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Cyndy

Hazardous Pay Differential and Contracting Pricing

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We are putting a proposal together for an SCA H&W FFP contract, that has hazardous pay differential applied to a greater portion of the hours. I think that we need to use the hazardous pay in our fringe calculation, and that overhead, G&A and fee should also be applied to it for the proposal. It will be awarded as a FFP contract with only 2 clins Labor and travel. According to the Secretary of State website “danger pay allowance shall be included in gross income for Federal income tax purposes”, therefore I think FICA taxes should be applied to it, hence its inclusion in the fringe calculations. There is a different opinion in the office that “Hazard Pay does not affect  the fringe rate, and we do not pay FICA on it. They suggest it is simply an “add on”. In other words they say it’s like an “ODC in Reverse”, we bill for it, the customer pays us and we pass it along to our employees. The cost of doing this invoicing and distribution is paid for in our G&A.” I don’t even understand what they are talking about. It’s going to be FFP, so we can’t bill it as an add on. This will be wages to the employee (who is not  a military member, so those special military hazard pay rules don’t apply here) and I feel FICA both employee and employer portions apply. So my questions are how do we handle this hazard pay in our proposal? Does it affect our fringe rate? Can we apply overhead, G&A and fee to it? Your help is appreciated. I’m lost on this one.

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I'm not going to tell you whether or not FICA taxes are applied to uplifts. That's a job for an employment tax lawyer. If you are not getting your position from an employment tax lawyer, you are likely getting a wrong position.

However, I am comfortable discussing whether overhead, G&A, and/or Profit should be applied to your uplifts. The answer is: it depends. It depends on (1) what your allocation base used for overhead is; (2) what your G&A expense allocation base is; and (3) whether or not you want to propose profit on the uplifts. Your company needs to decide what its answers are and then follow them consistently.

There is no "right" answer. There is only what your company elects to do. For example, treating uplifts as a component of direct labor dollars may reduce your overhead and G&A expense rates (assuming they are allocated on direct labor dollars). On the other hand, if you don't allocate G&A expense to ODCs, then treating uplifts as if they are ODCs may make your proposed costs lower than they otherwise would be.

If you have multiple contracts in hand, then the answer(s) to the questions facing this proposal may impact revenue/earnings from those contracts, and needs to be considered. For example, if you lower your G&A expense rate by adding uplifts into the G&A allocation base, then your FFP contracts are going to get cheaper and you will earn extra margin on them.

Figuring out the right strategic answer for your company is not a quick and dirty discussion. It's a shame your company had to wait until it was preparing its cost estimate to address the issue.

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Actually here_2_help, that was really helpful. I've inherited this position and am still feeling my way around. Your comment on both the FICA and the other indirect rates pointed me in the direction within our own system to see where the answer lied. I think I was just flustered by the thought of hazard pay, that it through me for a loop and I wasn't thinking clearly. They actually have hazard pay already setup within the system, and knowing my predecessor knew what she was doing I felt confident once I found the answer it was the right one.  I went to the location where our allocations were set up for the second answer. The answer was right in front of me the whole time, I just forgot where to look for it. Thank you for your assistance

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“Here to help” is a very apropos moniker...

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2 hours ago, joel hoffman said:

“Here to help” is a very apropos moniker...

Yeah:

 "I'm from Headquarters. I'm here to help."

"I'm so glad you're here!"

Two lies.

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Hey, Im not lying...😀

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