EP 1180-1-1
1 Aug 01
Example: Assume the SUT rate is 2% (.02), the SU cap is ,000 and an employer's
WD rate for a classification increased from .00 per hour to .50 per hour. For an
Employee working 40 hours per week and earning only the minimum rate required by
the WD, the cost to the employer would increase by .80 for the year ($.50 x 2080
hours x .02). If the cap was ,000, then the cost to the employer would be .40
(,000 [cap] less ,480 [amount earned in prior year] x .02).
(3) Workers compensation insurance (WCI). WCI rates vary for each state, and for each contractor
according to the nature of their business, compensation claim history, and employee classification. There
is usually no ceiling or cap. The claim may include an amount for WCI applicable to the wage adjustment.
In some states, WCI is expressed as an hourly rate, not as a percentage of wages. No adjustment would
be allowable since the SCA or FLSA wage increase would not cause a related increase in the
contractor's WCI cost. Again, the CO verifies the applicable WCI rates by contacting the state
employment tax office, or by requesting documentation from the contractor.
(4) Taxes applicable to fringe benefits. Generally, payments made by contractors into legitimate SCA
fringe benefit plans are not subject to the application of payroll taxes (FICA, FUT, SUT or WCI) as are
wages. Typically, such payments are premiums on health or life insurance policies or plans. If the revised
WD increases the health and welfare requirement under SCA, and the contractor elects to provide this
increase in premiums paid to a legitimate plan, the adjustment for this benefit should not include payroll
taxes because they do not necessarily apply to that payment. If the contractor pays the SCA-required
fringe benefits direct to the employees in the form of wages or cash, such payments are subject to payroll
taxes and any adjustment to the benefits thus paid would include an adjustment for the accompanying
taxes. If the claim includes payroll taxes on fringe benefit increases, the CO should question the manner of
benefit payment.
d. General and Administrative Expenses, Overhead, and Profit. General and administrative
expenses (G&A), overheads, and profit are not allowable as part of the SCA contract price adjustment.
Increases in general liability insurance and bonding costs are also not allowable as part of the SCA
adjustment.
e. Employee reimbursements. Employer expenses reimbursed to the employee by the contractor,
such as payment for fuel, mileage, meals, lodging, and uniform allowances, are not considered
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