The example above is just the tip of the savings iceberg. In many cases, you may be able to take even more dollars off your payroll.
Examples of benefits you might offer to your workers include retirement plans, medical insurance and ancillary products such as dental, vision, life and disability insurance. These create advantages for employees in two ways. First of all, if your company is submitting more competitive bids and winning more public works projects, the likelihood that they’ll continue to have work increases dramatically.
Secondly, employees get protection for themselves and their families by having insurance, and they’re building a nest egg for retirement as well. Under the Davis-Bacon Act and in states where “dipping into the base” is allowed, even greater savings may be realized.
Some states allow you to “dip into the base,” which means that the cumulative wage can be paid to your hourly workers on state prevailing wage projects in any combination of cash wages and fringe benefits. So, for example, on a prevailing wage job where a worker’s wage determination is $30 in base wages and $10 in fringes, you could use $12 to provide bona-fide benefits for your workers, pay $28 in cash wages, and still comply with the law—while generating additional savings on payroll burden. These savings translate directly into increased profitability. You can also submit lower bids and improve your chances of winning more public works contracts.
While “dipping into the base” is allowed by the U.S. Dept. of Labor, not all states allow you to increase the amount paid as prevailing wage benefits. Check with the state in which you are performing the work to make sure this is allowed. The website www.wdol.gov is a great resource.
It’s always a good idea to double-check the wage determinations on a specific project because the onus for being accurate is always on the contractor. The government is supposed to include the wage determination on the bid specs, but we recommend that the contractor confirm that the quoted rate is the correct one.
We had a customer win a Davis-Bacon job recently, and he was unsure about how the wage determination laws worked. He learned that he could pay his bricklayers any combination of the Davis-Bacon base wage ($27.21 per hour) and fringe benefit amount ($7.21) as long as the combination equaled or exceeded the Davis-Bacon prevailing wage (hourly base wage plus hourly fringe benefit amount, in this case, $34.21).
He was also curious if he could start paying the fringe in benefits or if his employees had to agree to it. We get this question a lot and the answer is “no,” an employer is not required to obtain the consent of employees before contributing to fringe benefit plans on their behalf.
Apprentice Programs
Apprentice programs are very popular, providing an economic benefit for employers and an educational benefit for employees learning on the job. Keep in mind that while apprentice rates are a percentage of the base wage, the amount of fringe paid to that employee per hour is the same as the job class.
For example, if the base is $30/hour and the fringe is $15/hour, then the apprentice will still be paid the $15/hour fringe rate plus the appropriate percentage for his/her apprentice rate. Auditors will also want to confirm that the number of apprentices allowed is an acceptable ratio to journeymen.
The Importance of Compliance
While the idea of working on publicly funded projects can be attractive, some contractors may be worried about navigating the laws that apply to these jobs. Working with a partner that specializes in government contractors can divert much of the burden of compliance. A company with expertise in bona-fide benefits plans can set up these plans to ensure compliance with applicable state and federal regulations.
Some benefits companies handle recordkeeping and administration for contractors, as well. With an experienced partner, the biggest responsibility the contractor has is ensuring that contributions to the plans are made in a timely manner. The benefits plan provider pays all the carriers, handles recordkeeping, and often takes care of other details like COBRA administration, loans from 401(k) programs, and distributions. A provider who specializes in prevailing wage benefits plans is generally much better able to accommodate the special needs of government contractors, such as seasonality of work and rapid employee turnover.
Using the fringe portion of the wage on prevailing wage projects to provide benefits for hourly workers helps the company as a whole, and workers as individuals. The company saves on payroll burden, which can improve both profitability and the chances of winning more bids on public works projects. Employees get the protection of having health and other type of insurance coverage, and contributions made to 401(k) plans build security for the future.
Using the entire fringe for benefits maximizes savings on payroll burden and under the Davis-Bacon Act and in states where “dipping into the base” is allowed, even greater savings may be realized.
Adam Bonsky is executive vice president of government markets for Fringe Benefit Group, which has been helping the construction industry and related associations design and administer fringe benefit programs since 1983. He can be reached at 1-800-662-6177 or abonsky@fibi.com.
