Prevailing Wage Jobs – Fringe Benefits Question

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:

1. If they are a Union Shop, they MUST pay the fringe benefit amount to the Union Hall on behalf of the employee
2. 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 – https://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.