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.
This payroll tip discusses being prepared for Wage & Hour and IRS Audits – what records have to be kept, how long you need to keep them, etc. From the General Ledger, a complete newsletter for Professional Bookkeepers published by the American Institute of Professional Bookkeepers.
Break out the trusty old metal/wooden file cabinets and wipe off the dust — or maybe it’s time to invest in some virtual file cabinets where documents are scanned in and stored off-site but accessible if you need them. Either way you are in for a shock!
We’ve mentioned previously that the U.S. Department of Labor is making a major push on wage-hour enforcements and that the IRS has also beefed up enforcement efforts – but what we didn’t include at that time was a list of documents that you must keep and how long they have to be kept. When October’s issue of the General Ledger arrived, this information was front page news; and I felt I needed to share it with you. I hope you are sitting down and have had your morning coffee!
Even if your company has never violated one IRS or DOL rule, substantial penalties may apply simply for not maintaining required records. Now is the time to gather or seek copies of the records you are required to keep under federal law. Records may be stored at at company offices; or for multiple locations, in a central office.
Keep for at least 4 years:
The IRS requires employers to keep the following for at least 4 years. NOTE: Because the 4-year period begins at different time, keep the following for at least 5 years.)
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The DOL or IRS (or both) require you to keep the following data. If not in hard copy, it should be available to print.
Keep for at least 3 years:
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Keep for at least 2 years:
Documents that support calculations for the following.
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Keep for at least 4 year
From April 15 following the due date of the return; employment related tax forms and data.
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Vendor and non-employee payments:
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All of this adds up to a LOT of paperwork that you have to keep on hand and accessible. Storage is going to be an issue for most businesses as well as making sure that the stored documents are kept safe – I know that these issues are a concern for me, as like most business owners I only have limited space.
We’ve used QuickBooks since we started our business in 2000, so all of the “detail” is housed in our QuickBooks file; we did have to archive our file at the end of 2006 because it was getting too big and running slow, so we have a backup copy that contains all the detail stored in our safe deposit box at the bank. Our current QuickBooks file contains a summary of that archived information, and I keep that backed up and stored in a several locations – locally on an external hard drive, on a remote (cloud based) location that both my husband and I have access to, and a backup which I keep on my laptop – so my QuickBooks file is pretty safe.
But, the hard copy paper payroll related data – well, right now all of that is stored by year in 3-ring binders; and all of the paper copies of business income and receipts are stored in cardboard file boxes in our attic! If there was a fire – well, we’d loose all that paper data! I guess it’s time that I get my act together and do something about electronic storage for at least all of the payroll related data.
How are you storing all of the information that would be required for a wage-hour or IRS audit?
This QuickBooks payroll tip discusses underpaying employee wages and wage restitution, after paychecks have been created and cashed.
Paying your employees the correct rate of pay is one of the most critical portions of your business; and if those employees are subject to multiple pay rate or have frequent pay rate changes, ensuring that everyone is being paid the correct rate can be a tedious and potentially error prone process.
In today’s busy workplace, business owners and payroll administrators are faced with numerous challenges which sometimes result in employee wage underpayments. Often times a wage shortage isn’t discovered until after paychecks have been created and cashed; which then requires wage restitution to the employee.
Quite often this situation puts the business owner or payroll clerk in a quandary about how to best record employee wage restitution, especially if the employees are performing work on a prevailing wage job and they must document the wage adjustment on the certified payroll reports and resubmit the reports. Clearly documenting employee wage restitution is crucial, and can be accomplished in three fairly easy steps.
3 steps to documenting employee wage restitution/payment:
- In the QuickBooks Payroll Item List, create a new Hourly Wage Payroll item and name it Wage Restitution
- Edit the records of employees who were affected by the wage underpayment, add the adjustment payroll item to the Payroll & Compensation Info tab, with the appropriate rate of pay (the difference between what they should have been paid and what they were paid)
- Issue a separate paycheck, using the QuickBooks Unscheduled Payroll option, use the adjustment payroll item and enter the number of applicable hours*
*Important Note:
The best way to document a wage restitution on a certified payroll report is to display each employee twice on the report; once displaying the rate that he (she) was originally paid and a second time displaying the hourly rate of the wage adjustment. Clearly indicate that you are submitting a corrected report by writing, in large letters, CORRECTED and highlight it using a highlighter.
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Wage underpayments can often times be caused simply because in QuickBooks there is not an automated means of updating the pay rates of all employees at once. Wage Manager Solution, a QuickBooks integrated application, not only allows you to change the pay rates for all of your employees at once, it will also allow you to create new payroll wage items, assign it to multiple employees AND add a rate of pay….all at the same time.
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Watch a brief (10 minute) video about how Wage Manager Solution works and download a Free Trial.
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5 certified payroll reporting mistakes that will cause delayed payments – learn how to avoid them.
Filling out weekly certified payroll reports can be a time-consuming and frustrating task, especially if you complete them by hand or have to manipulate data in order to create them. Transposition errors and other mistakes are bound to happen, no matter how careful you think you are being. Making mistakes on certified payroll reports will lead to more frustration and you’ll end up spending more time correcting the errors; mistakes will also put your company’s good standing in jeopardy with the General Contractor or Project Administrator.
Certified Payroll/Prevailing Wage reporting can be complex and varies by state. Learning how to avoid the following mistakes and submit the reports properly the first time will benefit you and your company.
- Your reports are rejected as inadequate or incomplete – you may not have submitted the proper form or some of the required information is missing. You’ve been told that you need to correct the forms and resubmit them by a new deadline or your company, and the General Contractor, will have to wait longer to receive payment. Delayed payments have a negative affect on everyone’s cash flow. The Labor Standards Clause of the final contract (and the bid package) for each job usually provides you with a sample of the certified payroll reporting form that you will be required to submit; it will also inform you if you are required to file your reports electronically.
- You didn’t pay your employees prevailing wage and you didn’t submit certified payroll reports - you’ll need to make wage restitution to your employees to bring their rate of pay up to the prevailing wage rate required on the job and then you’ll need to submit ALL of the certified payroll reports within 30 days from the time that the General Contractor was notified. Payments to both your company and the General Contractor can be delayed. The requirement to pay prevailing wages and submit certified payroll reports is included and usually discussed in the Labor Standards Clause of the bid package and the final contract.
- You didn’t pay your employees the rate of pay listed in the Wage Decision – you’ll need to make wage restitution to your employees, provide proof of the wage restitution, and submit corrected certified payroll reports within 30 days from the time that the General Contractor was originally notified. A Wage Decision is a listing of all the different Work/Trade Classification and minimum wage rates (base PLUS fringe) that must be paid to anyone performing work on the jobsite. Some Wage Decisions cover several counties and/or types of construction (residential and commercial) and can be difficult to read – in instances such as this, the Contract Administrator may prepare a Project Wage Rate Sheet or issue a Wage Bulletin, which will only show the Work/Trade Classifications and wage rates for a specific project. The Wage Decision is found in the Labor Standards Clause of the bid package and the final contract.
- Your employees Work Classifications do not match those listed on the Wage Decision – you’ll need to correctly classify your employees according to the Work/Trade Classification found on the Wage Decision, and quite possibly make wage restitution to your employees. You’ll need to provide proof of any wage restitution, if applicable, and provide corrected certified payroll reports within 30 days from the time that the General Contractor was originally notified. Each employee must be classified and paid accordingly, based on the type of work they are performing. If the Wage Decision doesn’t contain the correct Work Classification; a written request must be submitted. The written request must identify the Work Classification that is missing, recommend a wage rate, and provide a description of the actual work being performed. This written request should be submitted/discussed at the bid qualification meeting.
- Your reports have incorrect computations, unclassified “Other Withholdings”, or do not indicate how the fringe benefit portion of the prevailing wage is paid – you will need to submit corrected reports within 30 days of the date that the General Contractor was originally notified. While these items may seem trivial, they are all part of the requirements of certified payroll reporting. Always check the “math” on the final reports before submitting them, for example, the Federal WH-347 certified payroll report should match the employees paycheck exactly for gross wages ALL jobs, withholdings and net wages paid for the week, even if you use a software program to generate your reports you should verify that these numbers match before you submit the reports.
Learning to avoid these mistakes is in your best interest because will you avoid extra paperwork and be paid in a timely manner.
If you are manually creating the reports or having to manipulate large amounts of data to generate the reports, you aren’t saving any time (or money) and need to automate the process in order to eliminate the transposition errors and save valuable time that could be better spent on other tasks. I see many QuickBooks users discussing on the Intuit forums how they generate the built-in QuickBooks certified payroll report and either manually make corrections or print the report and then enter that data into a fillable Federal or State Specific certified payroll report on a weekly basis.
Make sure that you have thoroughly reviewed the Labor Standards Clause of the bid package AND the final contract package and provide your payroll administrators with the information that they need to correctly pay your employees. If you continue to submit incorrect certified payroll reports you will be in violation of certified payroll reporting requirements and this can mean that you will be disbarred; not allowed to bid on or perform work on prevailing wage projects for up to 3 years. Additionally, you may be passed over in favor of another company (even if you do top quality work) if you have a “checkered past” in meeting the reporting requirements.
Wage Restitution is the difference between what the employee should have been paid (base PLUS hourly fringe) and what they were paid.
If you are new to certified payroll reporting requirements, sign up for a 2-hour Certified Payroll Reporting Training webinar, $69.00 per person.
If you use QuickBooks and want to automate the entire certified payroll reporting process, request a Free 30-Day Trial of Certified Payroll Solution.
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.
