Guidance to all contracting agencies of the federal government and the District of Columbia regarding the interaction of the shared responsibility provisions created by the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and the fringe benefit requirements of the McNamara-O’Hara Service Contract Act (SCA) and the Davis-Bacon Act and Related Acts (DBRAs) was issued by the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD).
The SCA and DBRAs require workers employed under federal service and construction contracts be paid prevailing wages and fringe benefits. Health care coverage is one of the types of benefits that can be used to make up the prevailing wage.
Shared responsibility. Section 1513 of the ACA created new Internal Revenue Code (IRC) section 4980H, which requires that applicable large employers (ALEs) (50 or more full time employees) must offer their full time employees (minimum of 30 hours or work per week or 130 hours per month) and their dependents (children less that age 26) health coverage that is affordable and provides minimum value, or, alternatively, make a payment to the Internal Revenue Service (IRS) if they don’t offer this coverage and at least one full time employee purchases health insurance through an Exchange and receives the premium tax credit.
General rule. According to an All Agency Memorandum (AAM) issued by the WHD, the ACA does not alter the guiding principles of the SCA and DBRAs. Therefore, an employer subject to the SCA or DBRAs that offers a health plan to employees in order to avoid the ACA’s shared responsibility payment must still abide by the SCA and DBRA regulations the govern the extent to which the employer may credit the cost of the plan to it prevailing wage and fringe benefit obligations. In addition, an employer that seeks to fulfill its SCA and DBRAs obligations by providing health coverage to its employees is subject to the shared responsibility provisions of the ACA, just like ALEs.
Additional guiding principles. The AAM also provides some additional guidance to employers acting under federal service and construction contracts:
- Because no employer under the shared responsibility provision of the ACA is required to provide health insurance coverage to its employees, health coverage provided by an ALE is not a benefit required by law. Therefore, ALEs may credit their contributions to bona fide health coverage plans toward the satisfaction of SCA or DBRA fringe benefit obligations.
- Employers that are liable for a shared responsibility payment to the IRS may not credit the cost of this payment toward SCA or DBRA obligations.
- If an employer covered by the SCA or DBRA chooses to provide all employees with fringe benefits in the form of health care coverage, it may do so even though some or all of its employees might prefer to receive the fringe benefit in cash or through some other fringe benefit.
- Regardless if an employer is an ALE, when an employer covered by the SCA or DBRAs provides its employees a choice whether to accept or decline health insurance coverage, if some employees decline and employer does not provide coverage for those employees, the employer must still satisfy it SCA or DBRA obligations by providing cash or some other bona fide fringe benefit.
- The fact that a health plan is bona fide under the SCA or DBRAs does not guarantee that by offering such a plan that the employer will avoid responsibility under the shared responsibility provision of the ACA. The employer must make sure that the health plan is affordable and provides minimum value with the meaning of the ACA.
- Under the ACA, the small employer market (one to 50 full time employees) must use “per member rating” to calculate premiums individually for each employee based on family size, geography, age, and tobacco use. Then, after the employer uses per member rating to calculate the total group premium, insurers may then charge premiums based on average employee premium amounts (known as “composite premiums”). Under the SCA and DBRA, however, fringe benefits must always be tracked on an individual basis. Therefore, an employer under the SCA and DBRA may not take a credit for a payment based on the average premium paid (composite amount) or average contribution made per employee.
Sources. The AAM is a general guidance and does not address all situations in which the ACA and the SCA and DBRAs apply to an employer. Additional guidance on the topic is available on the WHD website and through a Frequently Asked Questions memo.
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