At the federal level and in many states, California included, annualization means public money shall not be used to subsidize a private work benefit. In the other meaning, used in some states, it simply means that contributions to employee benefit plans shall be made on an all hours basis, with no exceptions.
An example of public money not subsidizing private benefits is with health insurance, a benefit that has a fixed cost. Because employees derive the benefit 24 hours a day, seven days a week, and not just when they are working prevailing wage, the benefit is “annualized” in its payment mechanism.
Multiply the monthly premium by 12 months to arrive at an annual cost. This amount is then divided by the number of available standard work hours in a year. (2080 is the commonly accepted number of standard annual work hours based upon 40 hours per week times 52 weeks, as long as the employee does not work overtime).
The resulting hourly cost is the amount that a prevailing wage contractor can use when taking credit on his certified payroll reports.
An annualized cost creates fairness in allocating expense between public and private work, as an equal expense is created on an hourly basis regardless of whether an employee is working on public or private work.
No. If the plan has received an “exemption” from annualization, such as a defined contribution plan, the contributions do not have to be annualized.
It allows a prevailing wage contractor to make contributions only when the employee is working on prevailing wage projects and there is fringe money to be used in making the contribution.
