Booncast Episode 8: Fringe Benefits, the SCA, and Growth Opportunity for Employers
Get in touch!
Hello and welcome to Booncast, a podcast where we discuss evolving healthcare needs and flexible employee benefit solutions. Join our experts for unique insight into the niche market of fringe administration, solutions to address the needs of the American employer and the hourly worker, compliance concerns, and updates on developing topics in the industry.
Caitlin Kennedy with Booncast: Welcome back to Booncast. Today Grant Elam, Head of Business Development at Boon, joins us again for more insights into the government contracting space. The focus of today’s conversation is to introduce businesses to the world of government contracting, particularly those working on service contracts governed by the Service Contract Act, which is also referred to as the SCA. Grant, can you briefly explain what the SCA is?
Grant Elam: Hey, Caitlin, happy to and again, thanks for having me. So SCA. It, like you just said, stands for Service Contract Act. And to give you a little bit of quick history, it was implemented and came into effect way back when in the 1960s. 1965 to be specific. And obviously, during that time, there was a lot of social change happening everywhere in the country. So the law itself and language constitutes that any government contractor and contract in value over $2,500 can be subject to this Act. Right?
So what makes it special? Simply, a contractor must pay a fringe rate and/or health and welfare rate, which it’s referred to, in the amount in addition to the contracted employees base wage (Right? Which makes sense.) for each hour that they work on the contract.
So, real world example — always helps me. I’m a security guard, protecting a federal building somewhere in some major city across the country. My base wage is $15 an hour and because I’m working on a job that has SCA language in the contract, I’m also owed an additional $4.80 per hour that I work on the job. So there’s naturally several different ways, you know, a contractor can comply and satisfy that what’s called, in quote, “fringe obligation,” including medical benefits, retirement. There’s also, you know, another laundry list of bona fide benefits. There are certain things that aren’t compliant. So a contractor does have to, you know, make sure they’re putting in the right thing.
And this is a really important point. And I say it last emphasize, this applies to both full-time employees, as well as part-time employees that support that government contract itself. And there’s been a big emphasis of this, of late, with a lot of questions that contractors that we talked to say, “Hey, we’re not sure how we should apply this. These are part-time, these are seasonal employees. But they still support and work for that contract.” Surprise, surprise! They are owed those applicable SCA fringe rates.
Caitlin Kennedy: Interesting. So, you know, kind of the angle that you’re bringing to the conversation is how businesses can grow with the SCA. Especially from the perspective of employees that don’t have a lot of experience in the government contracting space. What makes government contracting such an attractive space for businesses to enter into?
Grant Elam: Yeah, no, it’s a good question. And well, for one, there’s a lot of opportunity. Right? So if you can imagine, you know, the federal government. As we know, they award contracts every day, all day, it seems. To, you name it, in size and scope to again, that lower dollar amount. So every day, we can see who’s winning these contract awards. So that in itself, opportunity is one and, you know, let’s be honest, there’s a joke that those that that win these contracts usually continue to win. There is an art of bidding these contracts and on the what’s called a pre-solicitation, that oftentimes is a race to a lowest bid.
And so in the SCA world, these contracts are typically four or five year contracts that renew in term. And for many of those contractors out there, you know, we know contractors that have had the same you know job, maybe at the same place for 10 plus years. So there’s a lot of persistency there and that can be attractive if that contractor can accurately and effectively price the bid. Which is no small task. There’s good chance that they’re going to win and keep winning that contract.
Caitlin Kennedy: So, in light of that, what would you say to those employers that are intimidated by compliance, regulations, administration, and all of the requirements that come with the government contracting space?
Grant Elam: Yeah, we would say, “Have no fear Boon is here!” Right? We can help. But really, that’s where we see a lot of contractors to your point shy away. Because of that compliance burden. And you know, making sure that they’re handling the flow of dollars appropriately and accurately, for example, and ultimately having that fringe audit trail. Which is key. And truly, that’s where we can come into play. Right, we can offload a lot of that compliance piece and that benefit administrative piece. So the contractor, let’s face it, can do what they do best. And that’s go out and win a contract.
Caitlin Kennedy: I’m so glad that you bring up kind of the fringe flow, as it were. Because in your line of work fringe benefits, specifically, are seen as the better solution for SCA contractors. Why is that?
Grant Elam: Sure. And again, that there’s options out there. Right? And education is usually “square one.” So, you know, on the fringe benefits side, you know, let’s face it from the payroll tax savings themselves.
So what does that mean? If I’m a contractor and I have the option to put those dollars into the employee’s paycheck, versus employee benefits. There can be a truly realized bottom line savings by re-shifting and allocating those fringe dollars to, again, a medical plan, for example. Or a medical with retirement component plan, for example. And again, that’s their bottom line. And oh, by the way, it’s the contractor’s sole discretion, how those fringe dollars are applied on behalf of that employee. So they can choose which way they want to go here, right?
So, that’s pretty big. Ultimately, if they’re saving money obviously their bid costs will be going down. Because their bid and, if you will, the cost of that employee – their bid goes down with that. Right?
So instead of – real quick, high-level example – having to pay that employee’s base wage (we used $15 previously), plus the fringes into the cash. Right? Versus just putting those base wage into the paycheck and applying the fringes toward benefits. Obviously the savings thereof, your bid cost goes down. And oh, by the way, we can help you – the contractor – win the contract. So, kind of a pretty big deal.
Caitlin Kennedy: I love that you speak of fringe… well just the fringe rate, not just fringe benefits, but in terms of options. I think something that is so key to what we do at Boon is creating something custom that fits for a client. There are options out there, fringe benefits are an option that we definitely provide. So, you know, in kind of expansion of everything that you’ve mentioned, with payroll taxes, bringing down big costs. How can a fringe benefit solution ultimately lead to that growth in a business?
Grant Elam: Sure, and I’ll kind of walk it out give a little bit more detail. Because it’s absolutely fair. So let’s say you’re a contractor and haven’t been accounting for those fringe dollars to go toward a bona fide benefit, right? You simply have been putting those dollars in the employee’s paycheck. You will automatically lower the total cost of your bid if you reallocate those fringe dollars owed. Right?
So think about it this way: those additional fringe dollars, let’s say it’s $4.80, and that’s per hour that that employee works on the job will not accrue those additional statutory tax burdens. FICA, FUTA, SUTA, etc. So it may not seem like a lot, but over the course of that four or five year contract, it can be tens, if not hundreds of thousands of dollars in realized savings. And again, that’s payroll tax savings. And also that’s felt right down to the contractor’s bottom line.
So why is that important? You know, it can be impactful and important because the contractor can allocate more time and energy in those realized savings toward other projects, their own growth, as well as lowering their bid costs by a percent or two. It definitely adds up.
Caitlin Kennedy: So you know, everything that we’ve discussed so far has been about maximizing the fringe for growth. But you know, this is a solutions oriented discussion as well. From a consulting perspective, and you all are the expert consultants, how do Boon’s experts help new contractors be successful?
Grant Elam: Yeah knowing the rules, Caitlin, is really kind of square one. And what we can do and what the team at Boon can do is help provide that. Ultimately tell the contractor what they can and can’t do, as it relates to the letter of the law of the SCA. That’s square one. That’s the biggest piece.
And then obviously, you know, that’s a lot of opportunity out there. From the education standpoint. Making sure the contractor, as well as the broker or consultant that they might be working with, they’re engaged in that process, and that piece as well. So they know kind of where we’re coming from. And let’s face it, depending on the vision of the contractor, they may have, you know, they may want their business to go different places, right? So we can align our respective solutions accordingly to match.
Caitlin Kennedy: Opportunity and flexibility. Those are the words that are sticking out to me. Just this, this is all opportunity. And it’s flexibility and customization. Love that. Which I have a feeling is going to come into play as we wrap this conversation up. As you know, Grant, at the end of every discussion we like to ask, in your own words, “What’s the top value that Boon provides?”
Grant Elam: Yeah, it’s a tough one. Well, how about for today it’s industry experience. Right? So we have a tremendous amount of tenure and talent here at Boon. And I’ll argue that in itself provides a level of comfort, and that’s unparalleled out there in the market. So our clients can rest easy at night knowing you have experts working on their behalf. How about that?
Caitlin Kennedy: I think that works. I think that does very nicely, actually. Well, Grant, you’ve been great. I so appreciate you coming on again. It’s always great to have you here.
Grant Elam: Absolutely.
Caitlin Kennedy: Thank you so, so much.
Grant Elam: Thanks, Caitlin, appreciate it.
That’s all for this episode of Booncast! Thank you for listening! Visit us on www.boongroup.com for more podcasts, blog posts, and information on Boon’s benefit offerings.