Maryland Bill Takes Effect; Payment of Employee Healthcare Expenses

Contractors and subcontractors bidding on Maryland state construction projects should be aware of the new “Responsible Payment of Employee Health Care Expenses” law which took effect July 1, 2019.  The bill requires that all bidders, contractors, or subcontractors on a State-funded construction project to pay certain employee health care expenses.

“Employee health care expenses” are any costs for health care services, as defined by the bill unless the employee has coverage under another plan. State contractors will need to certify that they pay aggregate employee health care expenses of at least 5% of the wages; or that the employer pays 50% or more of the required premium necessary to obtain coverage by a credible health insurance plan. The certification process is less stringent before July 1, 2020.

The change does not apply to small businesses with fewer than 30 employees as well as minority business enterprises.

Ability One and The 14(c) Requirements

Written By: Jeff Hartnett, RVP SCA Markets

I recently attended a Department of Labor sponsored Prevailing Wage seminar where many of the sessions were geared toward new contractors. The last session I listened to discussed the 14(c) requirements and the major changes that have occurred.

Ability One contractors, through a certification process, could have employees who are severely disabled receive wages that are less than the federal minimum wage. I have read news stories that reported this violation of the federal minimum wage law, among other violations. Most of these reporters are unaware of the legislation in place that allows this to occur and write salacious reports about the employers involved. There are valid concerns that the goals of the AbilityOne program are out of alignment with the goals of subsequent legislation for the advancement of the disabled community, particularly full integration goals within the community. But, for those that don’t know about the program in general, here is some background.

The Ability One program seeks to create employment opportunities to people who are blind or have severe disabilities. It history traces back to the 1938 Wagner-O’Day Act. Over the years, the US has advanced the rights of people with disabilities as the economy has progressed to a digitally driven economy. Congress has only reconsidered the program once through the 1971 Javitz-Wagner-O’Day Act.

In recent years, the Federal Government has purchased $3.3 billion annually worth of goods and services from the 527 non-profit agencies that participate in the Ability One program. Since 2008, the Ability One non-profit agencies have employed approximately 47,000 people each year who are blind or severely disabled. In order to participate in the Ability One program, companies need to ensure at least 75% of the direct labor hours are performed by individuals with severe disabilities.

In the past, The Department of Labor has issued 14(c) certificates to Ability One participants and Non-Profit Agencies, but changes have occurred this year that intend to eliminate those certificates moving forward. The 14(c) certificates allow employers to pay workers with disabilities less than the minimum wage under a federal law dating back to the 1930s. This has always been a point of contention between employers and disability advocates who feel that integration into competitive employment is the ultimate goal of these programs. There have been a variety of studies and commissions that have attempted to study this issue and have provided recommendations to Congress to update the JWOD Act. Critics believe that the 14(c) certificates are no longer in alignment with the goals of the American Disabilities Act among other legislation.

Congress has elected to phase out the 14(c) certification process, which would effectually make Ability One contracts more margin thin than they already are. I have reached out to my clients to gauge the immediate impact of this and they believe it will make supporting these contracts more difficult. They indicate, and I have personally seen that the work performed on these contracts in the workshops is supported by additional staff that monitor these individuals working to ensure a safe and supportive environment. I have also seen how hard working and dedicated these employees are with a lower number of average sick or absentee days of work. They take great pride in their work and it provides them a great sense of purpose to be employed.

At The Contractors Plan, we work with many Ability One contractors and support their benefits administration on Service Contract Act contracts and we will continue to do so. I am offering my own experiences and knowledge to shed light on what these contractors are facing in the ever-changing regulatory environment. I would like to hear from Ability One brokers and clients on the impact this is having on their business and business partners. You can contact me at 512-527-5312.

Employers Should Prepare for A Final Overtime Rule

Under the new leadership of Acting Labor Secretary Patrick Pizzella, the Department of Labor (DOL) is expected to move quickly on the final overtime rule. Understanding that once 2020 arrives all focus will turn to the elections, Pizzella has spoken of his commitment to focusing on what the department can realistically achieve during the remainder of this term.

Earlier this year, the DOL published a proposed rule that would make nearly a million more workers eligible to receive overtime pay. According to a Labor Department official, the final overtime rule is anticipated sometime between Labor Day and Thanksgiving.

Under the current rule, employees subject to the Fair Labor Standards Act with a salary of less than $23,660 per year ($455 per week) are entitled to overtime if they work more than 40 hours per week. Employers should pay particular attention to the final overtime rule as the DOL had proposed raising the salary threshold to $35,308 per year ($679 per week).

The proposed rule is a compromise between the current $23,660 threshold and the $47,476 cutoff that was adopted by President Barack Obama’s administration in 2016 but which later was blocked.

Though there is still time before the proposed overtime rule is expected to go into effect, employers should review current policies.

U.S. DOL Announces SCA Fringe Rate Changes

The prevailing health & welfare fringe benefits issued under the McNamara-O’Hara Service Contract Act (SCA) awarded before July 5, 2019 with Option Years on or after July 5, 2019 will utilize the new fringe rate of $4.54 per hour.

Additional SCA Health & Welfare Fringe Benefit Rate Information

All service contracts that contain paid sick leave (EO 13706) will utilize the lower fringe rate of $4.22 SCA health & welfare benefit rate.

For more information: Click Here To Read The Full Memo

DOL Secretary Acosta Resigns; Pizzella To Serve As Acting Secretary

After much scrutiny for his handling of a plea deal for the New York financier Jeffrey E. Epstein, Labor Secretary Acosta is stepping down. With pressure from both pollical parties to resign, Acosta announced his resignation which will take effect in one week; leaving the current labor Deputy Secretary Patrick Pizzella as acting secretary until the President names a permanent replacement. 

Trouble arose for Acosta when Federal prosecutors recently unveiled new charges of sex trafficking and sex trafficking conspiracy against Epstein. Acosta was a U.S. prosecutor in Florida when Epstein received a plea deal to avoid significant jail time.

Considered by many as being more aggressively pro-business than Acosta, Pizzella is anticipated to move more quickly than his predecessor to reverse Obama-era regulations that trouble businesses. President Trump nominated Pizzella and was sworn into office by Acosta in April 2018, before which Pizzella served as a Member of the Federal Labor Relations Authority (FLRA), after being nominated by President Barack Obama and confirmed by the U.S. Senate to that post in 2013.

Pizzella has a long history of federal service holding positions at the Federal Housing Finance Board, Department of Education, Office of Personnel Management, Small Business Administration, and the General Services Administration.

Employer’s Fiduciary Responsibility Relating to Group Health Plans

The Employee Retirement and Income Security Act (ERISA) sets out specific employer responsibilities (fiduciary responsibilities) relating to the establishment and operation of a Group Health Plan. These fiduciary responsibilities include:

• Acting solely in the interests of the plan participants and their beneficiaries
• Carrying out duties prudently
• Following plan documents unless contradicted by ERISA
• Holding plan assets (if the plan has any) in trust
• Paying only reasonable plan expenses

Employers may want to hire a firm, such as a 3^rd Party Administrator, who is experienced in ERISA legislation and Plan operation, to help them comply with their responsibilities. The process of hiring an outside firm to help employers with their fiduciary responsibilities is not a process to be taken lightly. Employers must utilize diligence when hiring a firm to partner with regarding fiduciary oversight.

First off, the employer must ensure fees relating to the plan are reasonable. Next, the employer must verify that the partnering firm is capable of performing the services which it was engaged to perform and is knowledgeable in ERISA and other legislation which may impact Plan operation.

When choosing an outside firm, employers need to thoroughly document every step in the engagement process. Documenting the process helps ensure that it was fair, open, and honest. An employer’s diligence and documentation of the hiring process, including rationale for decision making, could be key if later challenged by individuals or entities such as the Department of Labor.

During the interview process, provide prospective firms with the same Scope of Work and ask them the same questions. This process should provide you with enough information to make an informed decision as to who would be the best firm for the employer to partner with.

Federal Government Exceeds 2018 SB Goals

The U.S. Small Business Administration (SBA) announced results from their Small Business Federal Procurement Scorecard. In fiscal year 2018, the federal government awarded 25.05 percent in federal prime contract dollars to small businesses, an increase from the year before.

The federal government has a small business target of awarding 23 percent of all prime contracts to small business, which each agency contributes. Agencies work with the SBA to set their prime and subcontracting goals from which their performance is measured. These goals include a mix of goals for small businesses owned by women, service-disabled veteran-owned small businesses, small disadvantaged businesses, and small businesses located in Historically Underutilized Business Zones (HUBZones).

In 2018 the scorecard showed that the prime contract dollar awards in all small business categories increased from the previous year. The federal government also surpassed its subcontract goals, awarding more than $79 billion in subcontracts to all small businesses.  

The highest scoring agencies, those who meet or exceed their 2018 goals were the Departments of Commerce, Education, Homeland Security, Housing and Urban Development, Labor, Interior, Treasury, and Small Business Administration. The National Science Foundation was the lowest scoring agency reaching only 85 percent of their small business goals.

SBA continuously seeks to collaborate with federal agencies to expand small business opportunities for small business contractors to compete and win federal contracts. The individual agency scorecards released by the SBA, as well as a detailed explanation of the methodology are available at https://www.sba.gov/document/support–small-business-procurement-scorecard-overview.

April 2019 Construction Spending

The U.S. Census Bureau announced construction spending for April 2019 was at a seasonally adjusted annual rate of $1,298 billion, which shows only a minor change from the estimate of $1,299 billion in March.

While private construction spending in April was $954 billion, 2 percent below the revised March estimate of $970 billion; public construction spending was $345 billion, 5 percent above last month’s revised estimate of $329 billion. Compared to April 2018, while private construction spending was down 6 percent, public construction spending was up 15 percent in April over last year.

The primary contributor to public construction spending growth was highway construction, which was $114 billion, 7 percent above the revised March estimate, and 21 percent above the same period last year.

More information may be found at: https://www.census.gov/construction/c30/pdf/release.pdf

The Hidden Costs Of Being Non-Compliant

Compliance remains an ongoing threat to a contractor’s business when working with federal and state governments. Each level of government has a fringe benefit requirement and many have very strict compliance and audit requirements. On September 13, 2018, the US Department of Labor announced that it found that a California-based contractor and five of its subcontractors had violated federal contract provisions of the McNamara-O’Hara Service Contract Act (SCA).

Its investigation determined that the contractor owed over $3.5 million to 1,416 workers for failing to pay federal prevailing wages and required health and welfare benefits to workers. In addition to that finding there was also a separate DOL investigation for SCA violations regarding a federal contract to move military cargo that was stored at the contractor’s warehouse site.

https://www.prnewswire.com/news-releases/justice-for-port-drivers-leading-logistics-company-at-ports-of-lalong-beach-with-long-track-record-of-breaking-labor-and-safety-laws-resulting-in-7-disruptive-labor-strikes-chooses-to-abandon-workers-rather-than-reach-agreement–300779963.html

What’s concerning is that experts in the space have suggested that as many as 50% of contractors to the federal government are out of compliance. if you are out of compliance as a contractor you are potentially subject to fi­nes and penalties, both civil and criminal, and if your subcontractors are out of compliance with the DOL requirements you are responsible.

At risk are not only fines, but the ability to bid and win new contracts. For this reason it is critical that companies contract with transparent third party administrators that emphasize compliance. They need to have the ability to track your company and its subcontractors fringe spend to a penny, providing a true fiduciary partner to your firm.

WDOL.gov is Moving June 14th

An alert has been issued by Wage Determinations OnLine (WDOL.gov) to advise contractors that on June 14th, 2019 WDOL.gov is moving to beta.SAM.gov, which will become the official source for wage determinations. This change is part of a collaborative effort to bring together multiple federal award systems into a single website.

Migration to the new website will provide federal contracting officers with a single location to obtain Service Contract Act (SCA) and Davis-Bacon Act (DBA) wage determinations (WDs) for each official contract action.  This website will be the authorized U.S. government site for people who make, receive, and manage federal awards.

It is important to note that existing WDOL.gov subscriptions will not migrate to beta.SAM.gov. For a smoother transition, contractors should take note of their current WDOL.gov subscription numbers so that they can re-subscribe on beta.SAM.gov.

The website will be open to the general public who will be able to search and view DBA, SCA, and Collective Bargaining Agreements (CBAs) wage determinations without a login account. Additionally, users who set up accounts will be able to save searches, follow Wage Determinations, and enter CBA wage determinations. Guidance in selecting wage determinations from this website is provided in the WDOL.gov User’s Guide. A training video has also been posted at https://beta.sam.gov/cm/videos/detail?id=142