Under President Obama’s Healthcare Reform Law (Obamacare), companies with 50 or more full-time employees/equivalents (FTEs) must provide their workers with health insurance in less than a year, or face tax penalties. Thus, it is imperative that government contractors implement a health insurance strategy now. Contractors who bid and work on projects subject to prevailing wage laws should act urgently to implement a benefits strategy that meets Obamacare requirements. For example, until recently, government contractors often worried employees would be unhappy if they didn't receive all or some of their fringe benefits as cash wages. Employers now have Obamacare to point to, and a host of additional reasons, why it’s better for them to put the fringe toward benefits instead of paying it out as cash. The fringe is an employer contribution, not “the employee’s money,” as some contractors believe. Why pay FICA, FUTA, SUTA, worker’s compensation and sometimes general liability insurance on every dollar on fringe paid as wages - and on top of that pay penalties for not offering coverage?
Employers should consider a few key questions as the deadline for compliance approaches. Beginning Jan. 1, 2014, companies with 50 or more FTEs must provide health insurance. Firms that do not comply will pay an annual nondeductible penalty equaling the lesser of $3000 for each FTE receiving a subsidy or $2000 per FTE. These fines are expected to increase over time as the impact of providing healthcare makes its way to the federal budget. Companies with fewer than 50 FTEs are not required to provide their workers with health insurance. However, employers in this category that voluntarily provide health insurance may qualify for tax credits. More importantly, smaller companies bidding against large companies that must offer health insurance likely will be at a disadvantage. Using fringe dollars to provide bona fide benefits, including health insurance, for workers on prevailing wage projects removes those dollars from payroll, which means they’re exempt from FICA, FUTA, SUTA and often worker’s compensation insurance. In addition to lower job costs and leaner bids, this could mean payroll savings equaling hundreds of thousands of dollars over the life of a contract.
Some employers may choose to forego offering health insurance to their workers and pay the penalties instead, thinking this would be a less costly alternative. However, the penalties can put real pressure on a company’s profits. Contractors that work on prevailing wage jobs, which allocate dollars to provide benefits in the wage determination, have little excuse for not covering their workers. Other employers are considering reducing some of their workforce to part-time status to avoid being subject to the charges. However, part-time workers are likely to be less skilled and less committed to a company. This strategy can wind up costing more and creating problems with construction quality and continuity, as well as reputation.
How long can a contractor wait before offering health insurance? Companies that currently do not offer health insurance for their workers must be aware that the underwriting process for new groups seeking coverage can take up to 90 days. First, the company must research and compare health insurance providers to ensure they are equipped to work with the unique circumstances presented in the construction industry, such as the seasonal nature of work, overtime and jobs in multiple states. Additional time could be required to implement the plan, communicate to employees and enroll them. Working with a benefits provider that specializes in the construction industry and the laws that apply to prevailing wage jobs can make the process much simpler.
Bidding on projects with start dates two to three years from now--without knowing how much health insurance will cost could affect profit margins. Even a contractor not subject to Obamacare must plan for increased costs in the event it wins a job and necessitates hiring more workers, pushing it past the 50 FTE threshold. Workers also may choose to seek employment elsewhere rather than attempt to find health insurance on their own as studies show employees would rather obtain coverage from their employer, where they can get better pricing and services. Additionally, offering health and retirement benefits may lessen the risk that employees will collectively bargain to get access to benefits.
Contractors should determine: if a carrier can turn a group down; if the company’s current health insurance plan meets Obamacare minimum requirements; what prime contractor should require from subcontractors regarding compliance with Obamacare; whether proof of providing health insurance might become a requirement for bidding on Public Works’ jobs; and, if the company is getting all the tax benefits it’s entitled to by offering health insurance to its workers.
To be certain, companies working on jobs funded by taxpayer dollars are increasingly subject to high-level scrutiny for compliance with applicable laws. If a company chooses not to comply with Obamacare, it may face questions regarding compliance with other regulations. While businesses may have concerns about the costs of offering benefits, effective plan design and single-source administration from the right specialist can help government contractors make the most of Obamacare requirements.