Benefit Solutions for Government Contractors

San Antonio is one of the prime cities for Government work. Many traditional businesses have turned to the Federal Government for temporary contracts. Once a contract is won, the Contractor is then immediately responsible to pay an hourly fringe benefit wage to all Government employees. This wage amount is determined by the Department of Labor, and the amount depends on the type of contract, which either falls under the Service Contract Act or the Davis Bacon Wage Act.

The problem we are seeing is that most of these contractors do not know how to properly comply with the DOL, and end up paying this fringe rate directly to the employees in cash. For example, the SCA has a current fringe rate of $3.50 per hour, per employee. This must be paid out in addition to their regular salary. If the employer chooses to pay this amount to the employee in cash, the employer is subject to several taxes. Multiply this by many employees and the employer suffers a huge taxation!

One way to get around this (which is compliant with the DOL), is to put the fringe wage into a “bona fide” benefit plan for the employees. A “bona fide” benefit plan can be several things, but most commonly is a retirement plan [i.e. 401(k)] or a medical benefit.

The Problem - Providing Medical Benefits under SCA / Davis Bacon Act

Providing medical benefits under projects covered by the Service Contract Act or Davis Bacon Act can be difficult to quantify. Individual contracts may have different requirements for Fringe Benefits at different times. Employees working under these contracts often work irregular hours and patterns during any given week or month. Several key items must be considered in order to appropriately provide benefits under SCA. A Traditional Medical Plan may encounter the following problems:

Monthly premiums do not match the given fringe rate Employees work varying hours or are part-time and do not meet the requirements

of a medical plan Employees turn over at a high rate, causing premium shortfalls and tracking

problems

Government Contractors cannot alter, eliminate, or save any part of their hourly health and welfare wage determination contribution. It must be spent in full. This inability to reduce or cut premium expense diminishes the relative cost vs. benefit, and greatly elevates the already important issue of service, to both the company client, and especially to their employees.

The Solution – A Combination of a Retirement Plan and a Limited Benefit Medical Plan

We work with providers who can customize a Limited Medical Plan and retirement plan, which ends up costing the exact amount of the fringe wage. There is a 100% participation requirement for all Government Employees. The good thing about this combination is the employee pays nothing out of their pocket and they are now not only given medical coverage, but have started to save for retirement. The best thing yet is that the employer saves all of those taxes, is in compliance with the DOL and his employees love him because he provides benefits!

An Hourly Limited Benefit Medical Plan solves these problems and gains several key advantages:

* It offers the same plan to ALL contract employees, whether full-time, part-time or seasonal\

* It accepts and administers employee “hours worked premium” in the same manner required by the DOL Wage determination. In other words, both benefit contributions and premium payment is matched or “hourly indexed”

* Provides Fringe Benefits as specified in the Service Contract Act.

* It Reduces Payroll Costs

* It avails the contractor to either tiered or composite rates

* Coverage is without pre-existing conditions or qualifying medical questions

A Retirement Plan solves these problems and gains several key advantages:

* It offers the same plan to ALL contract employees, whether full-time, part-time or seasonal

* It provides the employees with a secure savings vehicle for retirement, that is portable and can transfer with them should they decide to leave their current employer

* It usually provides a withdrawal option for hardship or unforeseen circumstances (with a penalty).

Savings Calculator- estimate of annual employer savings with 20 employees

a.Hourly Health and Welfare Rate$

b.Total Payroll Burden(FICA, FUTA, SUI, Worker's Comp, Public Liability)

x

c.Hourly Cost Per Employee$

d.Annual Hours Per Employee (2,080 = 40 hours/week)

x

e.Annual Cost Per Employee $

f.Number of Employeesx

ANNUAL SAVINGS FROM PROVIDING BENEFITS $

Shelly Alvarez Insurance does not provide tax advice. Please consult with your tax advisor.