How the 2022 SCA Fringe Rate Could Impact Government Contractors

How the 2022 SCA Fringe Rate Could Impact Government Contractors

For the past several years, government contractors have found themselves in an increasingly challenging financial position. The COVID-19 pandemic has thoroughly shaken business and operations, healthcare costs are on the rise, and rampant inflation has only exacerbated the situation. The SCA fringe rate, in years past, has failed to keep up with these challenges and address contractor concerns. Fortunately, the 2022 SCA fringe rate has arrived and there is some hope.

Read on to learn more about the potential impact the 2022 SCA fringe rate could have on the government contracting space!

Bringing the 2022 SCA Fringe Rate Into Context

The annual adjustment to the health and welfare fringe benefit rate makes a huge difference to government contractors working under the Service Contract Act. For 2022, the fringe rate increased to $4.80 per hour from the 2021 rate of $4.60 per hour — which is roughly a 4.26 percent increase. This makes the 2022 fringe rate the highest increase since 2015.

The new fringe rate is a welcome change after years of falling short, but contractors should still temper their expectations. Wages have increased at a very rapid rate and the private sector has greatly driven wage determinations and expectations. The fallout of COVID-19 and the current response to inflation has increased wage requirements and contractors must respond to that burden. For many contractors, this means offsetting the salary needs of employees by paying the fringe amount out in cash in lieu of providing benefits. This can address the pressures of wage expectations, but it means that the contractor misses out on the cost saving advantages associated with offering fringe benefits.

The Fringe Rate’s Impact on Contractors

The future of the government contractor appears to be defined by this difficult decision in how best to utilize the fringe. Given the difficulties of maintaining compliance and benefits administration, some contractors may be tempted to add the fringe amount to an employee’s paycheck and allow them to opt into an optional benefit plan. This can create additional headaches if employees don’t engage with the plan and create an adverse selection issue.

If the fringe rate doesn’t cover the cost of a benefit plan and a contractor choose to pay the fringe out in cash, that contractor could be missing out. Paying the fringe amount out in cash puts a payroll tax burden on the contractor that could put that contractor at a disadvantage on future bids. From a workforce perspective, adding the fringe to employee paychecks is a tempting option but it’s equally true that employees highly value benefits and are very concerned about their health and wellbeing in a post-COVID market.

The savvy contractor is looking years into the future, when planning for how to utilize the fringe. That includes watching the trends of rising medical costs, taking the temperature of employee desires in the market, and monitoring wages. The smart contractor is putting the fringe into benefits for their employees. The Service Contract Act is very clear that you can’t force a payroll deduction. So you want to be very, very certain that when you design and implement a benefit program for your group of employees, you do so within the confines of what your average employee works in a year. We can help with that.

Make the Most of the 2022 SCA Fringe Rate with Boon

Government contractors should be looking to the future with two things in mind: seizing opportunities that help them win future bids and avoiding factors that will hurt those chances. For 40+ years, Boon has been innovating flexible and customizable fringe benefit solutions that are designed with the competitive contractor in mind. Our benefit offerings include flexible healthcare offerings and retirement options, as well as contemporary and popular solutions like hour banking and telemedicine. The government contracting space is constantly evolving and we are offering solutions to meet that new frontier.

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