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Applying The New Fringe Rate To Existing Contracts

August 10, 2017


Since the release of All Agency Memorandum Number 225 on July 25, 2017, which provides the annual update of the Service Contract Act Health and Welfare Fringe Benefit, we have received several questions regarding the proper method to apply this change to existing contracts. Unfortunately, no additional information was provided in AAM No. 225 to explain how this rate change is applied other than to say, “Effective August 1, 2017, the SCA health and welfare benefit rate of $4.41 per hour will be posted on the Wage Determination Online and Wage and Hour Division (WHD) websites”.

However, on August 1st the Wage Determination Online website started posting updated wage determinations which include the new fringe rate. These rates do not apply until the new wage determination is modified to the contract.

The process of modifying existing contracts should be initiated by the contracting agency and is covered by the Federal Acquisition Regulation (FAR) 52.222-43, Fair Labor Standards Act and Service Contract Labor Standards – Price Adjustment (Multiple Year and Option Contracts)

You can read more about this here: https://www.law.cornell.edu/cfr/text/48/52.222-43.

This FAR section applies to firm-fixed price and labor-hour contracts. The adjusted price must reflect the change in the updated wage determination. The adjustment occurs on the anniversary date of multiple year contracts or at the beginning of the renewal option period, but the process is initiated by the contracting agency early enough to be accomplished prior to these dates.

If you have any questions regarding a Service Contract Act price adjustment on a specific contract, the best place to start is with the contracting agency.

There are also several good references, in addition to the Federal Acquisition Regulation, that can help explain the process including:

Labor Secretary Reinstates Wage And Hour Opinion Letters

July 17, 2017


Labor Secretary, Alexander Acosta recently announced that the Department’s Wage and Hour Division (WHD) would reinstate the issuance of opinion letters as one of their means of guiding covered employees and businesses. The action restores the WHD’s long-standing practice of releasing opinion letters regarding the application of the Fair Labor Standards Act and its implementing regulations. 

For more than 70 years’ opinion letters had been a common practice for the WHD, but in 2010 they were replaced with “general guidance” which was intended to provide a broader administrator interpretation. Secretary Acosta has been a firm advocate of returning to the use of opinion letters, believing that they will benefit the employees and employers by providing a clearer understanding of Wage and Hour requirements.

Opinion letters are an official, written notice by the WHD of how a specific law applies in particular circumstances submitted by an employer, employee or other entity requesting the opinion. The WHD has a dedicated web page (https://www.dol.gov/whd/opinion/) that the public may use to see if agency guidance already exists that address their question or where a request can be submitted.

 

Trump Issues An Executive Order Expanding Apprenticeships

June 20, 2017


President Trump issued an Executive Order (EO) earlier this month, expanding apprenticeships in America by reducing regulations that often prevent businesses from creating apprenticeship programs. At the signing of the EO, Trump stated that he hopes to “expand apprenticeships and vocational training to help all Americans find a rewarding career, earn a great living, and support themselves and their families.”

For the purpose of this EO, the definition of apprenticeship is an arrangement that includes a paid-work component and an educational or instructional component designed to provide workers with workplace-relevant knowledge and experiences that offer affordable paths to employment. Also, funding will be granted to support apprenticeship programs across different industries, including the development of apprenticeship participation between students at educational institutions.

A primary aspect of the EO is to evaluate whether an apprenticeship system might help other businesses bridge skills gaps and deliver good-paying jobs as they have done in the construction industry. To determine this, the EO calls for the establishment of a Task Force on Apprenticeship Expansion that would recommend where to expand apprenticeships programs and also ascertain methods to improve or eliminate those programs that are currently insufficient.

The Task Force, who will be led by the Secretary of Labor in conjunction with the Secretary of Education and Commerce, will establish industry-recognized apprenticeships and propose regulations, consistent with the applicable law that encourages the development of apprenticeship programs by third parties.  Before any final regulations are issued, the Labor Secretary shall consider and evaluate public comments on any regulations proposed under this EO.

Update: Infrastructure Initiative

June 5, 2017


At the end of May, the proposed 2018 United States federal budget was released and incorporates $200 billion in outlays over ten years linked to the President’s infrastructure initiative. The funding proposes to use the $200 billion to leverage $1 trillion worth of overall investment and is intended to address a broad range of transportation projects, as well as the construction of veterans hospitals, and energy and broadband improvements.

Though the budget does not specify complete plan details, it does say it intended to use a combination of funding options that include federal investments, new financing tools that foster private investment, and the reforming of regulations to help expedite the approval process and construction timelines. The focus of the federal investments is expected to be on the most transformative projects; giving high priority to those projects leading to a long-term change in infrastructure improvements.

Part of the new funding looks to support better infrastructure decisions by using federal capital revolving funds and partnership grants for federal assets. Also, the new federal spending hopes to motivate private companies and state and local governments to scale up their spending many times over.

The president is expected to make several public speeches in the next few weeks which may offer more details about the possible implementation of the infrastructure initiative. As for congressional support of the budget and plans, that remains to be determined. Spending on roads and construction has been something that both parties seem to back as a good idea, but how to pay for it may overtake the bipartisan interest in getting something accomplished.

Acosta Confirmed As Labor Secretary

May 2, 2017


On April 27th, the Senate confirmed the nomination of R. Alexander Acosta as the new labor secretary, making him the first Hispanic member of Trump’s cabinet. In his confirmation hearings, Acosta spoke of reinforcing the broader theme of Trump’s conservative agenda. Acosta was confirmed by a vote of 60-to-38, with strong Republican support along with eight Democrats and one independent in his favor.

Acosta’s previous experience may suggest how he will lead the Labor Department going forward. His first job after graduating Harvard law school, Acosta was a law clerk for Supreme Court Justice Samuel Alito when he was a judge on the U.S. Court of Appeals for the 3rd Circuit. Justice Alito is considered a conservative with a libertarian streak.

Acosta later served as Assistant Attorney General for Civil Rights and then as a member of the National Labor Relations Board (NLRB). In his role as labor secretary, Acosta will help nominate others to lead the department’s sub-agencies responsible for enforcement and policy.

Nevada Appears Likely To Revise State Prevailing Wage Law

May 2, 2017


This spring the Nevada legislature is looking to revise the State’s prevailing wage law. Two years ago, a Republican-backed bill amended the law, and now with Democratic support, it is likely to be modified once again.

Under the existing law, contractors doing any university or public school work exceeding $250,000 are required to pay prevailing wages. It also requires a 90 percent prevailing wage rate though there is an exemption for charter schools.

The proposed revisions would lower the threshold down to $100,000. It also would remove the 90 percent prevailing wage rate and require full pay for school and higher education projects, and eliminate the exemption for charter schools.

The legislature has been divided regarding prevailing wages, but these changes appear likely to pass the Assembly and Senate.

How Acosta May Lead If Confirmed As Secretary Of Labor

March 1, 2017


President Trump has nominated attorney Alexander Acosta to head the Labor Department. With over two decades of public service, Acosta has a reputation for having a competent management style and a distinct respect for justice which may provide some insight into how he may lead the Labor Department.

Currently, Acosta is the Chairman of U.S. Century Bank and dean of the Florida International University College of Law. But perhaps influencing his character and career direction most may have been his first job after graduating Harvard law school, where Acosta clerked for Supreme Court Justice Samuel Alito when he was a judge on the U.S. Court of Appeals for the 3rd Circuit. Justice Alito has been described as a conservative jurist with a libertarian streak; words also used at times to describe Acosta.

Later Acosta was appointed by President George W. Bush to the National Labor Relations Board (NLRB) and then served as Assistant Attorney General for Civil Rights.

While at the NLRB it was reported that Acosta usually demonstrated an independent and nonpartisan approach when evaluating cases, often voting alongside fellow Republicans in favor of employers in the major cases while also not shying from occasionally siding with unions. However, during his time in the CRD, Acosta and those working under him were deemed as having a tendency to hire more like-minded conservatives.

Looking at Acosta’s previous work experiences may suggest that he is someone who could competently execute and reinforce the broader theme of Trump’s conservative agenda. At this time, Acosta has had several major unions endorse him, and surprisingly this has not discouraged his support within the business community. As it stands now, Republicans are looking to move him through the confirmation process as swiftly as possible.

Finding Opportunity In A Changing Landscape

January 31, 2017


Health insurance professionals have definitely felt the effects of changes brought about by the Affordable Care Act, as has the insurance industry as a whole. With some companies cutting commissions in response to medical loss ratio requirements, many brokers have seen substantial reductions in income. And while the new president has promised to make dramatic changes to the ACA, much remains to be seen about how and when those changes may take effect.

The $300 billion government-contractor market represents a huge opportunity for brokers who want to continue working in the health insurance industry. Federal contractors are required to spend a certain amount of money to provide benefits–including health insurance–to workers on contracts that fall under either the Davis- Bacon Act or the Service Contract Act. Many states and municipalities have similar laws and requirements as well.

Here are some of the advantages of working with government contractors:

  • While most know they’re required to spend a specified amount on benefits, many don’t realize that doing so results in significant savings on payroll burden and other taxes. Contractors that use these funds to pay for health insurance, dental insurance, life insurance, vision insurance, disability insurance and retirement plans–rather than including the funds as additional cash wages for their workers–can increase their profitability as a result of these savings.
  • Funds to pay for worker benefits are included in the “wage determination.”

Government contractors are required to pay workers what’s called a “prevailing wage,” which is determined by the Department of Labor and varies for each job classification on a contract. The wage determination includes both a base wage and a set amount to be spent on fringe benefits, including health insurance.

  • Savings realized by using fringe dollars to provide benefits make contractors more competitive. When contractors prepare bids for government work, every dollar counts. Contractors that use fringe dollars for benefits lower their payroll burden, in turn lowering job costs. This makes them more competitive and increases their chances of winning contracts.
  • Construction is rebounding, making employee attraction and retention even more critical. Housing starts have risen in each of the past six years, and several industry sources predict healthy advances in commercial construction as well. That means competition for skilled construction workers is tough. One way employers can differentiate themselves when it comes to attracting and retaining good workers is by offering a robust benefits program.

Help is available. There are third-party administrators that specialize in working with brokers and their government contractor customers. These TPAs can provide guidance when it comes to working with this niche market, and they can be a valuable resource when it comes to prospecting for new clients. Some providers that specialize in benefits for contractors working on Davis-Bacon Act projects handle the administration of the program for their contractor clients and offer a unique program called hour banking.

Administering health benefits for hourly employees can be very challenging. Hourly employees may not work a full week or full work year and it becomes very expensive to pay full monthly premiums for hourly employees. It is also very difficult to monitor eligibility and seasonal layoffs. One approach that many contractors will use is an hour bank, which is designed to manage the seasonality of the hourly work force and manage the true cost of employer-paid health benefits by tracking the health premiums by the hour instead of per month.

Hour banking is a way for employees to put extra hours worked (or the equivalent hourly premium) during peak construction periods into a “bank.” If there’s a slowdown in work due to weather or a lag between contracts, the employees can then draw from these banked hours and premium to extend coverage for themselves and their families. This is especially beneficial for contractors that work on projects in several states and across multiple job sites, as well as for those with employees who perform work in different job classifications. Hour banking breaks the monthly premium into an hourly rate, which makes tracking and accounting much easier for the employer. This significantly simplifies the accounting process and reduces the chance of overpayment of benefits. Having a per-hour cost for benefits is also a great strength when contractors are preparing bids.

For brokers interested in working with government contractors, the first step is learning about the Davis-Bacon Act and the Service Contract Act, as well as any state and local prevailing wage laws in your area. Partners can help you understand the basics of prevailing wage and how to develop business in the $300 billion government contractor market. The Prevailing Wage Resource Book is available on the U.S. DOL website at www.dol.gov/whd/recovery/ pwrb/toc.htm. The DOL also holds several free prevailing wage workshops throughout the country each year. The schedule can be found at www.dol.gov/whd/govcontracts/ PrevailingWageConferences.htm.

Working with government contractors provides brokers with a real opportunity to become a valued partner and resource for companies in a highly regulated environment. It’s a stable market sector with hundreds of billions of dollars of opportunity each year. And it opens up a whole new area of business with commissioned sales of health insurance, as well as opportunities to sell supplemental benefits and retirement plans.

John Allen is a regional vice president for Fringe Benefit Group, which has been helping brokers and government contractors design and administer fringe benefit programs since 1983. John joined Fringe Benefits in 2004 and has won numerous sales awards there. He graduated from the University of Kansas in 1983 and has been in sales ever since. He can be reached at 800-635-6912 or jallen@fbg.com. For more information on government contractor opportunities, visit www.thecontractorsplan.com.

America’s Benefit Specialist – Jan/Feb 2017

Finding Opportunity in a Changing Landscape

John G. Allen, CRPS

Regional Vice President
Fringe Benefit Group
Chicago, IL
jallen@fbg.com

 

 

States Move Forward With Infrastructure Focus

January 27, 2017


While a federal infrastructure plan has been a topic of discussion of the new administration, no clear plan has yet to emerge. Despite this, many states are pressing forward with their infrastructure investment plans.

Here is a list of several states and what their efforts are focusing on:

  • Minnesota – Gov. Mark Dayton and Lt. Gov. Tina Smith introduced a Jobs Bill that would invest $1.5 billion in community infrastructure projects statewide, creating an estimated 22,950 Minnesota jobs and supporting local economies across the state.
  • Delaware – budgeted approximately $460M for infrastructure projects through 2021; adopting a Capital Improvement Program (CIP) along with a Five Year Strategic Plan.
  • Connecticut – The Connecticut Department of Transportation (CTDOT) released its $10.9 billion, five-year capital plan for fiscal years 2017-2021 covering highways, bridges, and public transportation needs; leveraging state and federal resources to advance the infrastructure programs.
  • Colorado – Governor Hickenlooper’s State of the State speech described investment in infrastructure and education as a necessity, not a luxury, and said the state needs to pay more to fund it. He also called for Colorado to chart its own course during a time when Republicans control the presidency and both houses of Congress.
  • Michigan – Governor Snyder’s State address focused on finding the funding to support statewide infrastructure spending.
  • Montana – unveiled “Employ Montana” which will rebuild infrastructure, create a marketplace for state-made products, enhance innovation, invest in jobs, and responsibly develop natural resources.

A consistent theme among the various states appears to be the question of how to fund the projects and programs that are in need. For now, it appears that states will continue to have a central role in planning and funding the nation’s road and bridge projects.

Infrastructure Spending May Gain Attention in 2017

December 1, 2016


There has been much discussion about an infrastructure spending bill getting traction once president-elect Trump takes office. During his campaign, Trump often spoke about rebuilding the country’s infrastructure, though an exact plan is not clear.

One major feature of Trump’s plan appears to be involving the private sector. Trump has spoken about unleashing $1 trillion worth of infrastructure investment over ten years by engaging the private sector with offers of $137 billion in federal tax credits to those private investors who want to back transportation projects.

The tax credits are intended to help finance a significant share of the nation’s infrastructure needs and would serve as a critical supplement to existing financing programs, public-private partnerships, America bonds, and other funding opportunities. However, this may only work on some projects, specifically those that generate revenue.

Trump has also discussed a desire to explore new policy ideas. Establishing a national infrastructure bank is one consideration, which has been favored by Democrats. Also under consideration is the idea of taxing corporate earnings that are stored abroad when the money returns to the US and using that revenue to pay for infrastructure spending. This second option is more favored by Republicans, but regardless there appears to be a willingness to examine a variety of policy opinions.

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