Health Net’s Group Healthcare Exit and Rising CostsWhat does the Davis–Bacon Act mean for your health and welfare benefits package? To comply with prevailing wage laws, contractors need to consider both prevailing wages and prevailing wage fringe benefits.
Key Takeaways
- Contractors on federally funded construction contracts over $2,000 must pay both prevailing wages and prevailing wage fringe benefits under the Davis-Bacon and Related Acts.
- Many states have their own prevailing wage laws with different thresholds — California’s is $1,000, while Delaware’s ranges from $45,000 to $500,000 depending on project type.
- Contractors can meet fringe benefit requirements either by providing actual benefits or by paying the equivalent value in cash wages, but the cash option triggers payroll taxes that a benefits plan doesn’t.
- The Department of Labor finalized a major update to the Davis-Bacon regulations in 2023 — its first comprehensive overhaul in roughly 40 years — which took effect in October 2023.
- A federal court injunction in 2024 blocked a few narrow provisions of that update (involving material suppliers and delivery drivers), but the bulk of the 2023 rule remains in effect today.
- Offering a bona fide benefits plan instead of cash wages can be more cost-effective for contractors while also supporting recruitment and retention.
The Davis–Bacon and Related Acts
Under the Davis–Bacon and Related Acts, contractors and subcontractors who work on federally-funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair of public buildings or public works cannot pay laborers and mechanics less than the locally prevailing wages and fringe benefits. This applies alongside the other coverage a contractor typically carries, such as general contractor insurance, as part of the overall cost of doing government-funded work.
Many states also have their own prevailing wage laws. (The Department of Labor says 24 states do not.) In these states, the threshold amounts and other requirements for when the laws apply vary greatly. For instance, in California, the threshold is $1,000; in Delaware, it’s $500,000 for new construction and $45,000 for other projects.
Determining Prevailing Wages and Fringe Benefits
To determine prevailing wages, the Department of Labor’s Wage and Hour Division uses a survey program. When responding to a Davis–Bacon prevailing wage survey, some fringe benefits are allowed, but certain benefits should not be counted.
According to the Department of Labor, payments required under federal, state, or local law should not be included as fringe benefit contributions. These payments may include workers’ compensation program payments, unemployment program payments, and Social Security taxes.
However, many other benefits do count as fringe benefits under federal law and can be listed in the survey, including health insurance, life insurance, pensions, vacation days, holidays, sick leave, and other “bona fide” fringe benefits. Employers who are unsure whether a fringe benefit counts should contact the Wage and Hour Division for guidance.
Note that states may have slightly different rules as to which benefits can be included, especially when they require certain benefits that are not required at the federal level.
Complying with Prevailing Wage and Fringe Benefit Requirements
The U.S Department of Labor requires contractors and subcontractors to post wage determinations with the Davis–Bacon poster on their job sites, pay covered workers weekly, and submit weekly certified payroll records.
When compensating laborers and mechanics, contractors and subcontractors must meet or exceed the local prevailing wages and fringe benefits for the job type. To meet hourly wage requirements, compliance is fairly straightforward. However, things become more complicated when matching the prevailing fringe benefits. In our experience helping contractors navigate this, the fringe benefit side trips up more employers than the base wage side — it’s easy to verify an hourly rate against a wage determination, but far easier to miscalculate the value of a benefits package against the required fringe rate.
Contractors and subcontractors generally have two options for meeting fringe benefits requirements: they can provide fringe benefits in the value required or pay the equivalent amount in cash wages.
As this Construction Business Owner article explains, paying the fringe benefit amount as cash wages sounds simple, but offering a benefit plan can be more cost effective. When employers choose the cash wage option, they have to pay payroll taxes on the amount, which can be significantly more expensive than providing benefits.
What Changed Under the 2023 Davis-Bacon Final Rule
In March 2022, the Department of Labor announced plans to update the Davis-Bacon Act regulations for the first time in nearly 40 years. That process concluded on August 23, 2023, when the DOL published its final rule, “Updating the Davis-Bacon and Related Acts Regulations,” which took effect October 23, 2023.
Among the most significant changes, the rule restored the pre-1983 “30-percent rule” for setting prevailing wages when no majority rate exists in a survey area, added a process for periodically updating outdated wage determinations, and strengthened enforcement tools, including expanded debarment and new anti-retaliation protections. In June 2024, a federal district court issued a narrow injunction blocking three specific provisions of the rule — one distinguishing material suppliers from contractors, one applying prevailing wages to certain delivery truck drivers, and one on automatic incorporation of omitted contract provisions — but the remainder of the 2023 rule remains in effect.
Does the 2023 Rule Change How I Handle Fringe Benefits?
The 2023 final rule primarily changed how prevailing wage rates themselves are calculated and enforced. It didn’t fundamentally change what counts as a bona fide fringe benefit or the basic choice between providing benefits versus paying cash equivalents, which is why the compliance approach described above still applies. Labor costs are already rising under the updated wage-calculation methodology, though, so employers will need to find new strategies to keep their overall compensation costs under control. Offering a cost-effective bona fide benefit plan remains one way to control costs while boosting worker satisfaction.
Offering a Health and Welfare Benefit Plan
To meet the Davis–Bacon Act requirements, employers can offer a bona fide fringe benefits plan in addition to the prevailing wage. These bona fide benefits might include health insurance as well as other benefit types, such as life insurance or a pension. The Department of Labor says employers must make irrevocable contributions to a trustee or third party pursuant to a bona fide fringe benefit fund plan or program. This is also where the compliance requirements intersect directly with plan design — a benefits package built for prevailing wage compliance needs to be structured as bona fide and irrevocable, which isn’t always how a typical small-group health plan is set up by default.
Offering a benefit package can be a cost-effective way to meet your prevailing wage requirements. Moreover, a health and welfare benefit plan can also help your workers manage their health and financial issues, which, in turn, can help them reduce stress and focus on work. A good benefits package can also attract workers, supporting your recruitment efforts and helping you compete for the best workers. For more on this connection, see our post on how your benefits package impacts hiring, retention and morale.
Prevailing wage compliance doesn’t stop at the hourly rate. Getting the fringe benefit side right — and structuring a bona fide benefits plan the way the Department of Labor requires — is often where contractors need the most help.
