Government contractors enjoy a range of benefits from stable employment and timely payments, to flexible work and a competitive income. While benefits such as health insurance, retirement accounts and disability are staples for many federal service contractors, fringe benefits are not as widely available.
In a competitive environment, fringe benefits are necessary to demonstrate that the business is willing to go above and beyond for their employees. Here are some of the top ways for government contractors to enhance benefits.
Reasons to Learn More About Fringe Benefits
There are several reasons why government contractors should be more concerned about fringe benefits, starting with the expansion of the McNamara-O’Hara Service Contract Act (SCA) of 1965.
The SCA applies to businesses that perform work under federal contracts and requires contractors to pay prevailing wage rates, as well as fringe benefits. However, the SCA does not apply to all government contractors.
Contractors may also procure other types of government contracts, such as contracts with the U.S. General Services Administration.
Known as a GSA Schedule or Multiple Award Schedule (MAS) and Federal Supply Schedule, this long-term government contract is made with commercial firms that provide local, state and federal buyers with access to commercial supplies and services at discount prices.
Government contracts are generally broken down into categories, such as fixed price contracts, indefinite delivery/indefinite quantity contracts, time-and-materials contracts, and cost-reimbursement and cost-plus contracts. Different agencies use different types of government contracts. For example, the U.S. Department of Defense, National Weather Service and Federal
Transit Administration typically use cost-reimbursement contracts in which the contractor is paid a negotiated amount regardless of expenses during the project.
Employers do have the option of paying employees their fringe benefits in the form of cash. However, this option does not provide as many tax benefits to employers since cash payments are subject to income tax withholding and payroll taxes. Employers can meet this obligation by paying a portion of the fringe benefits value towards a health plan and the balance in cash.
It is also important for federal services contractors to be familiar with the Patient Protection and Affordable Care Act (PPACA), more commonly known as the Affordable Care Act (ACA). Unions, future profits, employee expectations and low price technically acceptable (LPTA) may also be of concern to government contractors.
Ways that Government Contractors Can Meet Fringe Benefit Obligations
There are several options that government contractors have in order to meet their fringe benefits obligations.
First, they can ensure that their fringe benefits are kept separate from employee wages. Any wages that are paid in excess of the wage determination (WD) minimum wage requirement cannot offset the fringe benefits requirement.
In addition, all fringe benefits must be ‘bona fide,” meaning they are made in good faith. Any payments given as fringe benefits must also be segregated as benefits and not as wages. Fringe benefits must meet all requirements outlined in 29 CFR Part 4 Section 171 of the SCA/SCLS.
Ways to Enhance Benefits for Government Contractors
There are many different ways that government contractors are able to enhance benefits. Some of the most popular types of bona fide fringe benefits include the following:
Group health care is one of the most sought-after benefits for employees. Members generally receive health insurance at a reduced price as the insurance company’s risk is spread over an entire group of policyholders instead of just a single person.
Businesses have the choice of several different types of health plans, such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs).
Saving for retirement helps employees plan for a more financially secure future. Group retirement plans offer a wide range of advantages, such as payroll deductions for immediate tax benefits and employer contributions that help employees build savings faster.
The 401(k) is one of the most popular types of employer-sponsored retirement accounts that allows employees to make contributions through automatic payroll withholding. Employers can choose to match some or all of these contributions.
Disability insurance provides coverage to employees that may become seriously ill or injured, and prevents them from working. Coverage is designed to replace a portion of an employee’s monthly income for a specified period of time.
The policy will generally outline how much a person pays in premiums, how disability is defined, how much the employee will receive in benefits and how long the benefits last.
Vision insurance is another important type of coverage that can enhance an employee benefits package. Most vision insurance policies cover regular eye exams, as well as prescription eyeglasses or contact lenses.
More comprehensive policies may expand coverage to specialty items, such as eyeglass enhancements or lens coating. Policyholders may also receive discounts on services including vision correction surgery.
Similar to vision insurance, dental insurance may be a standalone policy or an add-on coverage option on a medical insurance policy. Standard dental insurance plans generally cover preventive care such as cleanings, routine exams and x-rays.
Full coverage dental plans often cover a broader range of services, such as dentures, veneers, dental implants, root canals, crowns, surgical extractions and orthodontic treatment.
6. Life Insurance
Life insurance can also be a useful benefit for employees that want to financially protect their families in the event of the insured’s death.
A life insurance policy provides beneficiaries with a death benefit in the case of natural death, suicide, accidental death or murder. Beneficiaries can then use the death benefit to pay for funeral costs, mortgage payments, college savings or other expenditures.
7. Health Reimbursement Arrangement
A health reimbursement arrangement (HRA) is a type of IRA-approved account that offers tax advantages to employees. The employer-funded account is used to reimburse employees for any out-of-pocket medical expenses they may pay, as well as their personal health insurance premiums. It is important to note that an HRA is not a type of insurance but rather an allowance of tax-free money given to employees to pay for the health services they need.
8. Health Savings Account
A health savings account (HSA) is a convenient way to pay for medical expenses and reduce a person’s overall taxable income. Only people that are enrolled in a high-deductible health insurance plan (HDHP) can qualify for an HSA.
Each year, the IRS defines a minimum deductible for these accounts and the maximum amount that an account holder can spend out-of-pocket. Health savings accounts are usually attached to a debit card or checkbook.
Speak with an Employee Benefits Consultant
Enhancing benefits is an effective and affordable way to attract employees and make a business stand out from the competition. For more suggestions to enhance benefits if you are a government contractor, or to speak with an experienced employee benefits consultant about creating a comprehensive benefits package, contact the benefits consulting experts at Business Benefits Group today.