What are Bona Fide Fringe Benefits?

Providing SCA Approved Bona Fide Fringe Benefits is an Employer’s Responsibility

Your employees are your greatest assets and for them to function well beyond their expected duties, you must also take good care of their basic needs. How you package your employee benefits can make or break your employee’s performance and loyalty to you and your company.

The Service Contract Act (SCA) determines a set of service employee benefits known as fringe benefits, which include the following: medical and hospital benefits, retirement benefits, death benefits, life and disability insurance among others.

An employer may transfer his responsibilities and obligations in providing SCA fringe benefits to his employees. The employer must pay the specified fringe benefit contributions through a trustee or a third party fringe benefit expert, for a bona fide fund, plan, or trust on behalf of the covered employees. These plans can be life or health insurance, pension plans, and retirement plans, among others.

What are the criteria to have a bona fide fringe benefit plan?

  1. The fund or program must be communicated in writing to covered employees.
  2. The plan’s main purpose should be to provide payment of benefits to covered employees in the event of death, disability, old age, retirement, illness, medical expenses, hospitalization, supplemental unemployment benefits, and others.
  3. The amount to be contributed by the contractor must follow a definite formula, as well as the benefits of the employees covered by the plan.
  4. Employees can make additional contributions through payroll deductions, but this should not be used by the employer to satisfy his SCA fringe benefit obligation.
  5. The contractor’s contribution must be paid to a trustee or a third party, at least on a quarterly basis.

What are not bona fide fringe benefits?

The following are not considered bona fide fringe benefits:

  1. Plans and trusts not approved by the Internal Revenue Code and do not meet the requirements of the Employee Retirement Income Security Act of 1974.
  2. Other federal law required employee benefits, such as social security and unemployment compensation.
  3. Boarding and lodging of employees, as well as other facilities which are credited to the salaries of the employees.
  4. Expenses and facilities which are for the benefit of the employer or the contractor such as relocation expenses, travel and transportation expenses needed for employment, incentives, bonuses, tools and materials, furnishing costs, laundering, and maintaining of employee gears which are required by their respective jobs. These are considered business or operating expenses of the contractor.
  5. Contributions by contractors for social functions such as employee birthdays and anniversaries, employee rest and recreation rooms, paid coffee breaks, magazine and journal subscriptions, and accredited professional organization fees and dues.

Hire reputable fringe benefit experts to come up with SCA approved fringe benefit plans for your employees!

ARCHER JORDANn is made up of a team of fringe benefit experts and technology experts who can design SCA approved fringe benefit packages for your employees. We can help you save in payroll and worker comp taxes, and maximize employee benefits - all while ensuring that you are in compliance with state and federal laws.

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