On 7/29/2016 the Department of Labor announced that they would not be raising the rate for Service Contract Act (SCA) Health and Welfare Fringe Benefits, keeping it at $4.27 per hour. A drastic departure from the previous two years 2013-2015 where the hourly fringe rate has climbed 12% (46 cents).
Fringe Rate Fact: from 2007 to 2013, the average yearly fringe rate increase was 9 cents.
To put it in perspective, the DOL has increased fringe rates every year for more than 20 years.
What does this mean for contractors?
At first glance, it sounds like good news for government contractors. Current contract fringe rates don’t need to be updated. Wrap rates for bid proposals shouldn’t change. Costs will remain similar to last year. All good, right?
Contractors tend to think of fringes as just another labor cost, but that’s not the entire story. The fringe rate also assists contractors in paying for healthcare and other benefits. As benefit costs go up, fringes should offset those increases.
“Premiums for single ($6,251) and family ($17,545) coverage increased by 4% in 2015, continuing a fairly long period (2005 to 2015) where annual premium growth has averaged about 5%.“
With health care benefit costs and premiums going up, contractors thinking “no change” to the SCA Health and Welfare Fringe Benefit Rate is a “good thing” might feel differently once they see how much their 2017 renewals will run.
Connecting the dots…
It’s like the cost of living going up, without getting a raise
With no additional room in the fringe rate to help cover high renewals, contractors face some difficult decisions ahead. Having to choose between eliminating or decreasing an existing benefit or going deeper into their own pockets to cover these costs.
Now more than ever, contractors must ensure they are maximizing the fringe dollars. A fundamental shift in how they view fringes. As an advantage to their company and employees, instead of an expense or simply “meeting a requirement“.
Taking a different contracting approach to fringe benefits can free up a great deal of fringe dollars currently being wasted in costly, inefficient health plans. Contractors can improve contract profitability while increasing benefit offerings to employees.
Contractor’s Choice Voluntary Benefits Trust is the Nation’s first and only plan that allows for premium benefits like Life, STD, TRICARE supplemental and more to be paid for completely by fringe dollars.
By approaching fringes in a different manner, government contractors can increase profitability, lower costs and improve benefits. Not to mention having the flexibility to handle whatever changes the DOL implements next.
To learn more about maximizing fringe benefits, Contact Us.