2012 Service Contract Act Health and Welfare Fringe Benefit Changes

 

 

Prevailing health and welfare fringe benefits issued under the McNamara-O’Hara Service Contract Act (SCA) was increased on June 17, 2012.  The new rate, effective June 17, 2012, will increase from $3.59 to $3.71 per hour for bids opened or service contracts awarded on or after that date and are posted on the Wage Determination online (www.wdol.gov) and Wage and Hour Division (WHD) (www.dol.gov/whd) websites.

 

Please note that the Wage Determination for the State of Hawaii may be different for employers who have mandated obligations to provide health care coverage to employees under the HI prepaid Health Care Act.  Employees who receive the mandated health care benefits have a health and welfare rate of $1.50 per hour.  However, employees excluded from receiving the mandated health care benefits are subject to the higher $3.71 per hour amount.

 

Many prevailing wage employers, not aware of the tax impact, still ay the health and welfare fringe benefit by adding the amount to the employee wages and even may be offering a health and welfare plan to all but not taking the credit on the prevailing wage employee portion AND paying it as cash.

 

To provide an example of the potential tax impact on including it as wages assuming the new $3.71 fringe rate, a $15.00 per hour base wage and a 17% combined (FICA, FUTA, SUTA and Workers Comp. rate).

 

This impact can compound quickly over the entire prevailing wage employee population given the term of the contract.  For example:

 

100 employees x $1,310 x 5 Years on Contract = $655,000

 

If you have prevailing wage employees, please contact me at kschneider@richmanknoll.com to discuss some benefit strategies to minimize the impact to your company.