The Cost of Compliance with Service Contract Act & Affordable Care Act
A Review of the Requirements for SCA & ACA
Recognizing so many of my clients are government contractors, I know it can be tough keeping up with compliance. It gets especially tricky if you have contracts that fall under McNamara-O'Hara Service Contract Act or Service Contract Labor Standards in an already highly regulated industry.
With the addition of the Patient Protection and Affordable Care Act (ACA), contractors who are subject to both SCA and ACA laws are faced with the daunting task of complying with both contract requirements.
The fact is, if compliance isn't managed correctly, contractors could end up paying double the amount for benefits while trying to comply with both the SCA and ACA regulations.
I recently served as a panelist speaker on a discussion around SCA and thought I'd take a few minutes to highlight some of the questions I got asked most about this topic.
Traditionally, with SCA contracts, government contractors had a choice of providing either a bona fide fringe benefit plans or paying cash in lieu of benefits. Cash in lieu of benefits is certainly still an option for contractors, but with mandated ACA requirements most employers must provide benefits for eligible employees or pay costly fines. This is where the complexity comes in.
What if the Company Decides to Pay Cash in Lieu of Benefits?
If the government contractor decides to pay cash in lieu of benefits, this could cause non-compliance with the ACA because if you have a contract that is subject to ACA you should be offering coverage that meets the Minimum Value and Affordability guidelines. In addition to the ACA guidelines, the health plan must also be compliant with SCA standards.
By allowing the employee to receive cash, the company is now paying the fringe cost to the employee and will most likely still be liable for providing or offering benefits to that same employee if they meet the ACA threshold of 50 employees.
Significant Risks with Paying Cash in Lieu of Benefits
The employer has three significant risks to be aware of:
- offering cash in lieu of benefits,
- accepting medical coverage waivers without verifying that the employee is in a qualified plan, and
- not offering an ACA compliant plan if your company is required to offer one.
When paying cash in lieu of benefits, you run the risk of paying double benefits and possible ACA fines.
If the employer decides to allow the waiver of medical coverage, they must verify proof of other acceptable coverage or run the risk of paying ACA/IRS penalties. These penalties are priced per worker, which could be detrimental to small businesses.
Remember, just because you’re compliant with SCA, doesn’t mean you’re compliant with ACA and vice versa.
Tips to Help you be Compliant with SCA and ACA
- Decide who is in charge – many organizations typically rely on the head person in HR or someone in the C-suite. Which is ok, but often these individuals are entangled doing other tasks, so unless they are meticulously detailed-orientated there is a strong possibility that compliance issues can creep up. This type of compliance sometimes “takes a village”. Teamwork is great, but make sure there is one person in charge and is accountable. Due to the complexities of SCA and ACA, it may be best to seek help from outside experts if your internal staff doesn’t have the capabilities or capacity.
- Figure out who’s covered – This is actually more complicated than it sounds because usually there are many different departments involved. Think compensation, payroll, and benefits just to name a few. All of these departments have responsibility for SCA and ACA compliance. Compensation is in charge of the employee classification, payroll needs to ensure they are getting paid correctly and that the fringe is separated from regular wage, and then benefits needs to make sure that they are offering a qualified plan that doesn’t exceed the fringe portion to those employees who are eligible. Easy, right?
- Keep accurate metrics – It’s not just about keeping any old metric, but more about keeping the appropriate metrics that works for your organization. Make sure you're measuring what’s important and you have the information you need to make an informed decision regarding compliance. Employee count may not mean much to larger organizations, but for those employers are under or nearing 50 employees it could mean significant changes in the way they do things.
- Offering Benefits- It’s not enough to offer just any benefits. Benefits must be ACA-compliant and still be in compliance with SCA regulations. One size may not fit all, so it would be a good business practice to do a benefits analysis to determine if there any gaps that need to be filled. Open enrollment season is quickly approaching, so start acting now if you haven’t already begun.
I would recommend doing an internal audit to assess what your company is currently doing, identifying any gaps, and moving on from there. It’s always better to identify any non-compliance or errors internally, which many companies do. By conducting an internal audit, this gives a company an opportunity to correct and prevent and future mistakes from happening. However, it’s not ok to ignore the errors.
Compliance doesn’t just affect your current situation, it can have an impact on how you bid for future work. Many companies have turned to third-party vendors for help, which is great, just remember you’re still liable for work completed by third-party vendors and subcontractors performing work for you.