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Long-awaited guidance to governmental agencies on how the Affordable Care Act’s (ACA’s) provisions regarding employer shared responsibility (the “employer mandate”) interact with the benefit requirements of the McNamara-O’Hara Service Contract Act, the Davis-Bacon Act and the Davis-Bacon Related Acts finally has been issued by the Wage and Hour Division of the Department of Labor in All Agency Memorandum 220.
The Service Contract Act and Davis-Bacon Act/Related Acts require covered contractors to pay prevailing wages and benefits to covered employees based on wage determinations issued by DOL. Memorandum 220 provides written guidance on the interplay between the ACA and these laws, including the critical issue of whether employers can take credit for ACA premiums and associated payment against required prevailing wage fringe benefits. The answer is “yes” for actual premium payments and “no” for excise tax payments made in lieu of offering and ACA compliant plan.
The memorandum underscores that the Service Contract Act and Davis-Bacon Act/Related Acts, and the 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 Service Contract Act does not necessarily mean it satisfies ACA.
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 (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 nondeductible payment (by way of an excise tax) to the Internal Revenue Service.
Credits Against Prevailing Wage Benefits
Under the Service Contract Act and the Davis-Bacon Act/Related Acts, an employer cannot take credit against the required 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 Memorandum 220 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.
Consequently, the Wage and Hour Division permits ALEs to credit contributions to a health plan towards the Service Contract Act and Davis-Bacon Act/Related Acts benefit obligations. The DOL thus treats the ACA the same way it has treated Massachusetts’s medical care requirement, by allowing credit, and not like Hawaii’s mandated health care coverage, which DOL does not allow credit toward benefits (but under the Service Contract Act, does provide a separate and lower health and welfare benefit rate).
Employer Payment of Excise Tax
If an ALE decides alternatively to forego providing health care by paying the excise tax to the IRS instead, the employer cannot credit the payment of such tax towards the Service Contract Act and the Davis-Bacon Act/Related Acts benefit obligations. Memorandum 220 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 Service Contract Act and the Davis-Bacon Act/Related Acts.
Choice of Providing Cash or Benefits Remains Employer’s
Government contractors’ employees often wrongly believe they should have the choice of receiving cash in lieu of benefits mandated by the Service Contract Act or the Davis-Bacon Act/Related Acts. Memorandum 220 reconfirms that whether to provide employees with benefits or cash in lieu is the ALE’s option (so long as not otherwise required under a collective bargaining agreement):
Thus, for example, if an ALE covered by the Service Contract Act and the Davis-Bacon Act Related Acts “chooses to provide all employees with 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],” Memorandum 220 states.
Bear in mind, however, that an employee’s concurrence (and a written authorization for deductions) is needed for any benefit the employer intends to provide that requires an employee payment or premium share that will be deducted 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 the Service Contract Act or the Davis-Bacon Act/Related Acts).
On the other hand, 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.
Leslie A. Stout-Tabackman is a principal in the Washington, D.C. office of
Jackson Lewis P.C., which represents management exclusively in workplace law and related litigation. Jewell Lim Esposito is a principal in the firms Reston, Va., office. © 2016 Jackson Lewis PC. All rights reserved. Reposted with permission.
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