[Guest Blog] Benefits and Pay Issues for Government Contractors

Guest Blog

Every now and again we like to have guest bloggers talk about the nitty-gritty stuff Reading Rainbow style. ("You don't have to take MY word for it!")  We've got another guest blog that you should find helpful, especially if you're in the GovCon (Government Contracting, for those not in the know) world. Alan Luba of Human Resources Consultants LLC is weighing in here on some of the more common issues with benefits and pay. You can reach him at alanluba@verizon.net should you have more questions.


During my more than 30 years as an HR Executive with government contractors and as an HR Consultant to many companies in this industry, I’ve seen a lot of simple and complicated benefits and pay issues. I’m still amazed at some of the complicated ones, and, especially the simple ones that are made complicated by employers working with bad assumptions and/or too little valid information. A couple of these are:

Benefits Eligibility

I’m still amazed that some employers, gov con’s in particular, are not aware that if they want their health and welfare employee benefits plans to maintain their “qualified” status – that is, funded through pre-tax premium deductions – they must include all eligible employees – or, all full-time employees, defined as anyone working at least 30 hours per week, as of Jan 1 2015 for most companies. I still see employers who try to lower their fringe rate by arbitrarily – and incorrectly – excluding some highly compensated, exempt people from these plans. The liabilities here include:

  • loss of “qualified” status and subsequent loss of the pre-tax premium benefits for employees, which, is not a really good move to enhance employee relations,
  • complaints by employees which may lead to investigations by DCAA, the Dept of Labor or the IRS,
  • damage to the employer’s competitiveness in the labor market, and, last but not least,
  • Non-compliance with the Affordable Care Act starting next year.

While this focus on lowering the fringe rate, and therefore the bid rate, may look good on paper, the potential liabilities can cost more than this practice is worth. HR can contribute here by closely monitoring benefits utilization and by working pro-actively with good benefits brokers and providers to plan for the long term.

Exempt – Non-Exempt

And it still amazes me that some employers, again, especially within the gov con community, mis-classify employees in terms of their eligibility for overtime pay.

Let’s be clear, no employer can arbitrarily make these decisions. The federal Fair Labor Standards Act (FLSA) and the subsequent supporting regulations established by the Department of Labor, the IRS, and by federal courts, are the governing factors. The boss can’t decree that everyone in the company is Exempt from receiving overtime pay, in order to save money (bid rate – see above!). Mis-classification may result in a time consuming IRS audit of your last three years of payroll records, and fines, penalties, back pay, and more.

So, make sure that your HR Department has reviewed all of your labor categories and recommends the appropriate classifications. This is how to save money!