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:
Right click on the image to enlarge it.
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:
Right click on the image to enlarge it
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.
A prevailing wage job is typically a government funded project. The Davis-Bacon and Service Contract Acts govern federal projects. Most states have a prevailing wage law, but there are some that do not so it is a good idea to know the rules before you bid a project.
Governments, in their idea of fairness, mandate union rules and compensation packages on the jobs. So, one of the simple ways to prepare yourself to do prevailing wage jobs is to have an action plan at the ready that will allow you to cope with the requirements. We will briefly discuss the compensation package.
All prevailing wage projects will come with wage determination schedules that detail the base rate and fringe rates for all craft and trades. The base rate most likely will be the union W-2 payroll rate for the local collectively bargained craft and trades. The wage determinations (WD) will vary because of this. So, it is very possible to see a WD in one part of a state or county different from another. Make sure you are working with the WD that applies to where the job is located, and that they are dated for the time you are on the project. If you are apt to work through the date on you WD, ask the contract office for the new one. You will be held liable for the rates.
The fringe rate is the most confusing for many contractors. The fringe rate is the hourly cost of the collectively bargained benefit package for the craft and trade where the job is located. Fringe rates can vary just as base rates can vary and a contractor must make sure they are working with current fringe rates. The government expects each contractor to pay into bona fide benefit plans at the same rate while on a prevailing wage job. It is easy for the union contractor, but often difficult for the non union contractor because the hourly cost of his employer paid benefits is likely to be less than the fringe rate. If this is the case, the government will compel the non union contractor to pay the difference to payroll.
Non union contractors must understand that they can’t really put fringe dollars into payroll. They must actually pay a bonus equal to the fringe rate liability. Fringe dollars are business expenses, payrolls are wage expenses. Big difference. Fringe dollars as payroll will be subject to FICA and Medicare, SUTA and FUTA taxes. In addition, the bonus will inflate the basis for general liability insurance and workers compensation. Worse yet, fringe dollars to bona fide plans don’t have to be paid weekly. Many contractors don’t get paid frequently enough for weekly payrolls and are forced to use lines of credit until being paid. So, many non union contractors wind up paying fringe dollars as bonuses with borrowed money. Little wonder so many non union contractors do prevailing wage jobs unprofitably.
There is hope however. The action plan must have at the ready bona fide benefit plans that can be legally adopted for the project and expensed as business expenses and not payroll. We can help you develop a prevailing wage action plan. Contact Nancy for more details.
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.
