"I would like to say Thank You … for all your help and patience while I try to learn the Prevailing Wage process and all that it entails. You are always there, even when I need to ask the same question a million times over." Yolanda Quiroz Payroll/HR Coordinator
San Diego, California
Contractors Prevailing Wage
Insurance Services
1620 Alpine Blvd.
Alpine, California 91901
800-935-0041
619-445-3472
Fax: 619-445-1824 E-mail Us
Background:
The Davis-Bacon Act created in 1931 and amended in 1935 and 1964 created an environment for all Federal Government construction where contractors performing construction for the Federal Government were required to pay a “prevailing wage”. The Department of Labor is required to set the wage rate in accordance with its interpretation of the wages determined to be prevailing in a certain segment of the country for the work to be performed.
Majorities of States have enacted similar laws commonly known as “Little Davis-Bacon Laws”.
The 1964 amendments to the Davis-Bacon Act required, among other things, that the prevailing wage determined for Federal and Federally assisted construction must include: (a) The basic hourly rate of pay and (b) the amount contributed by the contractor or subcontractor for certain fringe benefits (or the cost to them of such benefits).
The 1964 amendments clearly set out that a contractor will be considered to be in compliance when they: (a) pay the basic wage in cash and likewise pay the required fringe amount also in cash or (b) pay the basic wage in cash and/or make contributions for “bona fide” fringe benefits in a total amount not less than the total of the fringe benefit amount required by the wage determination.
The 1964 amendments also specify: that all contributions for fringe benefits must be irrevocably made to a trustee or third person and are not in any event recoverable by the contractor.
Common Practices
The line of least resistance for contractors performing construction activity for a City, County, State, or Federal entity is to pay the required basic wage and its corresponding fringe amount in cash on the employees’ paycheck. It is easy to do and employees love it as it represents a bonus to them they are not accustomed to receiving.
Far too many contractors take the easy way out and simply pay the fringe portion of the prevailing wage (PW) in cash. They will be in compliance with the Department of Labor and employees love it. What’s wrong with this picture?
A contractor who is monitoring job costs simply cannot afford to overlook the cost of paying the fringe portion of the PW in cash. The following analysis is a fairly typical cost savings that can be achieved when directing the fringe portion of the prevailing wage to a Trust.
EXAMPLE:
Payroll Burden – It is commonly understood that the payroll burden consists of at least the following:
Workers Compensation 20+%
FICA 7.65%
General Liability (if derived from payroll) ?
Medical Insurance ?
For the sake of discussion, we will assume a typical payroll burden to be 30%. This means that the additional cost of $1.00 in payroll is 30 cents.
Let’s follow 30 cents cost per dollar of payroll throughout a 12 month period and see what it is costing to pay the fringe in cash:
If there are 2080 hours in a work year, then potentially $1.00 per hour results in a $2,080 annual expense.
If the payroll burden is costing 30 cents per hour, the additional cost of paying $1.00 per hour is $624 per year, per prevailing wage employee.
If the fringe amount is $10 per hour, then the cost of paying that $10 fringe is $6,240 per employee.
If a contractor only has 15 field employees with a $10 fringe, the cost of paying this fringe in cash is a potential $93,600 per year to the company.
How can a cost conscious contractor overlook the magnitude of this type of savings; particularly when these dollars can be delivered to employees in a fashion to which they will not object? (Please see the “SUBs" section under the Discussion Topics.)
Background: