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.
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.
By Jim Abrams, Associated Press – Saturday February 19
WASHINGTON – The House early Saturday turned back an effort to suspend a Depression-era law, the Davis Bacon Act, that requires federal contractors to pay locally prevailing wage rates. The vote came amid heightened clashes between the two parties over labor rights.
Lawmakers voted 233-189 against barring spending on Davis-Bacon wage requirements on federal work projects for the remainder of this budget year. The measure was offered by Rep. Steve King, R-Iowa, as an amendment to a massive spending bill to keep the government running through Sept. 30,
Republicans have long targeted the 1931 law, saying it drives up the costs of public works projects and favors unionized companies over smaller firms that can’t pay higher wages.
Davis-Bacon enjoys strong support from Democrats and the King amendment, had it passed, would have met strong resistance in the Democratic-controlled Senate and opposition from President Barack Obama.
The vote came as Wisconsin’s new Republican Gov. Scott Walker has set off a firestorm of protests by seeking to curtail the collective bargaining rights of public workers and several other GOP-led states are looking to cut state worker benefits as part of budget-cutting efforts. Obama said in a radio interview that Walker’s legislation was an “assault on unions.”
The House this week also rejected a GOP proposal to eliminate funds for the National Labor Relations Board. The Republican spending bill would still cut $50 million, or 18 percent, from the agency that referees disputes between workers and employers.
King cited an analysis by the Heritage Foundation estimating that Davis-Bacon would add more than $10.9 billion to the deficit this year. He said locally prevailing wage rates tend to reflect the higher pay scale of union workers in the area and average some 22 percent above standard wage rates in locales.
Rep. Robert Andrews of New Jersey, a senior Democrat on the Education and the Workforce Committee, said there “was no basis in fact, it is more of an urban legend,” that adhering to prevailing wages drives up labor costs. He said that if accurately measured a prevailing wage doesn’t add to costs and promotes a stable local labor force.
Two years ago, when Democrats controlled the House, the chamber voted 284-140 to defeat a proposal to exempt wastewater infrastructure projects from Davis-Bacon rules.
Read the entire article and join the discussion here.
Payroll which involves the payment of Davis Bacon or prevailing wage can be quite complex, especially for non-union or open shop contractors, who work on both private and prevailing wage jobs.
When a contractor works on both prevailing wage and non-prevailing or private jobs there is often times two different sets of hourly wage rates that an employee might be paid; one for when he works on a Davis Bacon project and another, usually lower rate, for when the company works on a non-prevailing wage job.
One specific and complex issues involves the question of whether or not the contractor is required to pay his/her employees the Davis Bacon wage scale rate for the holidays that they are eligible for OR if they can pay them their normal non-scale rate that they are paid on private or non-prevailing wage jobs.
Unfortunately, this is one of those “gray areas” that many contractors and their payroll clerks run into.
Davis Bacon rules clearly state that an employee must be paid the appropriate prevailing wage rate PLUS applicable hourly fringe benefit rate, based on the type of work he or she is preforming, for each hour that they spend on the job site.
In some cases, it is a safe assumption then, that the employee can be paid his normal non-prevailing rate of pay for any paid holidays.
However, I have sometimes seen in the Labor Standard clause (a section of the actual contract that spells out the contractors responsibilities regarding payment of prevailing wages) a section that specifically states that employees must be paid the higher wage rate for specific holidays.
The bottom line about Davis Bacon Wages & Holiday Pay:
- Read the Labor Standards clause of the contract carefully when you receive the bid package AND again when you receive the final contract.
- Make sure that you give the person responsible for processing payroll a copy of the Labor Standards clause AND the prevailing wage determination, so they will pay the employees appropriately.
If in doubt about your liability to pay prevailing wage PLUS applicable fringe benefits for Holidays, follow the appropriate protocol; and send a letter to whoever awarded you the contract – be it the General Contractor or the Contract Administrator. Always leave a paper trail.
If you’ve found this article to be helpful, please consider taking a moment of your time to leave a comment.
Taking a Health Insurance credit against the full prevailing wage fringe benefit 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.
This is an issue that has been extensively belabored in our office (by me).
We are an open shop, but sometimes do jobs with a union agreement. We do a lot of prevailing wage jobs and private work.
We offer all of our employees health insurance – the company paying 75% of the monthly premium and the employees paying the remaining 25% through employee deductions.
It gets so confusing and reading all the blogs etc. does not clarify it for me. I must be slow 
How can I be sure that I am correctly accounting for this?
Constantly confused…. Thank you
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Taking a Health Insurance credit against the full prevailing wage fringe benefit IS confusing, it’s NOT just you.
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.
First you are going to need to determine what the monthly company contribution is for each employee, and for the sake of the rest of this example; let’s assume that we have an employee named Frank and your company pays $173.33 a month toward his health insurance.
Step 1 – Take the $173.33 -> multiply it by 12 = this equals the annual maximum company contribution ($2,079.96).
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Step 2 – Take the annual company contribution ($2,079.96) and divide it by 2080 hours -> this will give you an “hourly credit” of $0.99 – remember as far as prevailing wage fringes go everything is based on an hourly rate.
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In QuickBooks edit Frank’s employee record -> going to the Payroll and Compensation tab -> in the Additions, Deductions and Company Contributions block, find the health insurance contribution item and enter BOTH the hourly “rate” and the annual maximum.
So now let’s say that Frank is classed as a Flagger making $11.15 per hour and the full fringe package is $4.40 per hour and based on your calculations above he has a $1.00 per hour company paid health insurance contribution. In QuickBooks his rate of pay becomes $14.55 ($11.15 base PLUS $3.40 cash fringe).?
When you generate your Federal WH-347 certified payroll report you will want to pay special attention to Column 6 – Rate of Pay/Cash Fringes. Here you will want to report $11.15 (base rate)/$3.40 (balance of fringe benefit rate paid in cash).
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On the Statement of Compliance you will want to check BOTH boxes 4a – Fringe Benefits paid to approved plans, funds or programs AND 4b – Fringe Benefits are paid in cash.
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Important Notes:
- 2,080 hours is a construction industry standard number of work hours per year. It is based on 40 hours per week in a 52 workweek period.
- You’ll want to edit BOTH the company contribution and employee deduction payroll items and indicate that each has an annual limit in order for QuickBooks to automatically stop withholding when the annual limits have been reached.
- On a weekly basis, both the company contribution and employee deduction should be calculated based on the TOTAL number of hours the employee worked on BOTH private and prevailing wage jobs.
- When the company’s annual contribution limit has been reached you will want to “add” the credit back to the employee’s hourly rate of pay for the balance of the year.
- You’ll need to perform these calculations each time health insurance premiums change.
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Screenshots of the WH-347 Certified Payroll Report and Statement of Compliance were taken from actual reports that were generated using Certified Payroll Solution and QuickBooks data. Learn more about Certified Payroll Solution by clicking here.
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