Fringe Benefit Requirement for Service Contract Act Increased to $4.02

The Department of Labor has released its annual memorandum which specifies a rate increase for Service Contract Act (“SCA”) health and welfare fringe benefits. The new rate is $4.02 per hour, a 5.5% increase, and becomes effective July 22, 2014.

The new rate will be required in all invitations for bids opened, or other service contracts awarded on or after July 22, 2014. The contracting officer may adjust bids submitted using the old rates without obtaining a new wage determination before issuing the new contract. For existing service contracts, the new rate will go into effect on the anniversary date or the option renewal/modification date, depending on the terms of the contract.

The rate in Hawaii is dependent upon whether an employee is insured pursuant to the state’s mandatory health care law. Contractors operating in Hawaii should review the DOL memorandum and their applicable wage determination requirements.

President Obama Signs Executive Order Prohibiting Federal Contractors from Discriminating Against LGBT Employees

As anticipated, on July 21 President Obama signed an Executive Order (EO) banning federal contractors from discriminating against lesbian, gay, bisexual and transgender (LGBT) employees. The new EO amends two existing orders, 11246 and 11478, by adding sexual orientation and gender identity to the list of categories of protected federal contractor workers. The White House predicts that these changes will impact about 24,000 companies with federal contracts that together employ over 28 million workers – a fifth of the country’s workforce.

Obama’s new EO revises the existing 11478 by formally adding gender identity to the list of protected categories. This change will take place immediately and identifies the Equal Employment Opportunity Commission (EEOC) as being responsible for directing and furthering the implementation of the rule.

Additionally, the new EO amends 11246 by adding provisions that prohibit discrimination and require affirmative action on the basis of sexual orientation and gender identity. The US Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) will be responsible for these changes and has been given 90 days from the date of the order to prepare regulations for implementation. However, preparation of these regulations will likely take longer than 90 days due to the federal regulatory process which requires public notice and the opportunity to submit comments.

At this time the new EO does not permit for any additional exemptions for religious entities beyond those which were added by President George W. Bush several years ago.

Obama supports legislation that would bar most employers, not just federal contractors, from discriminating against LGBT workers; but since Congress has not acted Obama pursued executive action to protect the portion of the US workforce over which he has some control.

Fringe Benefit Group Acquires The American Worker Plans

Fringe Benefit Group, an industry leader in the design, implementation and administration of benefits for hourly and part-time workers, today announced it has acquired The American Worker Plans, an Illinois-based Managing General Agent specializing in limited medical, voluntary and self-funded benefit options for employers with hourly and part-time workforces, from American Westbrook Insurance Services, LLC., a subsidiary of Hendricks Holding Company, Inc. Terms of the transaction, which includes all assets and trademark rights to The American Worker Plans, were not disclosed. Read more….

Government Contractors – Why it Makes Sense to Comply with ACA. Even if you Don’t Have To!

Government contractors, even if your business doesn’t have enough full time equivalent employees (or “FTEs”) to fall subject to the ACA’s employer mandate, there are still many compelling reasons to “Walk This Way!”

We know, we know. You’ve had 2-3 years of listening to the media, government spokespeople, and benefits advisers “talk this way” about health care reform and deadlines for compliance. Give us just 5 minutes and we’ll give you 4 great reasons to cover your prevailing wage workers.

Why Comply with ACA

• Cost Savings. The funds to pay for health insurance for your workers are right there, in the wage determination on prevailing wage jobs. If you aren’t already using fringe dollars to provide health insurance for your workers, you’re missing out on significant savings on your payroll burden. Now, with ACA and the requirement for every individual to have health insurance, there’s more incentive than ever to use fringe benefit dollars as intended.
  An expense you may not have considered is the cost of replacing experienced workers. The job market for construction workers has turned around and jobs are more plentiful. Rather than trying to purchase health insurance on their own, or navigate the exchange maze, the best workers are likely to look for an employer that will provide health insurance. Given the wages most construction workers earn, particularly on Davis-Bacon jobs, it’s unlikely many will qualify for subsidies. And those who purchase through an exchange will potentially pay higher costs for their premiums. Employers who sponsor a plan are likely to get better rates, reducing the costs to your employees.
• Tax Advantages. If workers purchase health insurance on their own, they pay for it with post-tax dollars. Employer-paid insurance is the only way for employees to leverage pre-tax dollars to pay their insurance premiums, so why not use fringe dollars for this purpose? It results in savings both for your workers and for your business.
• Competitive Advantage. Smaller companies are competing for jobs against large companies which are required to comply with ACA (or pay significant penalties). These companies will likely be using fringe dollars to pay for health insurance premiums – and possibly for other bona fide benefits – and as a result they’ll seeing a significant reduction in their payroll burden. That means the bids they submit will be leaner, putting companies that continue to pay fringe dollars as additional cash wages at a serious disadvantage.
  •Individual Mandate. While it’s true that smaller employers are not legally required to provide health insurance under ACA, every individual in the U.S. is now required to have health insurance. Those who are unfamiliar with health insurance, the terminology used, and the process of comparing various plans can easily be overwhelmed. Again, there’s no longer a shortage of work in the construction industry, and the most skilled laborers won’t have difficulty finding an employer or union that will offer health insurance for both the worker and his or her family.

Using prevailing wage fringe benefit dollars as they were intended – to provide benefits for workers – just makes sense from a bottom-line perspective. Even without ACA, passing up significant savings on payroll burden by continuing to pay the fringe as additional cash wages just doesn’t add up. It’s an unnecessary expense, and the savings can be realized in the form of leaner bids or increased profits. That’s huge in today’s environment of fewer public works jobs. Then there are the tax advantages to both the employee and employer. And finally, the time and cost of replacing good workers can be exasperating to a small business.

Offering ACA-compliant health care is a win-win that saves you money – immediately. If you have questions about ACA or need assistance, please give us a call or send us an email. The Contractors Plan is here to help government contractors navigate the health insurance maze. We’re a one-stop shop for purchasing coverage, administering benefits, and helping to keep you compliant with the many laws and regulations that apply to prevailing wage workers.

Fringe Benefit Group Featured in July Edition of Rough Notes

By partnering with Fringe Benefit Group, we can help you provide the very best in products, administration, and compliance assistance. Read more in the July issue of Rough Notes. Read more…

Raising Minimum Wage for Federal Contract Workers: What to Expect

In June the US Department of Labor (DOL) formally proposed a new rule (79 FR 34568) that implements Executive Order 13658 to increase the federal minimum wage for contract workers to $10.10 an hour beginning in January 2015. The new rule has significant implications for employers who have workers that perform work under covered federal contracts or subcontracts.

Essentially the rule covers all employees who provide services on contracts and/or subcontracts that meet two specific criteria. First, the contract must be one of the following types:

• a procurement contract for construction covered by the Davis-Bacon Act (DBA),
• a service contract covered by the Service Contract Act (SCA),
• a concessions contract, even if it is not covered by the SCA,
• a contract in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public

Secondly, wages paid to the employees under contract must be governed by the Fair Labor Standards Act (FLSA) or the wage provisions of the DBA or the SCA.

The purpose of raising the federal minimum wage, as stated by President Obama, is to “increase efficiency and cost savings in the work performed by parties that contract with the federal government.” The President added that “higher wages increase morale and decrease turnover, resulting in greater efficiency”.

Nevertheless, there will likely be considerable repercussions for employers. When analyzing the possible effect of the federal wage increase, the DOL found that in 2015 almost 184,000 employees will receive a wage increase. That means employers will need to cover $100.2 million is additional wages. These increased labor costs will be passed back to the federal government and may very well result in higher bids for federal contract work.

Employers should be vigilant about checking whether their contracts will be subject to the terms of the new rule. The rule provides employers with extensive details about the scope of coverage for the new minimum wage and establishes new recordkeeping obligations and other requirements. The Administrator of the Wage and Hour Division (WHD) has enforcement power for the rule.

Concerned employers should provide comments in response to the proposed rule implementing the federal minimum wage to the DOL at www.regulations.gov. Keep in mind that the comment period is very brief, as everything must be received on or before July 17, 2014. The DOL expects to review comments and issue a final rule by October 1, 2014. Due to the potentially significant impact this rule could have on employers, federal contractors should monitor this issue for potential developments.

Lots of News out of DC this Week for Government Contractors

There has been a lot of news out of DC this week that relates to government contractors. First, on June 12, Labor Secretary Thomas E. Perez announced a proposed rule raising the minimum wage for workers on federal service and construction contracts to $10.10 per hour. The proposed rule implements Executive Order 13658, which was announced by the President on February 12, 2014.

The proposed rule provides guidance and sets standards for employers concerning coverage, including coverage of tipped employees and workers with disabilities. It also establishes an enforcement process familiar to most government contractors that will protect the right of workers to receive the new minimum wage. The proposed rule includes an economic analysis showing that nearly two hundred thousand workers will benefit from the increase.

More information about the proposed rule and how to submit comments is available at the U.S. Department of Labor Wage and Hour Division’s Website.

On June 18, OFCCP posted additional Frequently Asked Questions (FAQs) responding to questions received from government contractors. The FAQs address requirements of the revised regulations implementing the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) and Section 503 of the Rehabilitation Act (Section 503). These new FAQs have been added to the many FAQs already published on the OFCCP Web site. The VEVRAA FAQs are available at http://www.dol.gov/ofccp/regs/compliance/vevraa.htm

The Section 503 FAQs are available at http://www.dol.gov/ofccp/regs/compliance/section503.htm

Need Help With the Affordable Care Act? The Contractors Plan is Here to Help!

Most employers with fewer than 100 FTEs probably drew a huge sigh of relief when they got a year’s reprieve from complying with ACA. But now the deadline is fast approaching and many are looking for help and guidance.

The Contractors Plan has focused exclusively on prevailing wage benefits for more than 30 years, and we’ve been following the evolution of ACA since it was just an idea. We’re ready to help Davis-Bacon contractors get into compliance with the law – and we have a proven benefits platform to make everyone’s lives easier.

We Are the Easy Button

We get it. You’re looking at yet another layer of government regulations and wondering how you’ll stay on top of everything. Take a deep breath – we’ve got the “Easy Button” for prevailing wage benefits.

1. Track Hours to Determine Number of FTEs.

The first step in ACA compliance is tracking the number of hours each employee works to determine if you even have to comply. The Contractors Plan has a tool that makes it easy.

It’s called Hour Banking. Hour banking makes it possible for employees to “bank” extra hours worked during peak periods, then draw from this excess to continue health insurance coverage during slow times. With employer provisions of ACA set to begin taking effect January 1, 2015, hour banking is a simple tool for tracking hours worked during your safe harbor period.

When you partner with a benefits provider that specializes in Davis-Bacon contracts, administration of the program is done for you. Hour banking can be done for companies working on projects in several states, across multiple job sites and employees who perform work in different job classifications.

From the standpoint of tracking premiums, hour banking helps contractors who work varied hours and types of projects by distilling rates paid on both types of contracts into one rate. Multiple benefits can be tracked – meaning health insurance, dental and vision insurance, and more can easily be tracked and hour banked.

2. Use the Fringe to Save Money and Comply with ACA.

When you use fringe dollars to pay for bona fide benefits with health insurance, you can avoid the penalty taxes in ACA. You can round out the benefits with specialty insurance and retirement plans for your employees, and all of those dollars are removed from payroll. That means you don’t pay FICA, FUTA, SUTA, and – in most states – workers compensation on those funds.

Those assessments can add up to as much as 30 cents on each dollar per employee per hour. Over the life of a contract, that creates significant savings that you can use to submit leaner bids or increase your profitability.

When you work on prevailing wage jobs, the money to pay for benefits is right there, spelled out in the wage determination.

3. One-stop Shopping.

Working with The Contractors Plan simplifies and streamlines offering benefits for your workers. Here’s how:
•Use fringe dollars to pay all or part of your workers’ health insurance premiums.
•Maximize your payroll savings by using any remaining fringe dollars to offer supplemental benefits like vision, dental, disability and life insurance. Or,
•Funnel excess fringe dollars into a retirement plan. This benefits you as a company owner, as well, by increasing the amount you can put away for retirement.

Now here’s the simple part. All you have to do is upload your file and submit a single check.

We take care of everything.

We track eligibility, pay the carriers, and make sure everything runs smoothly. And if you decide to offer a loan program as part of your retirement plan, we can do that, too. All of it.

When you work with a partner that understands the government contractor niche, offering and administering benefits – and complying with the laws – is pretty painless. And it saves you money, too.

The clock is ticking for ACA compliance. Give us a call and let’s discuss how we can help you.

Understanding the Service Contract Act (SCA)

The McNamara O’Hara Service Contact Act (SCA) of 1965 applies to any contract over $2,500 entered into by the United States of America and the District of Columbia to provide services using “service employees”.  The Act requires contractors to pay employees locally prevailing wage and fringe benefit rates, or the rates negotiated in a collective bargaining agreement. The SCA does not apply to professional, administrative, or exempt employees.

Contracting agencies use wage determinations issued by the Department of Labor. While the base wage may vary, the fringe benefit rate is generally set on a national level and is adjusted each year in June.  Currently the fringe benefit rate is $3.81.

Contractors can choose how to fulfill their fringe benefit obligations. Some pay the fringe as additional cash wages, however this option incurs the payroll burden such as FICA, FUTA, SUTA, and Workers Compensation on those dollars.

Contractors can instead allocate fringe dollars to pay for employee benefits such as health insurance, ancillary benefits and properly configured retirement plans. Using fringe benefit dollars as intended, for bona fide benefits, reduces payroll burden for contractors. This option also extends insurance coverage to employees, helps them save for retirement and now, with the implementation of the Patient Protection and Affordable Care Act (PPACA) provides funding for benefits mandated by law. This saves the employers the costs of these benefits and helps affected contractors avoid penalties for noncompliance.

The Contractors Plan works with several SCA clients. If you work on SCA contracts, we can help. Here are just a few of the advantages of partnering with The Contractors Plan:

• Compliance assistance at no additional cost
• One-stop shopping. Contractors can obtain health insurance, supplemental benefits, and set up retirement plans through The Contractors Plan.
• Ease of Administration. One of the biggest advantages of working with The Contractors Plan is simplicity. All you have to do is upload a file and send in the contributions – we handle everything else.
• If you want to offer a loan program with their retirement plan, The Contractors Plan has a turnkey solution.
• The Contractors Plan has a Health Reimbursement Account option for employers who use our health insurance products.

We’re here to help. If you have questions about prevailing wage benefits for SCA contracts, please contact us.

(Almost) Everything’s Coming Up Roses

Most business owners become business owners for similar reasons:

• They love what they do.
• They’re really good at what they do.
• They have ideas about how to do it better.

So they start a business and soon find that being the boss means they actually get to spend less time doing what they love and excel at doing.  The “business” part of being a business owner can seem all-consuming. And frankly, it’s not what the majority of contractors really enjoy.

A good strategy for overcoming some of these challenges is to team with trusted partners who can ease the burden and become trusted resources and advisers. For example, an accountant and a payroll service with expertise in the unique needs of contractors is a good start and can go a long way toward taking care of business.

A benefits provider that specializes in the government contracting niche is also an important part of your team, especially with the deadline for businesses to comply with the Affordable Care Act (ACA) less than a year away.

These are just a few of the ways a benefits provider who knows prevailing wage work can help.

1. If you’re an employer who will be subject to ACA, funds to pay for providing health insurance for your workers are designated in your prevailing wage contracts. Using fringe dollars to provide benefits for workers has several other advantages:
   • Compliance with ACA. Think about how quickly 2013 flew by. Before you know it, 2015 will be here and penalties for noncompliance will begin.
   • Reduction of payroll costs. Fringe dollars used to provide benefits are exempt from payroll taxes such as FICA, FUTA, SUTA, workers compensation and general liability insurance.
   • Attract and retain qualified, experienced workers. Even if you’re not subject to ACA requirements, every individual in the U.S. is now required to have health insurance. With construction activity picking up, the best workers will be looking for an employer that can save them the hassle and expense of getting coverage on their own.
2. If you’ve been paying the fringe as additional cash wages, now is the time to stop. The argument that workers will leave when they see the reduction in their weekly checks doesn’t hold water anymore. Those who are paying for health insurance on their own are probably reeling from sticker shock and would welcome having employer-provided insurance.
3. If you don’t offer a retirement plan for your prevailing wage workers, this is a great time to start. This has many advantages for your employees and for you:
   • Workers who are most at risk of career-ending injuries automatically build an emergency fund.
   • Employees won’t spend what they don’t have. While some may resent seeing smaller checks initially, once they see the balances in their retirement accounts grow, most realize the value of saving for retirement.
   • With increased contributions from your field workers, company owners and key employees can save more for retirement as well.
4. Prepare for the unexpected. The recent government shutdown was a terrific reminder to government contractors to plan for times when they encounter an unforeseen shutdown. What happens when bad weather causes project delays? Or perhaps you have a lag between contracts that results in short-term layoffs. This is especially important with ACA’s requirement for all individuals to have health insurance. How will your employees pay their health insurance premiums during “shutdowns”?  Some providers who specialize in working with open shop contractors covered by the Davis-Bacon Act use a concept called hour banking, which can help both the business owner and your workers. Just as the term implies, hour banking is a method that allows employees to “bank” extra hours worked during peak periods, then draw from this excess to continue health insurance coverage during slow times. Having this flexibility can serve as a huge relief for workers and their families.

Look for a benefits provider who truly understands your industry and its unique challenges. If you can turn administration of benefits over to your provider, save money, and comply with the laws, you’ll find yourself with many more roses and many fewer stinkweeds.