Payment of fringe benefits on prevailing wage jobs frequently cause a lot of confusion – such as the question submitted below from a reader.
My boyfriend is being told that the company he works for will be taking half his pay each week to put in a 401k HALF!!! I wanted to know if this is legal—they say if he doesnt sign the paper he will be fired so it is mandatory. Is this legal? He is in construction and works for a prevailing rate. Thank you very much – Janelle
Hi Janelle
There may be some confusion and/or miscommunication going on here and NOT knowing the full details I can only provide you with basic information.
When an employee works on a prevailing wage job {rate job}, he has to be paid a specific dollar amount that is made up of two pieces – a base hourly rate of pay AND an hourly fringe benefit amount – which is usually comparable to what union employees are making. This rate is also usually more than what he is normally paid when working on other jobs; even when he is performing the same type of work.
Companies that work on prevailing wage jobs have various ways that they can pay the fringe benefit portion:
- If they are a Union Shop, they MUST pay the fringe benefit amount to the Union Hall on behalf of the employee
- If they are a Non-Union shop {which by the sounds is the type of company your boyfriend is working for} they have the option
- To pay the employees an hourly rate that is equal to the base rate PLUS the fringe rate {this means higher taxes for everyone}
- To put the hourly fringe rate into a bona fide plan {like a 401k} on the employees behalf {this means LESS taxes for everyone, the money still belongs to the employee {your boyfriend} but he can’t touch it until he retires {unless there are special provisions in the plan setup}
- To pay a portion of the FULL fringe benefit rate to a bona fide plan and then the balance in cash as part of the employees rate of pay
Yes, this is legal, and while it may “seem or feel” like the company is taking half of his paycheck, in reality he will be getting more money {even though he can’t spend it right away} when the fringe rate is put into a 401k.
More and more companies that work on prevailing wage jobs are opting to use the fringe portion of the prevailing wage to legally purchase bona fide fringe benefits, that they might otherwise not be able to afford to do, for their employees. In addition to putting the fringe dollars into an employee 401k they may also purchase health insurance for their employees and put the balance into a Supplemental Unemployment Benefit Plan {which is then used to pay employees for short work weeks}.
I contacted my good friends Jim Proffitt of Prevailing Wage Contractors Association and Steve Kuzmack of Fringe Benefit Experts and they both feel that companies should take the fringe benefit portion of the prevailing wage and purchase health insurance, establish pension plans, and then put the balance of the fringe money into a Supplemental Unemployment Benefit Plan.
Many companies are not familiar with a Supplemental Unemployment Benefit (SUB) Plan. Unlike a 401k or other pension plan; a SUB Plan pays you when you need it the most, while you’re not working or have missed some time. The SUB Plan can pay employees when they have a short work period, which is defined as working less than 40 hours in a week or less than 173 hours in a month. Short work periods can be caused by layoffs, bad weather, illness, lack of work, equipment down time or any number of reasons.
If you would like more information about Supplemental Unemployment Benefit (SUB) Plans please feel free to contact Jim, Steve, or myself – indicating that you found this information on our blog.
Take a look at this article on my blog that shows the difference between paying the fringe to the employee vs. putting it into a bona-fide plan – http://blog.sunburstsoftwaresolutions.com/2011/05/25/the-benefits-of-paying-prevailing-wage-fringes-to-a-bona-fide-plan/#.Tvx9Mo7330c
I hope you found this article to be helpful, if so please take a moment to either leave a comment or share this information on your favorite social networking site – prevailing wage laws and fringe benefits can be very confusing.
Payroll is a complex part of every bookkeeper’s job, new requirements for 2012 include showing company paid health insurance premiums on employees W-2′s; making things even more complex. See this question asked by a reader of our blog.
I have a question that I’ve been searching for an answer to, I’ve even asked our Tax Accountant about it. In 2012 it is mandatory that we show the company share of employee health insurance on W-2′s, do you know if there is there a way in QuickBooks to track this on a regular basis, so that it shows on the employees paystubs and then have it flow through onto the W-2 at the end of the year? Thanks, Kathleen S.
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Answer:
Hi Kathleen,
Yes, you can set QuickBooks up to track employer paid health insurance contributions, have those contribution amounts appear on employee pay stubs and then have the full yearly contribution appear on the employee’s W-2. I’ve been doing this for a long time – thankfully the QuickBooks payroll module is pretty flexible, the hardest part is the setup – and then the maintenance.
Important things to take into consideration prior to setting up QuickBooks to track this information – OR the planning stages:
- Health insurance premiums for all employees are usually paid on a monthly basis in one lump sum made up of a specific amount for each employee based on the type of plan or coverage each employee has. The chances are that you pay your employees more often than that – so you want to set up a method of tracking company contributions for health insurance based on how often you pay your employees – so that the contribution is done automatically for you when you run your payroll rather than having to “remember” to do something once a month.
- Will the company pay 100% of the cost of health insurance or will the employee also pay a portion through a payroll deduction?
- How many pay periods your company actually has during the year.
- When does your company health insurance policy renew?
- Will you also be using/taking credit for company paid health insurance against the full fringe benefit amount that must be paid when employees work on prevailing wage jobs?
We’ve put together a video demonstrating the required QuickBooks setup and a free Excel Spreadsheet for tracking the costs of 100% company paid health insurance.
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Information from the IRS regarding Employer Paid Health Insurance Reporting:
Employer-Provided Health Coverage — Not Taxable; Reporting is Voluntary for All Employers for 2011 and Small Employers for 2012
Starting in tax year 2011, the Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. To give employers more time to update their payroll systems, Notice 2010-69, issued last fall, made this requirement optional for all employers in 2011. IRS Notice 2011-28 provided further relief for smaller employers filing fewer than 250 W-2 forms by making the reporting requirement optional for them at least for 2012 and continuing this optional treatment for smaller employers until further guidance is issued. Notice 2011-28 also includes information on how to report, what coverage to include and how to determine the cost of the coverage.
The 2011 Form W-2 is available for viewing on IRS.gov. This is the W-2 that most employees will receive in early 2012. The form includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. {Currently, as of 12/12/2011, you will report Health Insurance Costs in Box 12 of the W-2 using code DD}.
This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable.
What types of health care coverage must be included in the amount reported on the Form W-2?
A. Employers are required to report the total cost of all “applicable employer-sponsored coverage” provided to an employee. For any employee, “applicable employer-sponsored coverage” is coverage under a group health plan that the employer makes available to the employee that is non-taxable to the employee (or that would be non-taxable if the coverage were employer-provided).
Certain types of coverage are excluded from the definition of applicable employer-sponsored coverage and are not included in the amount reported. These types of coverage are:
- coverage only for accident, or disability income insurance, or any combination of these coverages;
- supplemental liability insurance;
- liability insurance (including general liability insurance and automobile liability insurance);
- workers’ compensation or similar insurance;
- automobile medical payment insurance;
- credit-only insurance; and
- other similar insurance coverage specified in regulations, if the benefits for medical care are secondary or incidental to other insurance benefits.
In addition, employers should not include the following amounts in calculating an employee’s total cost of coverage:
For additional information on this topic, visit these links:
- Affordable Care Act Tax Provisions - http://www.irs.gov/newsroom/article/0,,id=220809, 00.html
- 2011 Form W-2 - http://www.irs.gov/pub/irs-pdf/fw2.pdf
- IR-2011-31 - http://www.irs.gov/newsroom/article/0,,id=237870,00.html
- Notice 2010-69 http://www.irs.gov/pub/irs-drop/n-2010-69.pdf
- Notice 2011-28 http://www.irs.gov/pub/irs-drop/n-11-28.pdf
- Employer-Provided Health Coverage Information Reporting Requirements – Q & A - http://www.irs.gov/newsroom/article/0,,id=237894,00.html
- IRS YouTube Video – Health Care: W-2 Health Insurance Reporting - http://www.youtube.com/watch?v= TFepqFnEj5I&feature= youtu.be
- IRS Webinar - Reporting of Employer Healthcare Coverage on Form W-2 - http://www.irsvideos.gov/ReportingEmployerHealthcareCoverage/
- New Info added 1/3/2012 – IRS Notice 2012-09 – http://www.irs.gov/pub/irs-drop/n-12-09.pdf – Interim Guidance on Informational Reporting to Employees of the Cost of Their Group Health Insurance Coverage
We hope that you’ve found this post informative, if so please take a moment to leave a comment or share it on your favorite social network.
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Update 12/16/2011 – Intuit Releases Payroll Update 21201
Late yesterday afternoon Intuit released Payroll Update 21201, which includes revised tax tables and several form updates. Included in this update is the option for reporting Health Insurance under Code DD on employee W-2′s.
When creating or editing an existing Company Contribution item type for Employer Paid Health Insurance, when you get to the Tax Tracking Type window, from the drop down list, select Health Coverage Cost, as shown in the screenshot below:
Right click on the image to enlarge it
We will be updating our video by the first of the year to reflect the actual selection of the correct tax tracking type.
A QuickBooks for contractors tip about receiving and applying joint checks from a general contractor to pay a lower tier subcontractor or material supplier for work completed or materials on a construction project.
Quite frequently, in the construction industry, a contractor will receive a joint check from a General Contractor to pay their lower tier subcontractors or material suppliers for work completed and/or materials delivered to the construction project’s job site.
Unlike many high-end construction accounting packages, QuickBooks doesn’t have a way to handle this automatically — or easily.
This QuickBooks for contractors tip provides what we consider to be a best practice when a situation like this arises.
Problem:
Your company, Sam Subcontracting, received a $10,000.00 joint check from Joe’s General Contracting; which is made out to both your company AND O’Fallen Gravel {your Vendor/Material Supplier} who delivered sand, gravel, and crushed rock to a jobsite. The $10,000.00 was included in your most recent invoice totaling $45,000.00 that you sent to Joe’s General Contracting AND you have a $10,000.00 invoice from O’Fallen Gravel in Accounts Payable. Amy, your bookkeeper, isn’t sure how to correctly receive this payment against your own Accounts Receivable AND correctly apply this payment to your Accounts Payable.
Solution:
When Amy is ready to receive the payment against the invoice issued to Joe’s General Contracting AND record the payment to O’Fallen Gravel, she should do the following:
- Verify that she has a special “Clearing” Account in her QuickBooks Chart of Accounts that is a “Bank” type – if one does not exist she should create it by going to the Lists menu -> Chart of Accounts -> Account -> New -> Type = Bank -> Continue -> Account Name = Clearing -> Save & Close.
Right click on the image to enlarge it
- Click the Receive Payment icon on the QuickBooks Home Page – OR – from the Customers menu -> choose Receive Payments. Received From = Joe’s General Contracting -> Amount = $10,000.00 -> Date = Current Date -> Pmt. Method = Check -> Check # = Check Number -> Memo = Joint Check issued to O’Fallen Gravel -> Deposit to = CLEARING ACCOUNT. Click Save & Close.
Right click on the image to enlarge it
- The balance in the Clearing Account should now be $10,000.00.
- Click the Pay Bills icon on the QuickBooks Home Page – OR – from the Vendors menu -> choose Pay Bills. Choose the O’Fallen Gravel bill -> Method = Check -> Select Assign check number -> Account = CLEARING ACCOUNT.
Right click on the image to enlarge it
- Click Pay Selected Bills.
- In the Assign Check Numbers window – enter the number of the check that you received from Joe’s General Contracting.
Right click on the image to enlarge it
- Click OK
- The balance in the Clearing Account should be 0.
Make sure that you also have the proper Lien Waive and Release forms.
We hope you found this QuickBooks tip to be useful — if so please take a moment to leave a comment, share it on your favorite social media site or click the +1 button below.
Top 10 Tuesday includes our favorite tips and news stories from around the web. This week there are some important articles for you to read and information to be aware of, split out into the following categories:
QuickBooks News
- QuickBooks and Your Business – What to do When QuickBooks is (Not Responding)
Tax News
- Accounting Today for the WebCPA – IRS Re-examines Unpaid Employment Taxes
Construction News
- Georgia Construction Law Blog by Cobb Law Group – Some bad news for Georgia Lien Claimants!
- Conklin Roofing Systems – Your Estimate Can Cost You Credibility
- Architectural Records – AIA Creating Database of Stalled Building Projects
Business, Social Networking, Customers & Websites
- Intuit Small Business Blog – Catch Me If You Can-Style Check Fraud Continues to Plague Small Business
- Darren Slaughter – Contractor Marketing Tips for Better Lead Generation
- The New York Times Small Business blog – What If You Suspect an Employee is Undocumented?
- Accounting Today for the WebCPA – Defining Documents – Picking Workflow and Document Management Solutions Starts with knowing What They Are – And What They Do
- Stepcase Lifehack – 13 Strategies to Jumpstart Your Productivity
Well there you have it, these were our top 10 most interesting articles that we found on the web last week – do you have an article that you’d like to share?
Have a great week!
5 certified payroll reporting mistakes that will cause delayed payments – learn how to avoid them.
Filling out weekly certified payroll reports can be a time-consuming and frustrating task, especially if you complete them by hand or have to manipulate data in order to create them. Transposition errors and other mistakes are bound to happen, no matter how careful you think you are being. Making mistakes on certified payroll reports will lead to more frustration and you’ll end up spending more time correcting the errors; mistakes will also put your company’s good standing in jeopardy with the General Contractor or Project Administrator.
Certified Payroll/Prevailing Wage reporting can be complex and varies by state. Learning how to avoid the following mistakes and submit the reports properly the first time will benefit you and your company.
- Your reports are rejected as inadequate or incomplete – you may not have submitted the proper form or some of the required information is missing. You’ve been told that you need to correct the forms and resubmit them by a new deadline or your company, and the General Contractor, will have to wait longer to receive payment. Delayed payments have a negative affect on everyone’s cash flow. The Labor Standards Clause of the final contract (and the bid package) for each job usually provides you with a sample of the certified payroll reporting form that you will be required to submit; it will also inform you if you are required to file your reports electronically.
- You didn’t pay your employees prevailing wage and you didn’t submit certified payroll reports - you’ll need to make wage restitution to your employees to bring their rate of pay up to the prevailing wage rate required on the job and then you’ll need to submit ALL of the certified payroll reports within 30 days from the time that the General Contractor was notified. Payments to both your company and the General Contractor can be delayed. The requirement to pay prevailing wages and submit certified payroll reports is included and usually discussed in the Labor Standards Clause of the bid package and the final contract.
- You didn’t pay your employees the rate of pay listed in the Wage Decision – you’ll need to make wage restitution to your employees, provide proof of the wage restitution, and submit corrected certified payroll reports within 30 days from the time that the General Contractor was originally notified. A Wage Decision is a listing of all the different Work/Trade Classification and minimum wage rates (base PLUS fringe) that must be paid to anyone performing work on the jobsite. Some Wage Decisions cover several counties and/or types of construction (residential and commercial) and can be difficult to read – in instances such as this, the Contract Administrator may prepare a Project Wage Rate Sheet or issue a Wage Bulletin, which will only show the Work/Trade Classifications and wage rates for a specific project. The Wage Decision is found in the Labor Standards Clause of the bid package and the final contract.
- Your employees Work Classifications do not match those listed on the Wage Decision – you’ll need to correctly classify your employees according to the Work/Trade Classification found on the Wage Decision, and quite possibly make wage restitution to your employees. You’ll need to provide proof of any wage restitution, if applicable, and provide corrected certified payroll reports within 30 days from the time that the General Contractor was originally notified. Each employee must be classified and paid accordingly, based on the type of work they are performing. If the Wage Decision doesn’t contain the correct Work Classification; a written request must be submitted. The written request must identify the Work Classification that is missing, recommend a wage rate, and provide a description of the actual work being performed. This written request should be submitted/discussed at the bid qualification meeting.
- Your reports have incorrect computations, unclassified “Other Withholdings”, or do not indicate how the fringe benefit portion of the prevailing wage is paid – you will need to submit corrected reports within 30 days of the date that the General Contractor was originally notified. While these items may seem trivial, they are all part of the requirements of certified payroll reporting. Always check the “math” on the final reports before submitting them, for example, the Federal WH-347 certified payroll report should match the employees paycheck exactly for gross wages ALL jobs, withholdings and net wages paid for the week, even if you use a software program to generate your reports you should verify that these numbers match before you submit the reports.
Learning to avoid these mistakes is in your best interest because will you avoid extra paperwork and be paid in a timely manner.
If you are manually creating the reports or having to manipulate large amounts of data to generate the reports, you aren’t saving any time (or money) and need to automate the process in order to eliminate the transposition errors and save valuable time that could be better spent on other tasks. I see many QuickBooks users discussing on the Intuit forums how they generate the built-in QuickBooks certified payroll report and either manually make corrections or print the report and then enter that data into a fillable Federal or State Specific certified payroll report on a weekly basis.
Make sure that you have thoroughly reviewed the Labor Standards Clause of the bid package AND the final contract package and provide your payroll administrators with the information that they need to correctly pay your employees. If you continue to submit incorrect certified payroll reports you will be in violation of certified payroll reporting requirements and this can mean that you will be disbarred; not allowed to bid on or perform work on prevailing wage projects for up to 3 years. Additionally, you may be passed over in favor of another company (even if you do top quality work) if you have a “checkered past” in meeting the reporting requirements.
Wage Restitution is the difference between what the employee should have been paid (base PLUS hourly fringe) and what they were paid.
If you are new to certified payroll reporting requirements, sign up for a 2-hour Certified Payroll Reporting Training webinar, $69.00 per person.
If you use QuickBooks and want to automate the entire certified payroll reporting process, request a Free 30-Day Trial of Certified Payroll Solution.
