HEALTH BENEFITS ON PREVAILING WAGE: WHAT COUNTS AND WHAT GOES ON THE CHECK.
A wage determination under Davis-Bacon sets one hourly rate for each classification, split into a base rate and a fringe rate. The base rate is paid as wages. The fringe rate can be met with cash, with contributions to bona fide plans, or with both. Credit for a plan is figured from what the plan costs and the hours the employee worked, and any part of the fringe rate the plan does not cover is paid on the check as cash. If the contractor counts a plan but cannot show the cost and the hours behind it, the credit can be disallowed and the difference can be owed as back wages. State prevailing wage laws differ, so the contract and the state agency control.
The fringe credit is a number the owner can calculate before bidding. Most of the trouble comes from guessing at it after the job starts. This page explains how the credit is built, what happens when the plan costs less per hour than the fringe rate, what the records need to show, and how all of it flows into the labor burden and the bid.
WHAT IT MEANS.
On a prevailing wage job, the fringe credit is the hourly dollar amount a contractor can count toward the fringe part of a wage determination because it paid for a bona fide benefit such as a health, dental or vision plan, with the rest of the fringe rate paid to the worker in cash.
This page describes the federal Davis-Bacon rules as the Department of Labor, Wage and Hour Division presents them in its fact sheets and in 29 CFR Part 5. Many states have their own prevailing wage laws, and their fringe credit rules can differ, including how the hourly credit is annualized and which plans qualify. SPM is not a law firm, and nothing here is legal or tax advice. The owner checks the contract, the state agency, the plan advisor and a tax professional before changing how anyone is paid.
HOW THE FRINGE CREDIT WORKS.
One rate on the wage determination, two pieces on the check
The wage determination lists a basic hourly rate and, for most classifications, a fringe benefit amount. Together they are the prevailing wage for that classification, and both are owed for every hour worked on the covered job. The base rate is wages. The fringe amount is the part the contractor can satisfy in more than one way, which is where health, dental and vision come in.
Three ways to meet the fringe part
The contractor can pay the whole fringe amount in cash on the check. It can pay it into bona fide plans, such as a group health, dental or vision plan, a pension or a training fund. Or it can do both, with the plan covering some of the hourly amount and cash covering the rest. All three are allowed. The choice changes who gets the money, and it changes how much record keeping the contractor owes.
The credit comes from plan cost and hours worked
A plan premium is a cost for a month or a year, and a fringe rate is a dollar amount per hour. To compare them, the contractor divides the plan cost by hours. Under the annualization approach in the Department of Labor materials, the divisor is all hours the employee worked in the period, on public and private work, and not only the hours on the covered job. This keeps a contractor from loading a full year of premium onto a few weeks of public hours and showing a big hourly credit.
What counts and what does not
Department of Labor guidance says contributions to conventional funded plans, paid irrevocably to an unaffiliated trustee or insurer, can be credited without asking for approval. Unfunded or unusual arrangements need a specific approval. Benefits the contractor must provide under another law cannot be counted toward the fringe. The contractor's own administrative costs are business expenses and are not creditable. Travel, subsistence and industry promotion payments are not normally fringe benefits.
When the plan costs less per hour than the fringe rate
If the plan works out to less per hour than the fringe amount, the contractor owes the difference. It is paid to the worker as cash on the check for each covered hour. The plan does not cancel the obligation. It reduces the cash part. A contractor that offers a plan with a low per hour cost and pays no cash difference has underpaid the fringe, even though the employee does have coverage.
What the records have to show
A credit is only as good as the paper behind it. The records need the plan, the premium or contribution by employee and by period, proof it was paid to the carrier or trustee on a regular schedule, the hours worked on all work for that employee, and the credit calculation. Certified payroll then shows the base rate, the fringe paid to plans and the cash in lieu. If the contractor counts a plan but cannot show the cost and the hours, the credit can be disallowed and the unpaid fringe can come back as back wages for every covered hour.
Plan year, turnover and short weeks change the number
The hourly credit changes with the hours worked, so it is a different number each period. An employee who works 1,200 hours in the year has a higher plan cost per hour than one who works 2,000 on the same premium. A premium increase at renewal changes it. A new hire who joins mid year changes it. Every one of those changes the cash difference on the check, which is why the calculation is redone for each employee and each period.
WHAT IT LOOKS LIKE IN DOLLARS.
Take a classification with a base rate of $30.00 and a fringe amount of $8.00 an hour, so the prevailing wage is $38.00. An employee on the contractor's health plan has $10,000 a year of premium paid by the contractor and works 2,000 hours across public and private jobs. The credit is $10,000 divided by 2,000 hours, or $5.00 an hour. The cash difference is $8.00 minus $5.00, or $3.00 an hour on every covered hour. On 500 covered hours that is $1,500 of cash on the checks.
Using the same numbers, the contractor divides the $10,000 by only the 500 covered hours and calls the credit $20.00 an hour. That is more than the whole $8.00 fringe, so no cash is paid at all. On the annualization approach in the Department of Labor materials, that is an overstated credit. The unpaid fringe, $3.00 an hour on 500 hours, or $1,500, is owed to the employee, and the contractor has no record that supports the credit it took.
In the example, the contractor pays $30.00 of base wage, $5.00 into the plan and $3.00 of cash, or $38.00 an hour whichever way the fringe is split. The plan does not make the hour cheaper. It changes where $5.00 goes. The cash is wages, so payroll tax and workers comp are usually figured on it, which the labor burden page covers. The plan premium is paid for all hours worked, public or private, so the hours without a fringe requirement still carry the cost.
WHAT WE CHANGE.
SPM takes the fringe amount from the wage determination for each classification and the plan cost per employee from the plan documents, then calculates the credit per hour and the cash difference. The numbers go into the bid, so the estimate prices the fringe the way the payroll will pay it. The pricing guide covers how the wage determination flows into a bid.
SPM asks for the plan documents, the monthly invoices or contribution statements, proof of payment, and total hours by employee for the plan period. The file for each plan year holds the credit calculation, so a payroll question from an agency or a prime contractor can be answered from one folder.
The cash in lieu of fringe has to appear on the check and on certified payroll. SPM works with the contractor's payroll provider so the fringe lines are set up per classification and the cash difference is recalculated when the plan cost or the hours change. SPM does not process payroll, so the payroll provider makes the changes. The payroll integration page covers the setup.
The plan cost, the cash difference, the payroll tax and the workers comp on the cash all belong in the labor burden for the prevailing wage rate, and the compliance cost of certified payroll belongs in the overhead rate for public work. Job costing then shows the full cost of an hour on a wage determination job against the bid.
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