What is a Bona Fide Fringe Benefit?

So, you’re entitled to bona fide fringe benefits. What is that? Or maybe you’re an employer double-checking that you are satisfying all SCA benefit compliance requirements? You need to know that your employees are being taken care of!

You know The Boon Group® to be the benefits company focused on meaningful health and welfare benefits for government contractors, so trust us as your resource on bona fide fringe benefits.

Read on to learn more!

A quick lesson in linguistics: bona fide means something that is made in good faith without fraud or deficit; by extension, to be of earnest intent. Really, a great way to think about this is that a bona fide fringe benefit is the way an employer takes care of its employees, beyond the given expectations of wages for their hard work. In government contracting, bona fide benefits are the plans that you use to meet your fringe benefit obligations.

The devil is in the details, in particular the legalese. Per the Code of Federal Regulations, for a fringe benefit to be considered “bona fide” under the Occupational Safety and Health Act of 1970 the benefit must meet a particular criteria.

The first item on the checklist boils down to basic contract law. The provisions of your benefit plan must be clearly specified in writing. An employer, under the Service Contract Act or Davis Bacon Act(s), can sponsor and require participation in a plan using fringe dollars. Any contributions made by an employee to that plan must be totally voluntary and cannot be involuntarily deducted from the employee’s wages or used by an employer in satisfying any part of the fringe benefit obligation.

The fringe and prevailing wage regulations specify that any benefits provided by a government contractor must be benefits separate from or made in addition to the employee’s wages. It’s also permitted that fringe benefits can be furnished by cash or the equivalent benefits; payments on these benefits must be segregated as benefits, not as wages. Providing a benefit plan can reduce costs for contractors on bids, increase competitiveness against peers, all while simultaneously providing employees with best in class benefits. These benefits may be what give you the competitive edge in recruiting and retention of key employees. How do these bona fide fringe benefits make you more competitive? We’re glad you asked!

By entrusting your administrative needs to a third-party, rather than maintaining your own in-house team, you lower your personal costs which brings down the total of your bid. In the world of government contracts; winners are made on these small percentages. Use Boon’s superior administrative services, stand a head above your competition.

So what kind of benefits make up bona fide fringe benefits? Here are a few of our favorite examples:

  • Health Insurance
  • Disability Insurance
  • Retirement
  • Vision
  • Dental
  • Life
  • HRA and HSA plan

What is NOT considered a bona fide benefit? Basically, anything that your employer should be providing anyway:

  • Use of a company truck
  • Travel expenses
  • Statutory benefits like worker’s compensation, unemployment compensation, and social security contributions.
  • Tickets to theme parks and other entertainment venues
  • Use of company sponsored cafeterias

Fringe benefit contributions may be paid to an independent trustee or third-party pursuant to a bona fide fund, plan or trust. Fully Insured health plans have been a staple in government contracting. Self-funded plans have recently picked up in popularity, but are owed special attention. For example, unfunded “self-insured” plans, where a contractor typically pays claims out-of-pocket, require advance approval from the DOL’s administrator of the Wage and Hour Division.

So where do bona fide fringe benefit requirements come from? Well, there are two ruling acts that govern these standards for government contractors, at the federal level: The McNamara-O’Hara Service Contract Act of 1965, as amended (SCA) and the Davis-Bacon Act of 1931. States and other localities have multiple prevailing wage laws of their own.

The SCA, perhaps, has the longest reach of the two; the SCA applies to any employees working on a government contract for services valued at more than $2500. Generally, service contractors have minimum hourly requirements for wages and benefits. These hourly requirements for benefits are called fringe rates.

You can check out the rest of our blog for more info on the SCA and SCA compliance!

The Davis-Bacon Act (DBA) applies primarily to construction contracts and requires the payment of locally prevailing wages and fringe benefits. The intention of this piece of legislation is to prevent private contractors from under-bidding the unions.

Still have questions? At The Boon Group, our consultative business development team is specifically trained to answer any questions you or your broker have regarding your benefits and compliance. Reach out to The Boon Group, today!

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