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November 22, 2022

How Prevailing Wage Fringe Benefits for Contractors Impact a Health and Welfare Plan

What 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.  

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.  

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.  

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.  

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. 

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.  

Changes May Be Coming 

In March 2022, the Department of Labor announced plans to update the Davis–Bacon Act. Under this proposal, workers would see higher wages, Plus, some of the changes include measures to ensure prevailing wages keep up with actual wages, periodic updates to prevailing wage rates, and supplement rates for key job classifications when there is no survey data. 

Labor costs are already rising – and these Davis–Bacon Act changes could increase labor costs further. Employers will need to find new strategies to keep their compensation costs under control. Offering a cost-effective bona fide benefit plan is one way to control costs while boosting worker satisfaction.  

If you need help putting together a benefits package that meets your prevailing wage and fringe benefit requirements while supporting your company’s financial goals, Heffernan Insurance Brokers can help. Learn more. 

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