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.
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.
One of the biggest causes of confusion for contractors working on government funded construction projects is “how to calculate and display fringe benefits” on a certified payroll report.
In recent months, I have repeatedly seen posts from QuickBooks users on the Intuit Community Forums asking how the fringe benefit rate is calculated and then displayed on the Certified Payroll Report in Excel, which is now a standard function of QuickBooks Premier and Enterprise when used in conjunction with Enhanced Payroll, and I really haven’t seen any good responses. Hence today’s blog post.
Background:
Contractors who work on government funded construction projects are required to pay their employees a “prevailing” rate of pay; based on where the project is located and the type of work they are performing. This “prevailing rate of pay includes both an hourly wage rate AND an hourly fringe benefit rate. These rates are found on the Prevailing Wage Determination that is included in the contact package and you MUST pay your employees these rates of pay.
A wage decision might look like the screenshot below; just a listing of Work/Trade Classifications, along with hourly wage Rates and Fringes:
For the remainder of this article we will be working with various examples based on the Bulldozer Operator classification which has a base rate of pay of $16.22 and a fringe rate of $3.35 and how this information is to be reported. We will focus on the Federal or U.S. Department of Labor form WH-347 and we will compare the actual WH-347’s requirements to the alternate/substitute WH-347 produced by QuickBooks.
*The rules according to the U.S. Department of Labor regarding the calculation and reporting of Prevailing Wage Fringe Benefits on the WH-347
Column 6 – Rate of Pay (Including 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, “$16.22/$3.35″ would reflect a $16.22 base hourly rate plus $3.35 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 worker; “$24.33/$3.35”. In addition, check paragraph 4(b) of the statement on page 2 the payroll form to indicate the payment of fringe benefits in cash directly to the workers.
Item 4 FRINGE BENEFITS – Contractors who pay all required fringe benefits: If paying all fringe benefits to approved plans, funds, or programs in amounts not less than were determined in the applicable wage decision, show the basic cash hourly rate ($16.22) and overtime rate ($24.33) paid to each worker on the face of the payroll. Check paragraph 4(a) of the statement on page 2 of the WH-347 payroll form to indicate the payment.
How rates of pay and fringe benefits are to be displayed on the certified payroll report when fringes are paid in cash.
This example shows the correct method of reporting the base hourly rate ($16.22) PLUS the hourly fringe rate ($3.35) being paid in cash to the employee ($16.22/$3.35). {Note: the employees rate of pay in QuickBooks is $19.57). Pay particular attention to Column 6 – Rate of Pay/Cash Fringes.
Now let’s look at the same certified payroll report as it is generated by QuickBooks. Pay close attention to the Pay Rate and Fringe Rate Columns – the Pay Rate comes through as the full $19.57 and in order to show the Fringe Rate of $3.35 you would need to manually adjust both the rate of pay and the fringe rate.
How rates of pay and fringe benefits are to be displayed on the certified payroll report when fringes are paid to approved plan, funds or programs.
This example shows the correct method of reporting only the base hourly rate ($16.22). Pay particular attention to Column 6 – Rate of Pay/Cash Fringes, as you should ONLY be reporting/showing the $16.22 rate of pay.
Now, let’s look at this same report generated by QuickBooks, keeping in mind that you could choose any of 3 options when creating this report.
OPTION 1 – QuickBooks recognizes company contribution items that you have set up for the fringes (Health & Welfare, Pension, and Vacation Fund) do NOT select/click on any of the items in the Fringe Benefits Paid box.
The Rate of Pay ($16.22) is displayed correctly, but the Fringe Rate column contains $0.00. This is “ok”, however, it is very misleading, because it could be taken to mean that you are not paying any fringes. Remember the rules state that you are to report the hourly fringe benefit rate that you pay in cash on the report.
OPTION 2 – QuickBooks recognizes company contribution items that you have set up for the fringes (Health & Welfare, Pension, and Vacation Fund) you click on each of these 3 items to indicate that these are your fringe benefit items.
The Rate of Pay ($16.22) is displayed correctly, but the Fringe Rate column contains $3.35. This is “ok”, however, it is very misleading, because it could be taken to mean that you are paying the fringes in cash to the employee. Remember the rules state that you are to report the hourly fringe benefit rate that you pay in cash on the report and that if you pay the fringes to approved plans you report just the hourly rate of pay.
OPTION 3 – QuickBooks recognizes company contribution items that you have set up for the fringes (Health & Welfare, Pension, and Vacation Fund) you click on each of these 3 items to indicate that these are your fringe benefit items and you choose to Apply these Fringe Benefit items to this project only (do not pro-rate by job).
The Rate of Pay ($16.22) is displayed correctly, but the Fringe Rate column contains $4.47 – which is incorrect. This is very misleading, because it could be taken to mean that you are paying the fringes in cash to the employee AND paying a higher fringe rate than required. Remember the rules state that you are to report the hourly fringe benefit rate that you pay in cash on the report and that if you pay the fringes to approved plans you report just the hourly rate of pay.
The bottom line of my finding when reviewing the way the QuickBooks calculates and displays the fringe benefit portion of prevailing wage on the “built-in” certified payroll report – is that you REALLY have to understand the reporting requirements before you submit your reports and that you should review the reports VERY carefully before submitting them.
Authors Note:
The certified payroll screenshots, with the WHD logo in the upper right corner, have been generated with Certified Payroll Solution, a QuickBooks integrated application specifically designed to help contractors comply with prevailing wage requirements. For more information, click here.
*(Source: United States Department of Labor, Wage and Hour Division (WHD), Instructions for Completing Payroll Form, WH-347 – http://www.dol.gov/whd/forms/wh347instr.htm)
A reader wrote to ask the following question:
We were just awarded a contract with the Department of Defense and have to pay our employees “prevailing wage” and submit certified payroll reports. I called Intuit Support to ask them about prevailing wage, certified payroll, and how to track the fringe benefits; they weren’t very helpful – they just told me that QuickBooks can produce the certified payroll report…….can you help me understand all this?
Answer:
Ok, let’s start with some basics:
- The Davis-Bacon Act of 1931 (a Federal Law) set wage rate requirements on government funded construction projects.
- All contractors & subcontractors who perform work on these public works projects, that have a value of $2,000.00 or more, are required to submit a certified payroll report on a weekly basis.
Prevailing Wage(s) rates are comparable to hourly wages PLUS hourly fringe benefit rates for the area in which the construction project is located in, type of construction it is, and the type of work employees are doing – carpenter, laborer, equipment operator, etc. Prevailing Wage Rates are found in the Contract Package and each employee must be classified and paid accordingly – these rates are often times higher than the hourly rate that you normally pay your employees.
A certified payroll report is a specially formatted payroll report, consisting of two pages:
- Certified Payroll Report – this contains information about who worked on the job, how much you paid them, etc.
- Statement of Compliance – this contains certain legal language and requires the original signature of a company official who is signing the document under penalty of perjury.
In your case, you will be required to file the U. S. Department of Labor Form WH-347 Certified Payroll Report, however, because this is a Department of Defense job – you will need to submit their Statement of Compliance (even though it has an expiration date of June 30, 2000).
Paying and tracking prevailing wage fringe benefits gets quite complicated, as they can be:
- paid to a Union on behalf of the employee
- paid to a bona-fide fringe benefit plan on behalf of the employee
- paid in cash to the employee
- or, a portion of the total hourly fringe benefit amount can be split between payments to a bona-fide plan with the balance in cash to the employee
Request our FREE 27 page eBook – 4 Ways Contractors Pay Prevailing Wage Fringe Benefits
Intuit was partially correct, QuickBooks does have an alternate/substitute Certified Payroll Report built into it – however, it is only available if you have an Enhanced Payroll Subscription AND you are using QuickBooks Premier (any flavor – Contractor, Accountant, etc) 2009 or 2010 OR Enterprise 9.0 and 10.0; but it is very different than the Federal WH-347 form.
What Intuit didn’t tell you – is that these prevailing wage projects require more than just the submission of a certified payroll reports, you may also be required to:
- submit EEOC/Work Utilization reports on a weekly, monthly or annually
- submit ARRA (American Recovery & Reinvestment Act) reports on a monthly basis
- generate Fringe Benefit Statements on a monthly basis (if you are paying the fringe benefits to the Union or a bona-fide plan)
- electronically file your certified payroll reports using Labor Compliance programs such as LCPtracker, TRS Consultants, Elation Systems, and others.
Watch a brief 10-minute video demonstrating how Certified Payroll Solution interfaces with QuickBooks to generate these reports.
