Last week the Department of Labor (DOL) issued an All Agency Memorandum 220 (AAM), providing long-awaited guidance to governmental agencies on how the Affordable Care Act’s provisions regarding employer shared responsibility interact with the fringe benefit requirements of the McNamara-O’Hara Service Contract Act (SCA), Davis-Bacon Act (DBA) and the Davis-Bacon Related Acts (DBRA). SCA and DBA/DBRA require government contractors to pay prevailing wages and fringe benefits to employees based on DOL-issued wage determinations. The AAM now offers guidance on the interaction of these laws and the ACA.
A summary of the AAM provisions:
SCA, DBA/DBRA, and ACA are Separate Laws
The AAM maintains that the SCA, DBA/DBRA, and ACA are still separate federal laws and government contractors that are applicable large employers (ALEs) need to satisfy each applicable law independently.
ACA Employer Shared Responsibility
In general, the ACA’s employer shared responsibility provisions require an employer with an average of at least 50 full-time employees 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 (IRS).
Employer Contribution to Health — Appropriate Credit to SCA, DBA/DBRA Fringe
Under SCA and DBA/DBRA, an employer cannot take credit against the required prevailing wage benefits for those benefits required by federal, state, or local law. The AAM provides long-awaited guidance 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. Consequently, WHD permits ALEs to credit contributions to a health plan towards SCA or DBA/DBRA fringe obligations.
Employer Payment of Excise Tax — Inappropriate Credit to SCA, DBA/DBRA Fringe Care
If an ALE decides alternatively to forego providing health care by instead paying the excise tax to the IRS, the employer cannot credit the payment of such tax towards 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 SCA and DBA/DBRA.
The Choice of Providing Cash or Benefits Remains the Employer’s
Government contractors’ employees often believe that they should have the choice in receiving cash in lieu of SCA or DBA/DBRA mandated benefits. The AAM reconfirms that it is the ALE’s option whether to provide employees with benefits or cash in lieu, unless required otherwise under a collective bargaining agreement.
ALE’s need to take into account that employees must consent to any benefit the employer intends to provide that requires an employee payment or premium from wages. For example, if the employer pays 100 percent of a medical plan benefit for an employee, then the employer simply can provide the benefit (and take credit under SCA/DBA/DBRA). Conversely, if the employer pays only 80 percent of the medical plan benefit, then the employee must agree to the benefit and deduction of the employee portion of the benefit from wages.
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