Federal contractors fined $293K by Labor Department for wage violations

Contractors have to follow a rigorous array of compliance requirements to do business with the federal government, or they risk losing their deals.

Private mail carriers contract with the federal government to help deliver mail across the nation. While they may have delivered parcels and letters on time, three Florida-based federal contractors failed to deliver all of their workers’ wages, which caught the attention of the U.S. Department of Labor.

Following its investigations, the Labor Department’s Wage and Hour Division determined that three mail haulers in northern and central Florida — Mercado Santiago Inc. in Middleburg, Copa Post Services LLC in Gainesville and M&M Superior Contracting LLC in Orlando — owed a total of $293,779 to 34 employees. All three employers violated requirements of the McNamara-O’Hara Service Contract Act, according to a Labor Department statement. The Act is a labor law that requires government to use its bargaining power to ensure fair wages for workers when it buys services from private contractors. 

Substantial fines for wage and hour violations

Kate Bischoff, an employment attorney at tHRive Law & Consulting LLC, said it’s a sizable penalty in a wage and hour case.

“This averages out to about $8,700 per employee, which is no small amount,” Bischoff said. “Depending on the length of time the Wage and Hour Division was looking back, employees would have felt the absence of this amount. It would have been real to them.”

Division investigators found one employer, Mercado Santiago, failed to pay workers for all the hours that they worked, resulting in the contractor paying less than the prevailing wage rates required. They also said the employer failed to pay required health and welfare benefits for employees and failed to keep accurate time and payroll records. As a result, Mercado Santiago has paid $219,166 in back wages to 16 employees.

Bischoff said it’s unlikely that the pay issue was an oversight by Mercado Santiago.

“Over $13,000 in wages and benefits is significant,” she said. “While prevailing wages are tricky — so much attention to detail and coordination between workers, supervisors and managers — it would be hard not to notice the issue here. Plus, if certified payroll was checked regularly by the government’s contracting officer, it should have been easy to spot the issue.”

Also read: Wage and hour violations cost restaurant $697K

Investigators determined Copa Post Services also failed to pay required health and welfare benefits to workers. The employer has paid $25,848 in back wages to 10 employees, according to the Labor Department statement.

The division found M&M Superior Contracting failed to pay required prevailing wage rates. The employer also failed to pay required health and welfare benefits and holiday pay to workers, and failed to allow employees to accrue vacation time or vacation pay. The employer owes $48,765 in back wages to eight employees, according to the Labor Department statement.

“Prevailing wage laws provide a safety net for fair wages and benefits to workers on contracts providing services to the federal government. Enforcement of these laws protects the wages of American workers,” said Wage and Hour Division District Director Wildalí De Jesús in Orlando in the statement. “The Wage and Hour Division will remain vigilant in its work to ensure employees are paid in compliance with these laws, and that employers compete on a level playing field.”

In April 2013, the U.S. Postal Service awarded Mercado Santiago a contract to provide mail-hauling services in Duval, Clay and St. Johns counties. The contract expires in September 2022, the statement said. Copa Post Services hires employees to work at USPS locations delivering mail on SCA contracts in Alabama, Florida and Georgia. M&M Superior Contracting holds three separate SCA contracts to deliver mail for the USPS in Orlando.

Stricter wage and hour enforcement is coming

Bischoff predicted that under new Labor Secretary Martin Walsh, enforcement is going to ramp up, penalties will likely increase and the Labor Department may have a low tolerance for mistakes. 

“It is more likely the department will go straight to litigation before seeking to settle a dispute,” Bischoff said. 

This could also mean the Labor Department will seek more debarment as a penalty, she added. Debarment means an employer is prohibited from contracting with the government.

“For many, many contractors, debarment is an existential threat,” she said. “These employers were contracted to carry the mail. If they don’t have a contract with the USPS to carry mail, it is hard to imagine what they would do.”

To avoid wage and hour violations, Bischoff said employers need to act quickly to get wage and hour compliance in order.

“With possible changes to the overtime salary threshold, minimum wages and more enforcement action, there is never a dull moment for HR and payroll professionals,” Bischoff said.

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