brain Pro LeftBrainPro www.LeftBrainPro.com/presentations

Accounting for SCA Contracts

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