This document provides an overview of the Service Contract Act (SCA) and how it impacts employees working on federal service contracts. It discusses key aspects of the SCA including: - The purpose of the SCA is to provide prevailing wages and benefits to employees working on federal contracts. Wages are determined by wage determinations set by the Department of Labor. - There are different types of wage determinations including area, non-standard, collective bargaining agreement, and contract-specific determinations. - Employers must provide fringe benefits to employees including an hourly amount for health and welfare. Compliance can be met through various methods like cash payments, retirement contributions, or establishing benefit plans. - Employees

1. Welcome and thank you for joining the
DynCorp International SCA overview
prepared for HRG. The following
presentation will provide an overview of
the Service Contract Act and how it
impacts your SCA employees and Wage
Determination contracts applicable to
SCA.
1

2. Service Contract Act also referred to as
SCA
2

3. What is the Service Contract Act or SCA? The
McNamara O’Hara Service Contract Act was
established back in 1965. The purpose of this
Act is to provide prevailing wage and benefits
to employees working on federal service
contracts and subcontracts. Prevailing wage
is determined by the Wage Determination or
Area Wage Determination. SCA applies to
contracts performing services in the United
States, including U.S. territories. In the U.S.
means In the 50 states, District of Columbia,
Puerto Rico, Virgin Islands, Outer Continental
Shelf, American Samoa, Guam, Wake Island,
Johnston Island, Northern Marianas.
3

4. There are different types of Wage Determinations – one
is an Area Wage Determination or Standard wage
determination. The Area Wage Determination is
generic, issued per locality, reflect locally prevailing
wages, locality is county or group of counties, or larger
areas. Area WDs may list over 300 classifications. The
second is a NON Standard Wage Determination which is
applicable to fast food, elevator maintenance, diving,
moving household goods, etc. Non standard WDs
reflect wages prevailing in a specific industry. A third
type of WD is a CBA Wage Determination. These are
based on predecessor collective bargaining agreements
under SCA. The fourth is a Contract-Specific Wage
Determination. These are WDs issued by specific
request to DOL for unique (often sole-sourced)
contracts, and cannot be used for any other contract.
4

5. Department of Labor issues two standards WDs for
each locality. Odd numbered WDs, also known as
Individual, require payment of the health and welfare
rate for all hours paid (work time and paid leave time)
up to a maximum of 40 hours each week. Employees
working on these contracts have Individual Premium
Reserve Accounts within the DI Trust.
Even numbered WDs, also known as Average, require a
contractor to pay a minimum contribution for benefits
costing an average of the health and welfare rate for all
hours worked including overtime hours by service
employees on the contract. Employees working on
these contracts share a contract-level Premium Reserve
Account.
5

6. As mentioned in the previous slide, Odd and Even wage
determinations are determined by the number
provided on the Wage Determination. This sample
reflects an Odd numbered WD which means the
accounting for health and welfare contributions will be
required on all hours paid excluding overtime per each
individual on the contract. SCA Wage determinations
will also include information pertaining to fringe
benefits such as corresponding fringe rate per hour.
6

7. Now that we have covered the different types of wage
determinations, we will discuss how they each vary. In
this session we are presenting a brief comparison
among these WDs. Hours paid excluding overtime are
required on the Individual WD. New WDs are still being
issued for Odd numbered WDs. Prevailing wage varies
by area for the Davis Bacon and Related Acts (DBRA)
contracts. The DBRA contracts are reconciled on an
individual basis, with hours paid including overtime.
CBA contracts are dictated by regulations established
during the bargaining agreement between the
employer and the unions. Last is the Average contracts
which require contributions on all hours worked
including overtime. Compliance is measured on a
contract-level basis for Even WDs.
7

8. Fringe Benefits Compliance
8

9. Under both types of Standard WDs, employers are
required to provide fringe benefits to their employees.
This includes an hourly amount for health and welfare.
There is one rate for all localities with the exception of
Hawaii. The fringe rate is currently set at $4.27 per
hour, and it is typically revised by Department of Labor
annually. Employers are required to provide a specified
number of paid holidays and vacation weeks as part of
the fringe benefit requirements.
9

10. As mentioned previously, the health and welfare rate
generally increases every year. However, it is the
contracting officer’s responsibility to notify their
contractors of these rate increases. It is important to
note these new rates are paid on the contract option
dates or anniversary dates. If the contractor decides to
pay these new rates before the contract anniversary
date, they will not be able to recover the difference
between these rates under price adjustment. Our
recommendation to contractors is to increase wages or
fringe benefits once it has been modified into their
contract with an effective date.
10

11. There are multiple ways for employers to satisfy or
meet their fringe benefit obligation. One method is to
pay the fringe to their SCA employees as cash in lieu of
benefits, another is to make retirement plan
contributions, while yet another is to directly pay for
qualified benefits, or establish a bona fide plan or trust
to contribute health and welfare obligation which in
turn pays for qualified benefits. Contributions allocated
into a trust are irrevocable to the employer. Some
employers have chosen multiple methods to meet their
compliance such as pay for qualified benefits and
provide cash in lieu. This is acceptable as long as the
total value of the fringe benefits meets or exceeds the
health and welfare requirement.
11

12. There is not an definitive list of benefits that meet the
fringe requirements provided by the Department of
Labor. In this slide we, list some of the most common
benefits employers establish to meet their fringe
requirement such as medical, dental, life and ancillary
benefits. It is important to note employer may only
take credit for paid time off and other paid leave
provided in excess of what is required by Federal, state,
or local law to include what is contained in the WD.
12

13. There are benefits that do not meet the fringe benefits
requirements. For example, vacation and holiday pay
benefits that are required by the wage determination
do not satisfy this requirement. Other benefits
required by federal, state, or local law such as FICA,
unemployment insurance, worker’s compensation and
paid time off do not qualify to meet this requirement
either. Other benefits in this category are relocation,
incentive awards, uniforms, and club membership dues
to name a few.
13

14. Premium Reserve Account or PRA. In the next few
slides we will cover what we mean by the term
Premium Reserve Account and how it benefits DynCorp
International employees.
14

15. As we covered earlier during this presentation, employees working on Odd
numbered wage determinations have Individual accounts. A premium reserve
balance is established for each employee within the voluntary employees
beneficiary association or VEBA trust. On a monthly basis, health and welfare
contributions, which is your hours paid multiplied by the corresponding health and
welfare rate along with payroll deductions withheld, are allocated into DynCorp
International employees’ premium reserve account. Monthly premium payments
are submitted to each carrier based on each employees benefit enrollment. The
residual balance remains in the employees’ accounts until it reaches the designated
threshold. The threshold is determined by the employer and is unique to each
employee’s enrollment. DynCorp International has elected three (3) months as the
premium reserve account threshold. Once an account exceeds the PRA threshold,
all excess health and welfare dollars are transferred to the designated account. For
example, if an employee’s monthly premiums total $500, any contributions above
$1,500 PRA threshold will be allocated into the surplus account. DynCorp
International has set up a retirement account as the designated surplus account.
Excess funds are transferred on a quarterly basis. Employees will receive a
quarterly statement, including the retirement transfer amount, if applicable. For
those employees who are terminated, the funds remaining in their premium
reserve account do not revert back to DynCorp International. Instead, these funds
are transferred to the employee’s retirement account. These transfers typically
occur at the end of the quarter after termination.
15

16. In this slide you will see three sample employees. All three
examples show the same amount of hours and employer
contributions. The total contributions vary depending on
the amount of sick paid leave (in excess of wage
determination) each employee took. You will also notice,
benefit elections are different. Employee C is enrolled in
medical, dental, and vision family coverage, therefore, this
employee is contributing into the plan via employee
contributions. Employee A opted out of medical, and
employee B is enrolled in the employee-only medical plan
which is covered by the fringe. Therefore, both of these
examples show $0.00 employee contributions. Because
employee C has dependent coverage, he must maintain a
PRA threshold of $4,521 dollars before any excess is
allocated into his retirement account. The other two
employees will meet their PRA threshold sooner.
16

17. As we covered earlier during this presentation, employees working on Even
numbered wage determinations share a contract-level premium reserve. The
premium reserve balance is established within the voluntary employees beneficiary
association or VEBA trust. On a monthly basis, health and welfare contributions
which are the hours worked multiplied by the corresponding health and welfare
rate along, with any payroll deductions withheld are allocated into DynCorp
International employees’ premium reserve account. Monthly premium payments
are submitted to each carrier based on each employees benefit enrollment. The
residual balance remains in the account until it reaches the designated threshold.
The threshold is determined by the employer and it is based on total monthly
benefit costs for all employees within the contract. DynCorp International has
elected three (3) months as the premium reserve account threshold. Once the
account exceeds the PRA threshold, all excess health and welfare dollars are
transferred to the designated account on a pro rata basis, which equals the
employee’s hours worked divided by total hours worked by all employees across
the contract. DynCorp International has set up a retirement account as the
designated surplus. Excess funds are transferred on a quarterly basis. Employees
will receive a letter by mail if they are eligible for a retirement transfer.
17

18. In this slide you will see three separate quarters of data. All three quarters show
the same amount of hours and employer contributions. The total contributions
would vary depending on the amount of sick paid leave (in excess of Wage
Determination) all of the employees took in that quarter. Unlike the Individual
example, benefits and other expenses total the same amount across all three
quarters. The premium reserve balance is calculated on quarterly basis for all 1000
employees. The premium reserve threshold for this contract was met in the second
and third quarter. The surplus allocation for this contract is $620,613 for the third
quarter.
18

19. In this slide we show how the third quarter $620,613 surplus allocation is divided
among the employees working on the same average contract. Employee A has
worked .10% of the overall contract hours. Therefore, his surplus allocation is
greater than Employee B who only worked 0.07% of the overall contract hours.
Employee C shows the greatest allocation since he worked 0.11% of the overall
contract hours.
19

20. Employee communication is a key tool in communicating fringe benefits
compliance to your employees, although the Department of Labor does not require
employers to communicate to employees how they achieve compliance.
Employees often misunderstand which hours count towards the employer’s fringe
benefit obligation. For example, for those working on the Odd-numbered or
Individual Wage Determination contract, only hours paid up to 40 hours a week are
accounted for in the fringe reconciliation. Employees also misunderstand how the
qualified benefits count towards their employer’s fringe benefit obligation.
Therefore, although it is not required, our recommendation is for employers to
provide regular statements or other communications with the employee’s specific
health and welfare compliance reconciliation.
20

21. Employees working under the Odd numbered or Individual wage determination
contracts receive a premium reserve account statement mailed to their homes for
every quarter. Employees working under the even numbered or average wage
determination contracts receive a health and welfare reconciliation letter by mail
for every quarter. The letter is mailed to participants who are eligible for
contributions into the retirement plan for that quarter.
21

22. Here is a sample of an Individual Premium Reserve Account paper statement. The
top section titled “Contributions,” reflects the hours paid for this quarter.
Additionally, the amount DynCorp International has contributed to your 401k for
the quarter, the amount of payroll deductions for the quarter labeled “Employee
Contributions” and the employer health and welfare contributions amount made
on your behalf for the quarter, labeled “Employer Contributions” are also shown.
The middle section labeled “Benefits and Other Expenses” shows all the qualified
benefits paid based on the employee’s elections. The last section is the Premium
Reserve account balance. This section starts with a beginning PRA balance, the
Total Contributions from above made on your behalf, the Benefit Payments and
Expenses, and amount allocated to your retirement account, if applicable. We
encourage DynCorp International employees to contact Government Service
Administrators (GSA) with any questions related to these statements. Our
customer support toll-free telephone and email address are included on each
statement.
22

23. Each paper statement includes a How to Read Guide or tutorial. This guide is
customized for each contract. The purpose of this tutorial is to assist the
employees in better understanding the PRA statements provided by Salera-
Government Service Administrators (GSA).
23

24. As mentioned previously, those employees working on even numbered or average
wage determination contracts receive a Health and Welfare Reconciliation Letter
mailed to their homes on a quarterly basis. Here is a sample of the letter. The letter
is mailed to participants who are eligible for contributions into the retirement plan
for that quarter.
24

25. Thank you for taking the time to view this presentation. Please direct employees
with any questions to contact GSA. They can be reached toll-free at 1-800-250-
2741 or via email at customersupport@gsanational.com.
25