A brief introduction to prevailing wage and fringe benefits for government contractors

Fringe and Prevailing Wage Basics

 

PREVAILING WAGE & FRINGE DOLLARS

The “prevailing wage” is a term used by the DOL/WHD to describe mandatory pay rates which government contractors must pay their workforce for all covered contracts. The “prevailing wage” is actually one value with two components: basic hourly rate (cash compensation) and fringe rate (benefits provided to the employee in lieu of cash). The government sets minimums for the top level (prevailing wage) and the component (fringe rate) in two different ways.

Service Contract Act
Under the Service Contract Act, the Prevailing Wage varies but the 2019/2020 fringe rate is fixed at $4.54/hour. Put simply the math looks like this:
$4.54/hr fringe + ______/hr cash = $ ________ minimum prevailing wage

Davis Bacon Act
Under the Davis Bacon Act, the Prevailing Wage AND fringe rate vary based on a variety of factors. Here is the math looks like:
$_____/hr fringe + $______/hr cash = $________ minimum prevailing wage

 

THE ADVANTAGE OF FRINGE BENEFITS

Fringe Dollars may be counted towards meeting the minimum prevailing wage requirement. For example this year the federal health and welfare fringe rate under the Service Contract Act is $4.54/hour. Let’s say the prevailing wage for a certain worker is $22/hour. You may pay them $17.46/hour in cash and $4.54/hour in fringe benefits. Why not simply pay the employee $22/hour in cash? Because that $22 is subject to payroll taxes such as FICA, FUTA, state unemployment and workers comp. Leverage fringe benefits and you are only getting taxed on $17.46/hour. You are also investing in keeping your workforce healthy and prepared for the future.

 

WHAT BENEFITS MAY BE INCLUDED

Options which may be included:
Life Insurance, Health Insurance, Disability Insurance, Pension, Vacation, Holidays, Sick Leave, Dental/Vision plans, Health Savings Accounts and other “bona-fide” fringe benefits.

Not included:
Use of a company vehicle, tools, cellular phone, travel expenses also Social Security, unemployment, workers compensation and other contributions required by state or federal law.

 

WHAT ARE THE REQUIREMENTS

Generally speaking “bona fide” means made in good faith without fraud or deficit, earnest in intention. Legally benefits must be clearly communicated in writing to the employee and the same fringe rate and eligibility rules must be applied to all workers equally. Additionally the fringe rate / benefits must be applied to all hours worked on all contracts (both federal and private)

 

WHAT ARE THE OPTIONS

Funded
These include health insurance, life insurance, pension and other monthly or quarterly contributions irrevocably made to a trustee or third party. Contractors do not need DOL approval for leveraging funded fringe benefits.

Unfunded
These are benefits such as vacation, holiday and sick leave paid directly by the contractor, yet still considered fringe benefits and as such not taxable. Unfunded plans must be approved by the DOL.

 

WHERE WE CAN HELP

We build and administer custom fringe benefit plans to match the exact needs of your company. Fringe Benefits can be a powerful tool help you win more bids, raise your bottom line all while also investing in your workforce, however legislation around fringe is highly complex. Let us take the guesswork out of it and ensure your company is compliant and leveraging fringe to your highest advantage.

5-Easy Steps to Fringe Benefit Compliance

In this FREE guide we’ll show you how to create a fringe benefit plan that secures your business

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