The Department of Labor’s annual fringe rate for health and welfare benefits has a massive impact on the operations of SCA contractors. The state of the fringe rate greatly influences the state of employee benefits, contractor compliance, and how the government contracting space is faring in comparison to the private sector.
Read on to learn more!
Health and Welfare Benefits and the SCA
The health and welfare fringe rate has been in place since the Service Contract Act (SCA) was enacted in 1965. As a quick review, the Service Contract Act is an American labor law that requires the government to ensure fair wages for workers performing services for the government under the employment of government contractors. The intent of the SCA was to make sure that businesses and contractors didn’t undermine local union presence and underbid work to win government contracts.
The SCA considers both prevailing wages and benefit costs for a given service in an area, when setting their rate. In 29 CFR § 4.170, regulations for health and welfare benefits under the SCA are introduced. Under the SCA, fringe benefits shall be furnished separate from and an in addition to base wages by the contractor or subcontractor to employees working on the contract. “Bona fide” fringe benefits can include a pension, retirement benefits, and health insurance, among other things.
The Impact of EO 13706
In 2017, dual fringe rates were introduced – as opposed to a single national fringe rate – based on whether or not a contract included Executive Order 13706 (EO 13706). EO 13706 added up to seven days of paid sick leave on some government contracts to match what was being offered by many private sector employers. This was a source of confusion for many contractors, as there were issues figuring out where EO 13706 was applicable which resulted in many companies administering sick leave for some employees on certain contracts, but not others. This resulted in many companies cutting benefits in order to add the necessary sick time.
To further unpack the rift that was created – up until 2017, employee-centric contractors were already trying to squeeze every bit of value out of health and welfare benefits allotted by the fringe amount. This was with the overall goal of providing competitive benefit programs to their employees. When EO 13706 went into effect, many contractors reached out to their health insurance brokers with the urgent need to cut costs as medical costs rose and the fringe rate fell.
The SCA Fringe Rate in Recent Years
Regrettably, the SCA fringe rate has not increased enough to keep with rising costs in recent years. In 2018, the fringe rate increased a mere $0.07 – less than two percent. 2019 was equally disappointing at a 1.34 percent increase and 2020 offered no fringe rate increase at all. In the midst of the COVID-19 pandemic, 2021’s fringe increase came in at $0.06. In the face of medical inflation and increased health risks to employee populations, the situation has becoming increasingly dire.
Boon is a Partner to SCA Contractors
Boon understands all contractors are not the same. Some contractors may want an off-the-shelf solution, while others strive for a custom assortment of benefits. Choose the administrator who offers multiple methods of fringe benefits administration. All the services provided to the largest of contractors are also available to our smaller clients.
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