Staying in Front of Fringe Benefits

The government contracting industry is in a league of its own when it comes to employee benefits. In some ways, federal contractors working under the Service Contract Act (SCA) or Davis-Bacon Act (DBA) are at an advantage over traditional companies in terms of the benefit offerings they are able to provide to their employees.

Both the SCA and DBA include provisions for government contractors to pay for benefits over and above the base wages set forth in contracts. The acts that govern government contractors and their work provide the fringe amount as part of wage determinations. Contractors have the option to use the fringe amount to provide hourly health and welfare benefits, also known as fringe benefits, or to pay those amounts as additional cash wages. This hourly health and welfare option provides employers with a level of flexibility that allows a more customized benefit offering experience for employees working on government contracts.

Fringe Benefits

Additionally, utilizing the fringe amount to provide benefits instead of paying additional wages means making every dollar count. A benefit plan can reduce a contractor’s total overhead cost by reducing taxes and related costs, leaving savings for growth opportunities and the chance to present a more attractive bid. The more long-term the commitment, the better the results. That said, compliance and fringe accounting also can create a work burden that leaves many government contractors weighing the pros and cons of offering fringe benefits at all.

The goal of every government contractor is to win contract bids. Every dollar must count, and every hour of work should be effectively spent to achieve the competitive margin that makes the difference between a win and a loss. Knowing how to work that competitive edge is one of the keys to being a successful contractor and a sustainable employee benefit program is one of the best ways to see that return.

More Than Compliance

Most companies working under the SCA and DBA treat compliance as a chore and focus on meeting the bare minimum standard. They contribute just enough money to meet the standards set by the Affordable Care Act (ACA) and offer just enough of a benefit so that their employees feel they have some form of
an option. This tactic may be common,
but it’s not the solution to building a benefit program that provides a better, more cost-effective business.

Government contractors should take full advantage of the hourly fringe rate for health and welfare benefits for SCA and DBA contracts that comes built into each government contract. In most instances, government contractors can decide to use the funds from the fringe to cover 100% of the benefit. This option reduces the employee burden of paying for health care out of pocket while also offering an advantage to the employer. This is important because it ensures that all eligible employees are enrolled in the benefit program and eliminates the issue of adverse selection.

Opting in & out

“Adverse selection” is a term that describes assumed risk when employers allow their employees to voluntarily enroll or decline the benefit offer. For example, a healthy employee will often choose not to enroll when asked to pay for something out of pocket or out of their paycheck, whereas an employee with health concerns will almost certainly opt into health coverage. This results in an employer’s least healthy employees driving the cost of health benefits which, in turn, leads to both the employer and the enrolled employees paying more for the benefit. Higher-risk employees result in higher health premiums. It‘s beneficial to have all employees enrolled in a benefit program, so the individual premiums and the individual health of each employee balances the overall plan performance.

Healthy Employees Give You a competitive Edge

The advantages of an employee benefit program can touch every level of a company and help drive a winning bid. A healthy workforce is a benefit to the employer — reduced absenteeism and higher productivity are the most immediate benefits that an employer can expect to see. Especially during the current environment, when the coronavirus pandemic is shaping every aspect of the workplace, a health and welfare benefit offering can make all the difference in employee retention and satisfaction. Health care is a major concern for employers and employees. Committing to a benefit program for the long-term provides greater opportunities to save more money in all areas of health care and wellness, which drives a contractor’s competitive advantage.

Government contractors are uniquely positioned to be able to provide a more predictable and cost-effective benefit strategy than a traditional commercial employer. This is possible because offering health and welfare benefits with fringe dollars provides a more controlled model that can weather rising health care costs. Furthermore, a fringe benefit plan allows companies to turn their attention to other areas of their business while enjoying cost savings from payroll taxes and associated burdens. Remember that the aim of the competitive contractor is to win bids through a competitive benefits approach. To that end, a third-party administrator (TPA) is exactly the sort of professional you want in your corner. A TPA can oversee the management of the benefit program, undertake all fringe accounting and compliance concerns and keep your benefits in compliance within the fringe rate. Beyond the in-office benefits of a TPA, these niche experts can provide consultation and support.

A benefit solution that is built to last can provide long-term competitive advantage to the government contractor. The flexibility of the fringe allows a contractor to plan for health care costs, down to narrow margins that make the difference between a winning bid and a losing bid. Maintaining compliance builds the credibility of the contractor and, quite simply, keeps the contractor in the field.