Navigating the Complex Mandates of the DBA, the SCA, and the ACA
The Davis-Bacon Act of 1931, as amended (“DBA”) applies to contractors and subcontractors performing federally funded or assisted contracts of more than $2,000 for construction projects or the alteration or repair of public buildings or public works. Under the DBA, employers are required to pay laborers and mechanics an amount equal to what other laborers and mechanics would receive in wages and fringe benefits for similar projects in the local area. In 1965, Congress passed the McNamara-O’Hara Service Contract (“SCA”). The SCA requires general contractors and subcontractors performing services for the federal government or the District of Columbia in excess of $2,500 to pay service employees in a variety of different classes at least the prevailing wage rates and fringe benefits found in the local area or rates (including prospective increases) contained in a predecessor contractor’s collective bargaining agreement. Services for SCA purposes include, but are not limited to, security and guard services, janitorial services, and cafeteria and food services. Under the DBA and the SCA, employers may satisfy any fringe benefit requirements by paying a cash equivalent of the applicable fringe benefit.
In 2017, the Affordable Care Act (ACA) imposed yet another requirement on employers. Although ACA does not mandate additional wage requirements on employers, it does, under the Employer Shared Responsibilities provision, require certain employers, identified as applicable large employers (ALE’s), to: (i) provide their full-time employees with affordable health coverage that provides minimum value, or (ii) make an employer shared responsibility payment to the Internal Revenue Service (IRS) if it does not offer a health plan and one full-time employee purchases health insurance through the marketplace and receives a premium tax credit.
The provisions of the DBA, the SCA, and the ACA can be confusing and frustrating for employers trying to navigate the maze of benefit requirements mandated by such laws. Some of the issues facing employers struggling to meet the requirements of the DBA, SCA, and ACA include:
- Whether an employer is required to furnish an employee with cash or another fringe benefit under the DBA or the SCA if that employee declines health care.
- Whether the health plan mandate under the ACA is considered a legally required benefit under Federal or state law. Such a scenario would preclude an employer from receiving a credit towards its fringe benefit obligations under the DBA or the SCA. For example, payments for worker’s compensation benefits cannot be credited by an employer towards its fringe benefit obligations under the DBA or the SCA.
- Whether an employer may receive credit toward its fringe benefit obligations under the DBA or the SCA for any shared responsibility payments it makes under the ACA.
Because the DBA, the SCA, and the ACA are distinct laws, the Department of Labor requires that employers fulfill the mandates under each law without regard to the others. Fortunately, the DOL has provided guidance on the issues outlined above:
No, an employer’s fringe benefit obligations are not alleviated under the DBA or the SCA simply because an employee declines health care coverage.
The DOL has stated that because an employer may choose how it satisfies its fringe benefit obligations under the DBA and the SCA (unless subject to a collective bargaining agreement), it controls whether an employee will be given the option to decline or accept the health plan. As such, if an employer decides to provide its employees with the option of declining health care coverage, and an employee opts to do so, then the employer must still satisfy its obligations under the DBA or the SCA and provide the employee either cash or another bona fide fringe benefit.
Yes, employers may continue to take credit for their contributions to a health plan as required under the ACA.
The DOL has advised that the ACA’s health plan requirement is not a legally required benefit because the employer has the choice of providing the health plan or making a payment to the IRS. Therefore, employers may continue to take the DBA or the SCA credit for their contributions to qualifying health plans.
No, an employer liable for the shared responsibility payments under the ACA may not use the payment as a credit toward its fringe benefit obligations under the the DBA or the SCA.
Because an employer’s shared responsibility payment does not confer a benefit to the employee, the payment of the shared responsibility payment is not creditable to an employer’s fringe benefit obligation under the DBA or the SCA.
For specific questions regarding the interplay of the DBA, the SCA, and the ACA, contact Hall Benefits Law.
Thank you to Laura Delavan of Sterling Risk Advisors for suggesting this article topic.