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DOL Guidance on the ACA and Federal Wage Payment Statutes

Original post ubabenefits.com

The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) has issued guidance (All Agency Memo, or AAM) to governmental agencies on the interaction of the Affordable Care Act and government contractors’ responsibilities for payment of fringe benefits under the McNamara-O’Hara Service Contract Act (SCA), the Davis-Bacon Act (DBA), and the Davis-Bacon Related Acts (DBRA) (together DBA/DBRA). The SCA and DBA/DBRA require covered contractors to pay prevailing wages and fringe benefits to covered employees as part of the wage determinations issued by the DOL. The guidelines explain the issue of whether employers may receive credit for ACA-related premiums against prevailing wages/fringe benefits. The guidance from the DOL is “yes” for actual premium payments and “no” for excise tax payments made in lieu of offering an ACA-compliant plan.

The AAM underscores that the SCA, DBA/DBRA, and ACA are separate federal laws and government contractors that are applicable large employers (ALEs) should be mindful that each law is independent. Thus, for example, just because an ALE satisfies the SCA does not necessarily mean that it’s compliant with the ACA. In general, the ACA’s employer shared responsibility provisions require an employer with an average of at least 50 full-time employees (including full-time equivalents) to provide its full-time employees (and their dependents) affordable health care offering minimum value. If the ALE to whom this applies chooses not to offer such health care, then it may make a non-deductible payment (by way of an excise tax) to the Internal Revenue Service.

Under the SCA and DBA/DBRA, an employer may not take credit against the prevailing wage benefits for those benefits required by federal, state, or local law (such as the federal obligation for an employer to contribute to Social Security). The AAM confirms that, because an ALE may offer ACA-compliant health care or, alternatively, may simply pay an excise tax to the IRS, the ACA does not require an employer to provide health care.

The WHD permits ALEs to credit contributions to a health plan toward SCA or DBA/DBRA fringe obligations. The DOL treats the ACA the same way it has treated Massachusetts’ medical care requirement – by permitting credit – and not like Hawaii’s mandated health care coverage, for which the DOL does not allow credit toward fringes, although under the under SCA, does provide a separate and lower health and welfare benefit rate

If an ALE decides to forego providing health care by paying the excise tax to the IRS, the employer cannot credit the payment of such tax toward SCA or DBA/DBRA fringe obligations. The AAM notes that such a payment does not confer benefits specifically on the workers and, therefore, is not a bona fide fringe benefit as that term is defined and interpreted under the SCA and DBA/DBRA.

Government contractors’ employees often wrongly believe they should have the choice of receiving cash in lieu of benefits mandated by the SCA or DBA/DBRA. The AAM affirms that whether to provide employees with benefits or cash in lieu of benefits is the ALE’s option, so long as it is not otherwise required under a collective bargaining agreement:

…Thus, for example, if an [ALE] covered by the SCA or DBRAs chooses to provide all employees with fringe benefits in the form of health coverage, it may do so even if some or all of its employees might prefer to receive…cash…. [A] contractor need not obtain an employee’s concurrence before contributing the [entire fringe to health care].

However, an employee’s concurrence (and written authorization of deductions) is needed for any benefit the employer intends to provide which requires an employee payment or premium share to be deducted from wages. For example, if the employer pays 100 percent of a medical plan benefit for an employee, the employer may simply provide the benefit, and take credit under the SCA/DBA/DBRA. On the other hand, if the employer pays only 80 percent of the medical plan benefit, the employee must agree to the benefit and deduction of the employee portion of the benefit from wages.