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.
California prevailing wage laws and certified payroll reporting requirements are quite complex and can be mandated by any of the following agencies or organizations, each with their own unique set of reporting requirements.
- The California Department of Industrial Relations (DIR) and the filing of Form A-1-131.
- The California Department of Transportation (CALTRANS) and the filing of a modified WH-347 form.
- The U.S. Department of Labor and the filing of a standard WH-347 Form.
- Electronic filing requirements on specific construction projects through the use of LCPtracker, TRS Consultants, and/or Elation Systems, Inc. D-BAS Labor Compliance Software.
- Additional “paper filing requirements” by Labor Compliance Organizations, such as, Golden State Labor Compliance, LLC or CalLCP.
- Electronic filing requirements being introduced on August 1, 2010 through the California Department of Industrial Relations Compliance Monitoring Unit (CMU), which will utilize the TRS Consultants Inc., on-line Labor Compliance Program
Because of these complexities, contractors frequently ask these questions about California Prevailing Wage Laws.
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Q. What is the methodology for determining the prevailing wage rate?
A. The prevailing wage rate is the basic hourly rate paid on public works projects to a majority of workers engaged in a particular craft, classification or type of work within the locality and in the nearest labor market area (if a majority of such workers are paid at a single rate). If there is no single rate paid to a majority, then the single or modal rate being paid to the greater number of workers is prevailing.
Q. How does the prevailing wage affect me?
A. California’s prevailing wage laws ensure that the ability to get a public works contract is not based on paying lower wage rates than a competitor. All bidders are required to use the same wage rates when bidding on a public works project. California law requires that not less than the general prevailing rate of per diem wages be paid to all workers employed on a public works project.
Q. What is a general prevailing wage determination?
A. When the director of the California Department of Industrial Relations determines that the general prevailing rate of per diem wages for a particular craft, classification, or type of worker is uniform throughout an area, the director issues a determination enumerated county by county, but co vering the entire area. General determinations are issued twice a year on February 22 and August 22.
Q. What is a special prevailing wage determination?
A. When a particular craft, classification or type of worker is not covered by a general determination, the awarding body may request a special prevailing wage determination. Requests must be made at least 45 days prior to the bid advertisement date.
Q. What is an issue date?
A. The date upon which copies of the determination of the director are deposited in the mail. Determinations are issued twice a year – Feb. 22 and Aug. 22.
Q. Why is there an expiration date for each prevailing wage determination?
A. The expiration date indicates when the determination of the director of the California Department of Industrial Relations is subject to change.
Q. What does it mean when there is a single asterisk (*) after the expiration date of a prevailing wage determination?
A. Prevailing wage determinations with a single asterisk after the expiration date, which are in effect on the date of advertisement for bids, remain in effect for the life of the project. Interested parties should contact the Division of Labor Statistics and Research at (415) 703-4774 for the new rates after 10 days from the expiration date (if no subsequent determination is required) or visit our website.
Q. What does it mean when there are double asterisks (**) after the expiration date of a prevailing wage determination?
A. Prevailing wage determinations with double asterisks after the expiration date indicate that the basic hourly wage rate, overtime, holiday pay rates and employers’ payments for work performed after this date have been predetermined. If work is to extend past this date, the new rates must be paid and should be incorporated in contracts entered into now.
Q. What is a predetermined change?
A. Definite changes to the basic hourly wage rate, overtime, holiday pay rates and employer payments which are known and specified in the applicable collective bargaining agreement at the time of the bid advertisement date and which are referenced in the general prevailing rate of per diem wages.
Q. What is the effective date of a prevailing wage determination?
A. The date upon which the determinations of the director of the California Department of Industrial Relations go into effect. This date is 10 days after the issue date of the determination.
Q. What is a residential project?
A. Projects consisting of single-family homes and apartments up to and including four stories are subject to payment of prevailing wages when paid for in whole or in part out of public funds, including federally funded or assisted residential projects controlled or carried out by an awarding body.
Q. What is a commercial project?
A. All non-residential construction projects including new work, additions, alterations, reconstruction and repairs. This includes residential projects over four stories.
Q. What is a coverage determination?
A. A process in which the awarding body or any other interested party (such as a contractor, employee, union or labor-management compliance organization) may request a written determination by the director of the Department of Industrial Relations about a specific construction project or type of work to be performed.
Q. When does overtime apply?
A. Compensation for all hours worked in excess of eight hours per day and 40 hours during any one week should be not less than one-and-one-half times the basic rate of pay. For specific overtime requirements, please refer to the prevailing wage determinations.
Q. What are the threshold requirements for a public works project?
A. Prevailing wages must be paid to all workers employed on a public works project when the public works project is over $1,000. If an awarding body elects to initiate and enforce a labor compliance program, that has been approved by the Director of the Department of Industrial Relations, for every public works project under the authority of the awarding body, prevailing wages are not required to be paid for any public works project of $25,000 or less when the project is for construction work, or for any public works project of $15,000 or less when the project is for alteration, demolition, repair, or maintenance work.
For more details, please refer to the applicable statutes and regulations regarding the payment of prevailing wages and General Prevailing Wage Determination(s) including the footnotes. Such information is available on the Department of Industrial Relations’ website at http://www.dir.ca.gov/.
I found this article online, written by Roberto Rossi – I have no idea who he is, but the article is interesting and factual.
Prevailing wage laws have been the focus of public policy debate at the federal and state levels for decades. They are intended to protect workers and communities by ensuring that contractors compete on the ability to perform work competently and efficiently while maintaining community compensation standards.
Prevailing wage laws require that construction workers on public projects be paid the wages and benefits that are found to be “prevailing” for similar work in or near the locality in which the construction project is to be performed. The federal Davis-Bacon Act is enforced by the federal Department of Labor. It requires that private contractors pay construction workers the prevailing wage/benefit package on all contracts of more than $2,000 for construction, alteration, or repair of federal public buildings or public works. The federal law surveys contractors but contractors are not required to respond to the survey.
Oregon enacted its prevailing wage law in 1959 and then-governor Mark Hatfield signed it into law. It requires that prevailing wages be paid on projects that exceed $25,000 ($50,000 as of 1/1/006). Under state law, the commissioner of the Bureau of Labor and Industries enforces the state law and sets prevailing wage rates twice a year based upon a survey contractors in Oregon are required to complete.
The state law has been challenged several times, but in the last attempt, in 1994, 62 percent of Oregon voters favored retaining the law including a majority in each of Oregon’s 32 counties. The state Legislature has made changes to Oregon’s law several times. In 1989, the Legislature clarified the law’s definition of public works revising the threshold test by adding the phrase “contracted for by”. The first prong of the test now is whether the construction work is .“carried on or contracted for by any public agency to serve the public interest.” In addition, the 1995 Oregon Legislature reaffirmed the goals of the prevailing wage law and instituted the state survey in lieu of relying upon the federal survey. In the just completed 2005 session, legislators passed SB 477, which among other changes, raised the threshold for projects qualifying under the law from $25,000 to $50,000.
Many still argue that the economic hardships of the depression era ushered in the federal Davis-Bacon Act, but others argue it was the desire of states and local government to protect itself against fly-by-night, low-wage construction firms winning bids on public contracts and adversely impacting local construction workers. In the early 1930s, federal and state governments were preparing to construct even more large public projects and they sought to protect themselves from falling contractors who performed “shoddy” work with “exploited,” “low-skilled” and an “imported” workforce.
Interestingly enough, those were not the words of labor advocates, but of the bill’s primary sponsors, Congressman Robert Bacon (R-NY) and Senator James Davis (R-PA), who viewed their bill not so much as a means to protect workers, but more as a way of providing some market stability in what was, and still is, an inherently unstable construction industry.
Bacon, a former banker, explained the need for the law when he detailed for his legislative colleagues how an out-of-state construction firm paying extremely low wages transported thousands of unskilled workers hundreds of miles to toil on a public project in New York:
“They were herded onto this job, they were housed in shacks, they were paid a very low wage, and … it seems to me that the federal government should not engage in construction work in any state and undermine the labor conditions and the labor wages paid in that state.”
Davis, the former Secretary of Labor under Presidents Harding, Coolidge and Hoover, went on to argue that “the least the Federal Government can do is comply with the local standards of wages and labor prevailing in the locality where the building construction is to take place.”
Some critics of prevailing wage laws have tried to place a “racist” label upon the original passage of the Davis-Bacon Act in 1931. While some may have had some intent to keep poor black construction workers from moving north to work, others saw it for what it still represents today – a way to assure that public money is not spent by hiring employers who pay low wages and disrupt the wage scale in other communities.
However, some critics still charge that the prevailing wage rate law continues to discriminate against minority and female contractors. In response to a May 22, 1992 Wall Street Journal making such accusations, Rep. Edolphus Towns rose on U.S. House floor on June 24, 1992 in rebuttal:
“The truth is, minority and female workers have entered the construction industry in increasing numbers over the past fifteen years. Because they are often the newest members of the industry, they are particularly vulnerable to wage-cutting practices the Davis-Bacon Act is designed to prohibit. Norman Hill, president of the A. Philip Randolph Institute, has characterized women and minority workers as `particularly vulnerable to exploitation such as the Davis-Bacon Act of 1931 is designed to prohibit.’”
Before passage of the Davis-Bacon Act in 1931, nine states and several cities had already passed a prevailing wage law. Within four years of Davis-Bacon’s passage, sixteen more states added a state-level prevailing wage law (little Davis-Bacon acts). At one time or another, forty-two states and the District of Columbia have had a prevailing wage law. Thirty-two states currently have state prevailing wage laws on their books.
Since the U.S. Constitution prohibits the federal government from dictating contract terms for the states in construction, the Davis-Bacon Act does not cover construction work funded entirely by state and local governments. State prevailing wage laws set a minimum pay for construction workers on state and local projects, and the terms of the respective prevailing wage statutes among the states differ substantially. The prevailing wage laws of some states are non-binding, while other states set wages for virtually all contracts at the collectively bargained wage rate. In addition, different states treat jointly financed projects (e.g. state/federal, local/federal, private/public) differently. Some states defer to the federal statute while other states set the prevailing wage at the higher of the state or federal prevailing wage. Certain states also specifically include or exclude specific types of projects (e.g. road construction) and/or workers, and/or projects above or below a given threshold.
Kansas passed the first prevailing wage law in 1891. New York was the second state to pass a prevailing wage law in 1894. Similar laws in other states were passed in the first part of the twentieth century. These laws provided the legal basis for the creation of the federal Davis-Bacon prevailing wage law at the federal level. By 1969, 41 states had prevailing wage statutes.
During the 1970s, many states began to suffer fiscal crisis. On the belief that they might save tax dollars, many state and local governments began to consider repeal of prevailing wage laws. Florida, which had enacted a prevailing wage law in 1933, was the first to repeal its law, in 1979. Eight states (Alabama, Arizona, Colorado, Idaho, Kansas, Louisiana, New Hampshire, and Utah) repealed their prevailing wage statutes in the 1980s. The prevailing wage statute in Oklahoma was invalidated by a court decision in 1995. At the present time, 32 states and the District of Columbia still have prevailing wage statutes, 10 states have repealed their prevailing wage statutes, and 8 states have never enacted a prevailing wage statute.
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Author’s Note:
As of the date of this article:
- 24 States follow the prevailing wage reporting requirements established by the U. S. Department of Labor and are required to file the Federal WH-347 Certified Payroll Report & WH-348 Statement of Compliance.
- 14 States have their own prevailing wage laws and certified payroll reporting requirements and forms, which must be used when the construction project is fully funded with state dollars.
- 12 States have multiple state agencies, each with their own prevailing wage reporting requirements and forms.
- More states are adding electronic filing requirements, either of their own design or through the use of compliance systems by TRS Consultants, Elation Systems, or LCPtracker.
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.
