Buried at the end of the typical contract with Connecticut is the following: "Employer understands that, as Contractor, it must comply with the Service Worker Statute, Sec. 31-57f of the Connecticut General Statutes as revised."
Most contracts, however, do not explain what the Service Worker Statute is or how employers are affected by it. Important to employers is that Sec. 31-57f, commonly known as the Service Contract Act (SCA), is a legal mandate for specific wage and benefit rates the employer must pay its workers. Failure to recognize and follow the SCA can lead to significant legal consequences.
The SCA applies to any employers in the management, building, property or equipment service, or food service industries that contract with the government in the state of Connecticut. The SCA was amended on July 1, 2013, 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, 2013, a cashier who would typically earn minimum wage (i.e., $8.25 per hour in Connecticut) must be paid $10.14 per hour where the SCA applies. Compensating that cashier at a lower rate violates the law.
In addition, employers covered by the SCA must provide their employees with the appropriate prevailing rate of benefits based on the employee classification. Such benefits include: medical, surgical or hospital care benefits; disability or death benefits; benefits in the event of unemployment; pension benefits; vacation, holiday and personal leave; training benefits; and legal service benefits.
For the cashier who should be paid $10.14 per hour, he must also be paid benefits at a rate $3.05 per hour. In the absence of a predetermined prevailing rate of benefits, the benefit rate is set at 30 percent of the prevailing wage for that employee's classification. Employers may fulfill this benefit requirement 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 Department of Labor, the 30 percent surcharge does not include benefits already required under state law, such as workers' compensation, unemployment and Social Security.
Non-compliance with the SCA can be costly. 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. These must include a complete copy of the compliance records and be signed by the employer attesting to their accuracy, certifying overall compliance with the SCA and specifying the rate of the wages paid to each employee. Failure to keep records may lead to penalties. An employer who cannot produce records to the Department of Labor can be fined up to $200 per day.
Employers entering into successor agreements with an entity that has contracted with a state agent also are governed by the SCA, provided that the services to be performed by the successor are substantially the same. Where a successor assumes the contract, the SCA provides for a 90-day just-cause employment for all employees covered under the predecessor contract, unless they have worked fewer than 15 hours per week or been employed for fewer than 60 days. If after the 90-day period the employee's performance is satisfactory, the successor contractor must offer the employee continued employment under the terms and conditions of the predecessor's agreement. Complying with the provision of the SCA is then fairly straightforward.
Perhaps the biggest concern for employers, particularly 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.
Employers may avoid the burdens of the SCA through collective bargaining. 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. To be excused from the SCA, the prevailing wage and benefit rates in the CBA must be reasonably related to the standard rate of wages and the CBA must be arrived at through arms-length negotiations.
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 many statutes and regulations promulgated by the Department of Labor. Experienced employment counsel can assist in this determination.
If an employer has misclassified employees under the SCA or did not realize it contracted (or subcontracted) with the state of Connecticut, an experienced counsel can assist the employer to quickly become compliant, stopping the daily accrual of penalties and wage violations. In addition, employers should consider periodic audits of their payroll records to ensure employees are properly compensated in compliance with the law.•