Penalties vs. Premiums for Government Contractors

With the Supreme Court’s recent decision to uphold healthcare reform, many employers have been analyzing whether it’s more advantageous to pay the costs of providing medical insurance for their workers or to pay the penalties that will begin to be assessed in 2014 if they do not offer medical insurance.

For government contractors, choosing the penalty option makes absolutely no sense from a bottom line perspective.  Government contractors who choose to pay out the fringe portion of the prevailing wage to their workers in cash, rather than providing medical insurance, are already missing out on significant savings on payroll burden. When the fringe is used to offer bona fide benefits for workers on Davis-Bacon or SCA contracts, those dollars are not subject to costs such as FICA, FUTA and SUTA and, in most states, Workers Compensation. Over the life of a contract, this can add up to hundreds of thousands of dollars saved.

When you add those unrealized savings to the imminent penalties for not providing medical insurance for your prevailing wage workers, you can almost hear the profits draining away. Starting in 2014 contractors with 50 or more FTEs (based on the number of workers who put in 30 hours per week on average) will be fined $2,000 per employee if they do not comply with this provision of the PPACA.  Some analysts expect this amount to be adjusted upward to help alleviate the costs the federal government will incur to implement the PPACA.

Even contractors with fewer than 50 employees should seriously consider offering medical insurance for their prevailing wage workers. For smaller employers, when you add savings on payroll burden to savings that can be realized from tax credits for those offering medical insurance, once again there isn’t much of an argument to be made for NOT using the fringe to provide major medical coverage.

Have questions about how the PPACA will impact your business? Not sure where to start? Contact us. We’ve specialized in providing bona fide benefits for government contractors for more than 30 years. We have health insurance options available from major providers like United Healthcare and Kaiser Permanente.  And since our product is held in trust, you become part of a larger risk pool, which can be a huge advantage when it comes to affordability.

Partnering with The Contractors Plan also gives you access to a full range of bona fide benefits to maximize your payroll savings, as well as complete administration of your benefits programs and compliance assistance that is unmatched by any other prevailing wage benefits provider.  To learn more about how we can help your company save money and prepare for the PPACA provisions that take effect in less than 18 months, email us today or give us a call at 1-800-328-1519.