PEO for Federal Contractors: Davis-Bacon, SCA, DCAA, and FAR Compliance

The Davis-Bacon Act (DBA) applies to federal construction projects over $2,000. It requires that workers be paid the prevailing wage in the project location, as determined by the Department of Labor.

Compliance components:

• Wage determinations — Issued by DOL for each county and trade combination. Subject to revision; the wage determination in effect at the contract's start date typically governs.
• Fringe benefit accounting — Required as part of the prevailing wage. Can be paid as cash, bona-fide fringe benefits, or a combination. PEO must track and report.
• Certified payroll (Form WH-347) — Weekly reporting to the contracting agency. Documents wages paid, fringe benefits, hours, work classification.
• Apprenticeship ratios — DBA requires registered apprentices, with ratios specified per program.
• Site-of-work rules — Determines when DBA applies (the prime contract site) vs. exclusion (off-site fabrication).

Premium-tier PEOs (CoAdvantage, ADP TotalSource, Insperity) handle Davis-Bacon compliance for construction clients. Budget PEOs typically deflect Davis-Bacon back to the client. Missing certified payroll filings can void the contract.

The Service Contract Act (SCA, also called McNamara-O'Hara Act) applies to federal services contracts over $2,500. Wage determinations specify minimum hourly rates for each labor category in the contract.

Compliance components:

• Conformance process — When a wage determination doesn't include a needed labor category, the contractor requests "conformance" (DOL adds the category).
• Health and welfare (H&W) benefits — Minimum dollar amount per hour worked, in addition to wages. Must be paid as cash or bona-fide fringe benefits.
• Holiday and vacation requirements — SCA specifies minimum holiday and vacation accruals for covered workers.
• Successor contractor obligations — When a new contractor takes over, they must retain the existing workforce at SCA wage rates.

SCA compliance is operationally distinct from Davis-Bacon. PEOs with construction depth often lack SCA depth (services contracts), and vice versa.

Cost-reimbursable federal contracts (cost-plus-fixed-fee, cost-plus-incentive-fee, time-and-materials) trigger DCAA (Defense Contract Audit Agency) oversight. The contractor must maintain an audit-ready accounting system that can:

• Segregate direct costs from indirect costs
• Allocate indirect costs (overhead, G&A) using approved rates
• Track unallowable costs separately (entertainment, advertising, certain compensation)
• Produce contract-specific cost reports on demand
• Support timecard audit trails to verify direct labor charged accurately

PEOs that support federal contractors typically integrate their HRIS with the client's DCAA-compliant cost accounting system. Few do this natively; most operate through documented integration with QuickBooks Online (with DCAA add-ons), Unanet, Deltek Costpoint, or similar government-contracting platforms.

For a federal contractor evaluating PEOs, the DCAA-compatibility question is typically the blocking one. PEOs that don't support DCAA-compatible accounting typically decline the account.

Federal Acquisition Regulation (FAR) clauses in your prime contract often flow down to subcontractors — and under co-employment, to your PEO. Key clauses that affect PEO arrangements:

• FAR 52.222-26 (Equal Opportunity) — Requires affirmative-action plans, EEO-1 filings, and non-discrimination policies.
• FAR 52.222-35/36 (Veterans/Disability) — Veterans and individuals with disabilities affirmative-action obligations.
• FAR 52.219-8/9 (Small Business) — Small business subcontracting plan obligations if you're a large business.
• FAR 52.204-2 (Security Requirements) — Personnel security clearance handling (relevant for classified contracts).
• FAR 52.225-3 (Buy American Act) — Limits on foreign-sourced workforce or supplies.

The PEO's ability to handle FAR flow-down compliance varies enormously. Specialized federal-contractor PEOs (Engility, CGI Federal Solutions, certain regional players) build their service offerings around FAR compliance. Most general-market PEOs handle it ad-hoc.

Based on placement experience:

• ADP TotalSource: Largest federal-contractor PEO book. Davis-Bacon compliance, SCA wage determinations, DCAA-system integration, FAR flow-down support across multiple agencies.
• Insperity: Strong federal-contractor practice, particularly for construction (Davis-Bacon focus). Less DCAA cost-accounting integration.
• CoAdvantage: Specialized in construction federal contracts (Davis-Bacon, federal infrastructure projects).
• Paychex Employer Services: Mid-market federal contractors. Handles WH-347 certified payroll automatically.
• Specialized federal PEOs: A handful of niche federal-focused providers (CGI, smaller govt-services-focused PEOs) for highly classified or DCAA-intensive work.