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November 18, 2013 Experts Corner

Your employees' wages may violate the law

David R. Golder
James Leva
By David R. Golder and James Leva

Buried at the end of a typical contract with the state of Connecticut is a service worker statute that is rarely explained or understood, but can have significant legal consequences for employers.

The statute is commonly known as the Service Contract Act or SCA (Sec. 31-57f) and is a legal mandate for specific wage and benefit rates an employer must pay its workers. Failure to follow the SCA can lead to significant fines.

The SCA applies to any employers in the management, building, property or equipment service, or food service industries who contract with state government. The SCA was amended on July 1, to include security services. Health care services remain exempt.

The SCA requires specific wages to be paid to employees based on their job classification. For example, as of July 1, a cashier who would typically earn minimum wage ($8.25 per hour) must be paid $10.14 per hour where the SCA applies.

Not only does the SCA increase the wages covered workers are paid, businesses covered by the SCA must provide their employees certain benefits based on the employee's classification. They include: medical, surgical or hospital care benefits; training, disability, death, unemployment, and pension benefits; and vacation, holiday and personal leave.

For the cashier who should be paid $10.14 per hour, he or she must also be paid benefits at a rate $3.05 per hour. If the law does not specifically state the benefit amount an employee is entitled a default rate of 30 percent of that employee's wage. The benefit is payable in one of three ways: (1) direct payment to the employee; (2) payment to purchase insurance in the equivalent amount; or (3) by implementing an employee benefit fund. According to the state Department of Labor, the 30 percent surcharge does not include benefits already required under state law, such as worker's compensation, unemployment and social security.

Employers can be fined anywhere between $2,500 and $5,000 for each violation. Thus, even a covered employer with as few as 10 employees can face fines that may total $50,000. In addition to penalties, employers may be liable for back wages and interest payments to affected employees who were underpaid pursuant to SCA rates.

To lower the risk of penalties, employers must maintain accurate records demonstrating compliance with the SCA. Covered employers must submit annual certified payrolls to the state Department of Labor, which must include certain representations demonstrating compliance. Failure to keep records may lead to penalties. An employer who cannot produce records to the labor department can be fined up to $200 per day.

Before assuming a contract entered into by a third party, it is important to determine if the contract contains language subjecting it to the SCA. These contracts known as “successor contracts” place the same requirements on the business. Perhaps the biggest concern for employers, particularly those entering into successor contractors, is that the applicable wage rate schedule can be considered a moving target, as it is project specific. Companies that never had the opportunity to bid on, or receive the applicable wage schedule rate in the first instance must be aware of the wage and benefits requirements. Accordingly, it is imperative that this information is obtained and carefully reviewed prior to contracting with any entity that has already contracted with the state.

Surprisingly, collective bargaining may alleviate the burdens of the SCA on employers. Employers or their successors covered by the SCA are excused from the “prevailing wage and benefit rates” if their employees are already covered by a collective bargaining agreement (CBA).

Contracts covered by the SCA are not readily apparent and determining whether an employer is covered under the SCA involves the challenging task of navigating the Department of Labor's many statutes and regulations.

Experienced employment counsel can assist in this determination.

David R. Golder, partner, and James Leva, associate, work in the Hartford office of law firm Jackson Lewis.

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