1. Benefit Solutions for Government Contractors
San Antonio is one of the prime cities for Government work. Many traditional businesses
have turned to the Federal Government for temporary contracts. Once a contract is won,
the Contractor is then immediately responsible to pay an hourly fringe benefit wage to all
Government employees. This wage amount is determined by the Department of Labor,
and the amount depends on the type of contract, which either falls under the Service
Contract Act or the Davis Bacon Wage Act.
The problem we are seeing is that most of these contractors do not know how to properly
comply with the DOL, and end up paying this fringe rate directly to the employees in
cash. For example, the SCA has a current fringe rate of $3.50 per hour, per employee.
This must be paid out in addition to their regular salary. If the employer chooses to pay
this amount to the employee in cash, the employer is subject to several taxes. Multiply
this by many employees and the employer suffers a huge taxation!
One way to get around this (which is compliant with the DOL), is to put the fringe wage
into a “bona fide” benefit plan for the employees. A “bona fide” benefit plan can be
several things, but most commonly is a retirement plan [i.e. 401(k)] or a medical benefit.
The Problem - Providing Medical Benefits under SCA / Davis Bacon Act
Providing medical benefits under projects covered by the Service Contract Act or Davis
Bacon Act can be difficult to quantify. Individual contracts may have different
requirements for Fringe Benefits at different times. Employees working under these
contracts often work irregular hours and patterns during any given week or month.
Several key items must be considered in order to appropriately provide benefits under
SCA. A Traditional Medical Plan may encounter the following problems:
• Monthly premiums do not match the given fringe rate
• Employees work varying hours or are part-time and do not meet the requirements
of a medical plan
• Employees turn over at a high rate, causing premium shortfalls and tracking
problems
Government Contractors cannot alter, eliminate, or save any part of their hourly health
and welfare wage determination contribution. It must be spent in full. This inability to
reduce or cut premium expense diminishes the relative cost vs. benefit, and greatly
elevates the already important issue of service, to both the company client, and especially
to their employees.

2. The Solution – A Combination of a Retirement Plan and a Limited Benefit
Medical Plan
We work with providers who can customize a Limited Medical Plan and retirement plan,
which ends up costing the exact amount of the fringe wage. There is a 100% participation
requirement for all Government Employees. The good thing about this combination is the
employee pays nothing out of their pocket and they are now not only given medical
coverage, but have started to save for retirement. The best thing yet is that the employer
saves all of those taxes, is in compliance with the DOL and his employees love him
because he provides benefits!
An Hourly Limited Benefit Medical Plan solves these problems and gains several key
advantages:
* It offers the same plan to ALL contract employees, whether full-time, part-time or
seasonal
* It accepts and administers employee “hours worked premium” in the same
manner required by the DOL Wage determination. In other words, both benefit
contributions and premium payment is matched or “hourly indexed”
* Provides Fringe Benefits as specified in the Service Contract Act.
* It Reduces Payroll Costs
* It avails the contractor to either tiered or composite rates
* Coverage is without pre-existing conditions or qualifying medical questions
A Retirement Plan solves these problems and gains several key advantages:
* It offers the same plan to ALL contract employees, whether full-time, part-time or
seasonal
* It provides the employees with a secure savings vehicle for retirement, that is portable
and can transfer with them should they decide to leave their current employer
* It usually provides a withdrawal option for hardship or unforeseen circumstances (with
a penalty).

3. Savings Calculator- estimate of annual employer savings with 20 employees
a. Hourly Health and Welfare Rate $
b. Total Payroll Burden x
(FICA, FUTA, SUI, Worker's Comp, Public Liability)
c. Hourly Cost Per Employee $
d. Annual Hours Per Employee x
(2,080 = 40 hours/week)
e. Annual Cost Per Employee $
f. Number of Employees x
ANNUAL SAVINGS FROM PROVIDING BENEFITS $
Shelly Alvarez Insurance does not provide tax advice. Please consult with your tax advisor.