Prevailing Wage Jobs and the Compensation Package

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.

prevailing wage lawsGovernments, 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.