Many employers have analyzed whether it's more cost effective to provide medical insurance for their workers or to pay the penalties assessed if they do not. When you look at the numbers, there's no comparison. By offering bona fide fringe benefits, employers not only save on payroll taxes but also avoid costly penalties for non-compliance with the Affordable Care Act (ACA).
Many contractors currently pay the fringe as additional cash wages, thinking it's the easiest way to comply with prevailing wage requirements. But doing so results in a significant loss of savings on payroll burden. This is because every dollar used to provide “bona fide” fringe benefits is exempt from assessments such as FICA, FUTA, SUTA, general liability insurance and, in most states, workers compensation insurance. Over the life of a contract, this can add up to hundreds of thousands of dollars saved.
There is an additional cost for paying the fringe as additional cash wages: penalties for failure to comply with the law. Contractors with 50 or more full-time equivalent employees face per-employee fines if they do not offer compliant coverage under the ACA's employer mandate.
As of 2026
The ACA's employer shared-responsibility mandate has been in effect since 2015 and remains law; the original penalty figures ($2,000 / $3,000 per employee) and the 9.5% affordability threshold are indexed and change annually. The individual-mandate penalty was reduced to $0 in 2019. Confirm current-year figures with your compliance advisor.