There is no shortage of differing opinions regarding the Affordable Care Act (ACA). One thing most people agree on is that the ACA has unleashed a sea of confusion for employers, individuals and industry professionals.

For smaller contractors—those with fewer than 100 full-time employees and full time equivalents (FTEs)—the flood of information about the ACA can be overwhelming. Many business owners are unsure exactly which provisions (if any) apply and when they take effect. While contractors of this size are aware of the law and want to comply, many don’t know what questions to ask when it comes to understanding how the ACA might affect them.

With that in mind, following are four questions smaller contractors should ask about the ACA.

1. Am I Subject to the Employer Shared Responsibility Requirements?
This is the first and most important question. It may seem simple, but determining the answer can be quite complicated. While the employer mandate took effect Jan. 1, 2015, for Applicable Large Employers (ALEs) with 100 or more full-time employees and FTEs, for most employers with 50 to 99 full-time employees, it takes effect Jan. 1, 2016.

Determining the number of employees and FTEs can be extremely complex, particularly for construction employers with workers whose hours can fluctuate wildly from week to week. The ACA considers a full-time employee to be anyone who is employed, on average, for at least 30 hours of service per week or 130 hours of service per month. For hourly employees, the employer must use actual hours of service and hours for which payment is made or due, including paid time off. Hours worked must be obtained from records kept for payment purposes. 

The ACA defines “variable hour” employees as employees for whom it cannot be reasonably determined upon hire if they will average 30 hours of service per week. Determining whether workers should be classified as full-time employees or FTEs involves measurement periods, administrative periods and possibly stability periods, all outlined in the regulations.

Employers need to be especially cautious about ensuring they count employees correctly. Miscalculations can expose an employer to fines for failure to offer coverage.

Contractors should be tracking hours worked by employees now in order to determine whether the ACA applies to them starting Jan. 1, 2016. Contractors that wait until December to make the determination will find themselves way behind and have a much tougher time maintaining compliance and avoiding penalties.

2. Should I Pay or Play?
Some contractors may think paying the fines for noncompliance is an acceptable, less costly alternative to offering coverage to their full-time employees and dependents. But after running the numbers, most will come to a different conclusion, particularly if they do prevailing wage work.

Using the fringe portion of the wage to provide benefits, including health insurance, to workers on prevailing wage projects entitles the employer to remove fringe dollars from payroll. This exempts those dollars from assessments such as FICA, FUTA, SUTA and, in most states, workers’ compensation and general liability. A conservative estimate is that these assessments add 25 cents for each dollar paid as additional cash wages instead of used to provide fringe benefits. In addition to health insurance, fringe benefit dollars can be used for dental, vision and life insurance, as well as allocated to retirement plans.

Contractors that bid on public works projects should consider how the loss of these potential savings—as well as losses created by paying ACA penalties for non-compliance—will affect their bids. Competition for government contracts is fierce, and most contractors can’t afford not to take advantage of every opportunity to reduce costs.  

While a good rule of thumb is that contractors for whom prevailing wage work makes up 25 percent or more of their annual business are better off complying with the mandate, it makes sense to run the numbers and calculate the potential impact on the bottom line.

For any contractor, deciding to “pay” can be a risky strategy. There’s a good chance noncompliance with the employer mandate will be a red flag that prompts officials at the Internal Revenue Service and Department of Labor to investigate whether an employer is in violation of other laws.

3. If I Decide to Play, How Do I Track the Hours and the Fringe?
A related issue that complicates matters for prevailing wage contractors is the move toward age-banded rates. With this change, it’s possible that employers will see different costs of coverage for every single employee. Trying to track all the different rates and take credit against the fringe can be an administrative nightmare.

However, prevailing wage contractors that partner with a benefits provider that offers hour banking will find the task much easier. Hour banking breaks the insurance cost into one hourly rate, making it much easier to track and take proper credit for using fringe dollars to provide benefits. The hourly rate developed in an hour bank scenario can be inclusive of multiple lines of coverage (i.e., a single rate that takes into account major medical, dental, vision and life insurance plans).

4. Does Our Coverage Meet ACA Requirements for Minimum Value and Affordability?
To meet the definition of “minimum value,” the plan must pay at least 60 percent of the costs incurred by the participant and his or her beneficiaries. For employers with fully insured plans, the carrier is responsible for ensuring that the plan meets this criteria. Firms with self-funded plans should confirm with their third-party administrator that their plan is in compliance. To meet the ACA criteria for affordability, the employee’s cost for single-only coverage generally cannot exceed 9.5 percent of that employee’s household income.

The best course of action smaller employers can take to determine whether the employer mandate will apply Jan. 1, 2016—and how to comply if it does—is to work with a partner that can provide education regarding the provisions and assistance with designing a health plan that benefits both the employer and the employees. Work with a broker to find a third-party administrator that specializes in prevailing wage benefits for government contractors. Finding the right partner to help with compliance will allow contractors to spend more time focusing on managing and growing their business. 


Adam Bonsky is executive vice president of government markets for Fringe Benefit Group, ABC’s Strategic Partner for Ethics & Compliance. For more information on its prevailing wage benefit plan, The Contractors Plan, and bidding on government jobs, call (512) 827-5300, email abonsky@fbg.com or visit thecontractorsplan.com