Employers that are subject to the McNamara-O’Hara Service Contract Act (SCA), Davis-Bacon Act (DBA), and Davis-Bacon Related Acts (Related Acts), and who are considered an applicable large employer (ALE) under the Patient Protection and Affordable Care Act (ACA) must ensure that they meet the requirements of all three acts, despite the fact that the interplay between them can be confusing and misunderstood. The Department of Labor has provided guidance for these employers based on two U.S. Department of Labor (DOL) documents: its December 28, 2015, Notice 2015-87 (DOL Notice) and its March 30, 2016, All Agency Memorandum Number 220 (DOL Memo).
The DOL Notice and DOL Memo give guidance on the interaction between the SCA’s and DBA’s fringe benefit requirements and the ACA’s employer shared responsibility provisions.
What are the SCA’s general wage and fringe benefit requirements?
The SCA generally requires that workers employed on federal service contracts greater than $2,500 be paid prevailing wages and fringe benefits. For some SCA contracts, the required wages and fringe benefits are provided in the predecessor contract’s collective bargaining agreement. However, for most SCA contracts, the DOL Wage and Hour Division (WHD) makes area-wide wage determinations regarding wages and fringe benefits based on Bureau of Labor Statistics Employment Cost Index data.
The SCA monetary wage must be paid in cash and cannot be satisfied by fringe benefits. The required SCA health and welfare amount is currently $4.27 per hour; this amount can be paid in benefits, cash equivalent of benefits, or both. Health coverage is one type of fringe benefit that may be provided to satisfy SCA requirements.
What are the DBA’s general wage and fringe benefit requirements?
The DBA generally requires that workers employed on federal construction contacts greater than $2,000 be paid prevailing wages. Under laws known as the Davis-Bacon Related Acts, the DBA’s requirements also apply to construction projects that are assisted by federal agencies through grants, loans, loan guarantees, insurance, and other methods.
The DBA and the Davis-Bacon Related Acts (collectively, DBRAs) require that covered workers receive a prevailing wage which is both a basic hourly rate of pay and any fringe benefits found to be prevailing.
The WHD makes DBRA wage determinations, including fringe benefit determinations, based on locally prevailing wages. Under the DBRAs, a covered employer can satisfy its basic hourly rate obligation by paying fringe benefits. Health coverage is one type of fringe benefit that may be provided to satisfy DBRA requirements.
What are the employer shared responsibility provisions?
Under the ACA, the employer shared responsibility provisions require an employer with an average of at least 50 full-time employees (including full-time equivalent employees) during the previous year (an applicable large employer or ALE) to:
- offer its full-time employees and their dependents health coverage that is affordable and provides minimum value; or
- pay the Internal Revenue Service (IRS) if the employer does not offer this coverage and at least one full-time employee receives the premium tax credit for purchasing health insurance through the Exchange.
For a calendar month, a full-time employee is defined as a person employed on average at least 30 hours of service per week or 130 hours of service per month. An ALE is not required to offer health coverage to part-time employees to avoid an employer responsibility payment.
An employer may be subject to one of two types of payments, but not both types of payments.
- An ALE is subject to an annual payment of $2,000 (adjusted for inflation to $2,160 for 2016) for each full-time employee (after excluding the first 30 full-time employees from the calculation) if the ALE does not offer minimum essential coverage to at least 95 percent of its full-time employees and their dependents and at least one full-time employee receives the premium tax credit for purchasing health insurance through the Exchange.
- An ALE is subject to an annual payment of $3,000 (adjusted for inflation to $3,240 for 2016) for each full-time employee who receives the premium tax credit for purchasing coverage through the Exchange. The amount of this payment can never exceed the potential amount of the employer shared responsibility payment described in item 1 above.
How does an employer meet the ACA and either the SCA or DBRAs requirements?
An employer subject to the ACA and either the SCA or DBRAs must comply with each law. The ACA does not alter or supersede the SCA or DBRAs. Each of the laws is separate and independent.
As a practical matter, an employer subject to each of these laws must satisfy all the requirements of each applicable law. For instance, an employer who is in compliance with the ACA’s employer shared responsibility provisions may not necessarily be in compliance with the SCA’s or DBRA’s provisions, and vice versa.
To help employers meet their responsibilities under the ACA, SCA, and DBRAs, request UBA’s ACA Advisor, “Employer Considerations When Offering Health Coverage under the SCA or DBA” for a detailed review of the DOL’s guidance on how to comply with all the provisions.