What to do when SCA Employees don’t want Fringe Benefits?

Posted in: Employee Benefits

If you have a population of Service Contract Act (SCA) employees, your business likely faces a unique challenge when it comes to offering employee benefits. For an SCA employee, a certain dollar amount for every hour worked must be set aside for their SCA fringe benefits rate—money allotted to their health and welfare benefits.


While some employees happily accept the SCA fringe benefits offered, you can allow SCA employees to waive coverage if they already have qualified group benefits via a spouse (and can provide documentation), Tricare, retired government etc. Individual Health Plans should not be a valid waiver. This can create a problem, because the money accrued for an employee’s fringe rate still has to be allocated appropriately to an employee who opts out of the fringe benefits offered. When one of your SCA employees opts out of benefits, your business left with funds assigned to that employee that MUST be used for specific benefits.

Another scenario that can create challenges for employers is the employment of seasonal SCA employees. Since this population is perpetually going on and off payroll, benefits would also be offered intermittently.


What choice does your business have then for employees who choose to opt out of the employer-offered SCA fringe benefits, or for seasonal SCA employees? Many employers look to solve the problem by offering cash in lieu of benefits, but for various reasons, we do not recommend the approach of handing your SCA employees a lump sum of funds to use however they please. Also, the Affordable Care Act mandates that employers with 50 or more employees offer health benefits or face fines. While this can be a tricky population to handle regarding laws and requirements for benefits, you do have some options outside of offering cash-in-lieu of benefits. Here are my recommendations: 

  1. SCA employees who opt out of employer-offered SCA fringe benefits

    Athe employer, you are the executor of the funds, and you have the discretion to decide how the fringe benefit is allocated to employees. To keep things simple—don’t give employees a choice in this matter. If an employee chooses to opt out of the offered medical plan, one solution is to have the money from the fringe benefits automatically allocated and distributed via a separate, employer-set-up 401k or 401a account. 

  2. Seasonal SCA employees going on and off payroll/benefit plans

    Your business can setup an Individual Premium Reserve (IPR) that deposits a small portion of the fringe rate as a reserve. This small fringe amount set aside allows employees who are seasonal/not working to pay for their benefits through the IPR, rather than allowing them to intermittently participate in the employer-sponsored health plan, which would be more challenging to manageIt should be noted that the IPR is generally only an effective solution if the seasonal work interruption is a short period of time and that the employees will typically come back to work. 

If you employ SCA employees, whether full-time or seasonal, it’s paramount that you have a clearconsistent policy surrounding the handling of fringe benefit funds. If you have questions about fringe requirements for your SCA population, or you need help implementing creative solutions for allocating your fringe benefit funds to SCA employees, please reach out to me at jrast@psafinancial.com.