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Supreme Court Decision Impact on Government Contractors

June 29, 2012 Written by: Written by Adam Bonsky, Executive Vice President of Government Markets

With the U.S. Supreme Court’s recent decision to uphold the federal health care reform bill, it makes more sense than ever for companies bidding and working on government contracts to use the fringe portion of the prevailing wage to provide major medical coverage for their employees. For contractors working on projects subject to prevailing wage, the funds to purchase coverage for employees are right there – included in the fringe.

Starting in 2014, employers with more than 50 full-time employees will be required to provide health insurance for their workers. Companies that fail to comply will face penalties.

In other words, paying the fringe as additional cash wages will soon carry even more serious negative financial consequences.  Fringe dollars used to provide bona fide benefits are not subject to payroll assessments such as FICA, FUTA, SUTA and- in some states – workers compensation. Employers who choose to pay the fringe as additional cash wages miss out on these savings, which are significant over the life of a contract.  Starting in 2014, employers who do not provide health insurance for their workers will also be penalized.  That’s a huge double whammy, and it makes the decision to use the fringe portion of the wage to provide benefits for workers even more compelling.

Even though penalties don’t kick in until 2014, the time to start working toward complying with health reform is now.  The longer companies wait to find coverage for their workers, the harder it will be to find.

Even prevailing wage contractors with fewer than 50 employees should seriously consider using the fringe to provide health insurance for their hourly workers.  The savings on payroll burden can be passed on as leaner, more competitive bids – and that means increased chances of winning contracts. Choosing to offer health insurance also makes sense from an employee relations standpoint. Your employees won’t have to seek insurance from an exchange, which will be a relief for many. And it also means your employees avoid being penalized on an individual basis if they do not have health insurance. In 2014, the fee is  $285 per family or 1% of income, whichever is greater. By 2016, it increases to $2,085 per family or 2.5% of income, whichever is greater. Individuals will pay penalties of $95 in 2014. That amount will climb to $625 in 2016.

At The Contractors Plan, we’ve specialized in providing quality benefits for prevailing wage workers for more than 30 years. We’re prepared to help government contractors with their health insurance needs, and we welcome your questions.  Please watch for further information on health care reform and its impact here on our blog.