Prevailing Wage Fringes-Taking Credit for Company 401k Contributions
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.
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.
Leave a Reply
- The Great Debate – QuickBooks Desktop vs. QuickBooks Online
- Using Account Numbers in Your QuickBooks Chart of Accounts
- QuickBooks Creating a More Meaningful Payroll Expenses Section
- Calculating & Displaying Fringe Benefits on a Certified Payroll Report
- How To Turn On and Use Manual Payroll in QuickBooks
- QuickBooks Payroll Tip - Tracking Employee Advances or Loans
- Create a QuickBooks Job Cost Report With Hours & Payroll Costs
- QuickBooks Tip - Child Support Garnishments
- QuickBooks Tip - Job Costing Starts With A Simple Item
- QuickBooks for Contractors Tip – Basics of Progress Invoicing
- QuickBooks Tip-Creating a Functional Payroll Liabilities Section
- Welcome to the QuickBooks for contractors blog
- QuickBooks Tip: Important Facts About Items Left as Billable
- QuickBooks Tip-Handling Employee Reimbursements for Expenses
- QuickBooks Tip - Determing Cost of Goods Sold
- Straight from the IRS - Social Security Tax Reduced to 4.2%
- QuickBooks 2013 Upgrade Do's, Don'ts & Frequent Questions
- QuickBooks 2015 Announced - Important System Requirements
- QuickBooks 2012 - Frequently Asked Questions About Upgrading
- QuickBooks 2015- The Good, Bad and Ugly, Part 1