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.
The benefits of paying the Prevailing Wage Fringe Benefit portion to bona-fide plan is often misunderstood by employers and employees alike.
Prevailing wage jobs, those jobs that are subject to the Davis-Bacon Act and/or State Prevailing Wage Laws, require that all laborers and mechanics {including tradesmen such as carpenters, equipment operators, painters, pipefitters, plumbers, etc.) who perform work on the jobsite are to be paid a set base rate of pay PLUS an hourly fringe benefit rate.
Union contractors automatically pay the total hourly fringe benefit rate to the union hall on behalf of the employee, usually splitting the full hourly rate into specific “funds” – Health & Welfare, Pension, Vacation, etc. When this happens the Union contractor doesn’t pay payroll taxes, worker’s compensation, or general liability insurance on this amount.
Non-Union contractors, on the other hand, can pay the fringe benefit rate to the employee in addition to the stated base rate of pay OR they can pay it into a bona-fide plan on behalf of the employee.
We’ll look at the differences and discuss the benefits to both employees and employers.
In the following examples we’ll be working with a base rate of $41.51, fringe rate of $18.72, a Worker’s Comp experience rate of $10.70 per hundred dollars in wages, and a General Liability Insurance Experience rate of $0.636 per hundred dollars in wages and a standard 40 hour work week.
When the fringes are paid in cash – included in the employees base rate of pay
As an employee you are paid $60.23 per hour ($41.51 + 18.72) x 40 hours = $2,409.20 gross with a net of $1,512.38. As an employee you are paying $896.82 in taxes – see sample paycheck below:
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As an employer you pay $560.99 in payroll taxes, worker’s comp and general liability insurance in addition to the $2,409.20 gross wages for a total of $2,970.19 to have the employee on the jobsite for 40 hours.
When the fringes are paid to a bona-fide plan on behalf of the employee
As an employee you are paid $41.51 per hour x 40 hours = $1,660.40 gross with a net of $1,101.47 PLUS $748.80 is contributed to the bona-fide plan on your behalf for a total of $1,850.27. As an employee you are paying $558.93 in taxes {in reality that is a savings of $337.89 in taxes) – see sample paycheck below:
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As an employer you pay $1,135.96 in bona-fide plan contributions, payroll taxes, worker’s comp and general liability insurance in addition to the $1660.40 in gross wages for a total of $2,795.86 to have the employee on the jobsite for 40 hours – that’s a savings of $174.33.
Many employers and employees are rightfully cautious about the cost of setting up a bona-fide plan. Many times setting up a traditional 401(k) or 403(b) plan is costly (one customer recently told me that it would cost them $5,000.00 to initially set up the plan) and then the employees must wait until legal retirement age before being able to start withdrawing the money.
The Supplemental Unemployment Benefit Plan (SUB Plan) offered by Prevailing Wage Contractors Association (PWCA) has a start up cost to the employer of $200.00; and provides employees access to the money when they need it most – when they are not working or have missed some time. The SUB Plan can be used to pay an employee when he has a short work period; which is defined as working less than 40 hour 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.
For additional information about the SUB Plan offered by PWCA, visit their website – or contact Nancy Smyth.
Taking a credit against the full prevailing wage fringe benefit for company paid 401k contributions and reporting it correctly on the Federal WH-347 Certified Payroll Report can be very confusing. This question was asked by a reader who recently requested our 4 Ways Contractors Pay Prevailing Wage Fringe Benefits eBook.
We are a non-union shop working on prevailing wage jobs; our Company offers a 401k plan and the company contributes 4% of our employee’s gross wages to the 401k. We understand that the 401k plan is considered a bona-fide plan, but how do we take an hourly credit when our contributions are based on a percentage of gross? Currently we just look at an employee’s gross wages for the month and make the calculations and contributions.
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Taking a credit against the full prevailing wage fringe benefit IS confusing, it’s NOT just you.
The fact that you are a non-union shop, and your employees are probably also work on non-prevailing wage jobs adds another layer of complexity to this. And if you also take credit for other company paid contributions, such as health insurance – well, that to will add complexity. If the credits that you take do not equal the FULL prevailing wage fringe – well that too adds an additional layer of complexity.
From what “I” know (and realize that I’m in Vermont and know enough about prevailing wage rules & regulations to be dangerous – I may not know all the fine print for your specific state). I will explain what I know and you should then verify it with the Prevailing Wage Unit of your local Department of Labor just to make sure. I also want to point out that this methods is not 100% accurate and extra work will need to be done if the combine credits that you can take do NOT equal the full fringe benefit rate.
Step 1 – Convert the percentage into an hourly rate
First you are going to need to convert the percentage into an hourly rate.
This is done by taking the prevailing wage hourly base rate and multiplying it by 4%. So if the base rate is $35.00 per hour multiply this by 4%, which equals $1.40.
Step 2 – Set up a company contribution item in your accounting software to track the hourly rate
While you probably already have a company contribution item in your accounting software, you’ll want to add another one specifically for the prevailing wage credit, this will make it easily identifiable in the event of an audit.
If you use QuickBooks to do your payroll, go to the Lists menu -> Payroll Item List -> click the Payroll Item button (bottom left of this window) -> choose New -> Custom Setup -> choose Company Contribution -> enter the name that you want to use in checks and reports (PW 401k) -> make sure the track expenses by job option is checked -> currently the Tax tracking type should be set to None -> on the Taxes tab, nothing should be checked -> select the Calculate based on quantity option -> and on the last window set default rate to 1.40 with no annual limit AND be sure that the This is an annual limit option is NOT checked. Click Finish.
Add this new company contribution item to the Payroll & Compensation Info tab of all employees in the Additions, Deductions and Company Contributions section.
Step 3 – When creating paychecks
This is where it gets really complex, especially if the credits you take against prevailing wage do not equal the full fringe rate and you pay a portion of the fringe in cash – which will then increase the hourly rate of pay.
EXAMPLE: John J. Equipment, your employee works 25 hours at $35.00/hr on a prevailing wage job and 15 hours at $28.00/hr on a non-prevailing wage job during the week.
Against the company contribution item for the prevailing wage 401k you will enter a quantity of 25 (for 25 hours worked on a prevailing wage job). This entry is pretty straightforward.
To determine the “normal” 4% of gross 401k contribution, you’ll need to take the total gross from all hours worked multiply it by 4% then SUBTRACT out the prevailing wage contribution, and enter that dollar amount.
- 25 prevailing wage hours x $35.00/hr = $875.00
- 15 non-prevailing wage hours x $28.00/hr = $420.00
- equals $1,295.00
- times 4% = $51.80
- MINUS 25 prevailing wage hours x $1.40/hr credit = $25.00
- $51.80 MINUS $25.00 = $26.80 remaining 401k contribution
You’ll enter the $26.80 in the RATE column for the “normal” 401k contribution.
Important Note: If the items that you are allowed to take credit for do not equal the full prevailing wage fringe; consider adding a bona-fide plan to handle the balance of the fringe benefit contribution. A very good plan to consider is the one offered by Prevailing Wage Contractors Association (PWCA), the employees have access to the fringe contributions if you have to lay them off for a short amount of time. For additional information please contact us or contact PWCA directly, indicating that you found them through Nancy Smyth from Sunburst Software Solutions, Inc.
Verifying the accuracy of the certified payroll reports that you can generate from QuickBooks Premier and Enterprise versions – IF you also subscribe to Enhanced Payroll, is a must for anyone in the construction industry.
I’ve been watching the posts on the Intuit Community Forums about the alternate, substitute U.S. Department of Labor WH-347 certified payroll reports that can be generated if you have QuickBooks Premier or Enterprise AND an Enhanced Payroll Subscription. It seems like many people want to know how to generate the reports, if the reports are approved through the DOL (Department of Labor), why they have suddenly stopped working, how to issue “No Work Performed Reports”, and how to tell if the reports they are generating are accurate.
This article will focus on the requirements of the U.S. Department of Labor form WH-347 and how you can check to verify whether or not the reports from QuickBooks are accurate BEFORE you submit them – so that you will be paid in a timely fashion; we’ll be focusing on:
- Section 4 – Day & Date – Hours Worked Each Day
- Column 5 – Total Hours
- Column 6 – Rate of Pay
- Column 7 – Gross Amount Earned
- Section 8 – Deductions, and
- Column 9 – Net Wages Paid for Week
Columns 1-3 are pretty straight forward and each row of information relates to a single employee and a single Work/Trade Classification.
Section 4 – Day & Date – Hours Worked Each Day
In this section you are to report by day and date the number of hours (straight time and overtime) a specific employee worked, under a specific Work/Trade Classification on the job that you are generating the report for.
Column 5 – Total Hours
The total number of Straight and Overtime hours that the employee worked (for a specific Work/Trade Classification) for the week in question.
*Column 6 – Rate of Pay INCLUDING Cash Fringe Benefits
In the “straight time” box for each worker, list the actual hourly rate paid for straight time worked, PLUS cash paid in lieu of fringe benefits paid. When recording the straight time hourly rate, any cash paid in lieu of fringe benefits may be shown separately from the basic rate. For example, “$12.00/.40″ would reflect a $12.00 base hourly rate plus $0.40 for fringe benefits. When overtime is worked, show the overtime hourly rate paid plus any cash in lieu of fringe benefits paid in the “overtime” box for each worked or “$18.00/.40″. This is one of the biggest faults of the certified payroll report generated by QuickBooks – if you pay the fringe benefit rate in cash to the employee as part of his/her hourly rate of pay you MUST manually update this information each week.
Column 7 – Gross Amount Earned this Job and ALL Jobs
Enter gross amount earned on this project. If part of a worker’s weekly wage was earned on projects other than the project described on this payroll, enter in column 7 first the amount earned on the Federal or Federally assisted project and then the gross amount earned during the week on all projects, thus “$163.00/$420.00″ would reflect the earnings of a worker who earned $163.00 on a Federally assisted construction project during a week in which $420.00 was earned on all work. These amounts can easily be verified by looking at the Employee’s Paycheck Detail in QuickBooks.
Section 8 – Deductions
Five columns are provided for showing deductions made from the employee’s paycheck. If more than five deduction are involved, use the first four columns and show the balance deductions under “Other” column; show actual total under “Total Deductions” column; and in the attachment to the payroll describe the deduction(s) contained in the “Other” column. All deductions must be in accordance with the provisions of the Copeland Act Regulations, 29 C.F.R., Part 3. If an individual worked on other jobs in addition to this project, show actual deductions from his/her weekly gross wage, and indicate that deductions are based on his gross wages. These amounts can easily be verified by looking at the employee’s Paycheck Detail in QuickBooks. Remember, ONLY deductions from the employee’s paycheck are to be reported here – Federal Withholding, State Withholding, the Employee portion of FICA and Medicare, Child Support, Wage Garnishments, etc.
Column 9 – Net Wages Paid
This amount should equal the employee’s NET paycheck for the week and should match exactly the amount of his/her paycheck.
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If your final QuickBooks certified payroll report doesn’t look like this wh347, it’s time to opt for a more accurate and less time-consuming option that will truly automate the process for you.
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Many people generate the QuickBooks Certified Payroll report and either manually make changes in it while it is still in Excel, prior to printing the report OR they will print the report and then use it as a guideline for manually completing the actual “fillable report” from the U.S. Department of Labor Website – which is a highly error prone and time-consuming process.
Additionally, QuickBooks does not have the ability to generate a “No Work” performed payroll, so if you need one, and it’s likely that you will, you’ll need to manually complete one of these also using the fillable form from the DOL website.
Manual entry of the same information multiple times in multiple places is a huge waste of time and let’s face it, every time that you have to enter the same information in yet another place the higher the risk of transposition errors which result in rejected reports and delayed payment.
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*Fringe Benefits that are paid to a Union or a bona-fide plan are NOT displayed on the report and the Straight time rate would be displayed as $12.00 and the Overtime rate as $18.00 in the Rate of Pay Column. The certified payroll report generated by QuickBooks inaccurately displays any fringes paid to a Union or bona-fide plan and you MUST manually correct this each week.
We hope you have found this article helpful, if so please leave us a comment.
Setting up and tracking Union Fringe Benefits in QuickBooks can be a fairly straightforward task, after all Union Fringes are just a specified hourly dollar amount that the company pays to the Union on behalf of the employee.
Union fringes often consist of contributions to Vacation/Holiday, Health & Welfare, Pension, Training, and sometimes Travel & Subsistence, Savings, or Fund Administration. Depending upon the Union that you are dealing with, some of the fringe benefits could be subject to payroll taxes, while others are not.
Most of the time fringes are calculated and paid based on the number of hours the employee works on the jobsite, occasionally, however, they are a based on a percentage of gross pay.
Regardless of how they are paid (based on an hourly amount or a percentage of gross) or if they are taxable or not; in QuickBooks, each of these specific types of hourly fringe benefits should be set up in the Payroll Item List as Company Contribution items.
Now that you know some basic information about Union Fringe Benefits and how you would track them in QuickBooks, let’s take it a step further and explore some of the more complex issues.
Not every employee will have the same fringe benefit package or the same fringe benefit rates. This is where it becomes more complex. So before you begin setting things up in QuickBooks; take the time to plan things out and ask yourself these questions:
- Do my employees ALWAYS perform work under the same Work Classification/pay rate/fringe rate combination?
- Is the Work Classification/pay rate/fringe rate combination the same for all the jobs that employees work on?
- Is the Work Classification/pay rate/fringe rate combination the same for each of our employees?
Below are basic setup instructions if ALL of your employees fall under a single Work Classification/pay rate/fringe rate combination, nothing changes from job to job. In QuickBooks:
- You create company contribution items for each specific fringe benefit.
- Check the “Track expenses by job” option in the item setup.
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- Create or choose the Union from the Vendor List.
- Assign appropriate Payroll Liabilities account, personally I like to create a Sub-Item of Payroll Liabilities called Union Fringes, and then create Sub-Items under that for each fringe item – it just makes it easy to see what your liability for each fringe item is at any given time.
- Assign the appropriate Expense or Cost of Goods Sold Account to record the company payments; personally I like to create a Sub-Account of Cost of Goods Sold called Union Fringes.
- Choose the applicable Tax Tracking Type, based on the information you’ve received from the Union Hall.
- If a specific fringe benefit is subject to payroll taxes, check which taxes are to be calculated on the Taxes window
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- Select how the calculations are to be be performed. If the fringe rate is paid on all straight time and overtime hours worked, choose “Calculate this item based on hours”.
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- Enter the hourly rate for the benefit item and make sure that the Annual Limit option is NOT checked (by default QuickBooks always has this option selected.
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- Edit employee records and add the fringe benefit company contribution items to the Payroll & Compensation Information tab in the Additions, Deductions and Company Contributions section.
- When you create paychecks, QuickBooks automatically calculates the amounts for each employee.
Use the instructions above as a guideline for your QuickBooks setup.
