| Become More Profitable on Government Jobs
The construction industry can be volatile and this has been especially true over the past several years. With private construction faltering, many contractors have turned to public works projects, such as those funded by the American Recovery and Reinvestment Act. While these jobs are no doubt a welcome lifeline, the laws and regulations attached to taxpayer-funded projects can be overwhelming for even the most experienced contractor. Shortly after the ARRA was signed into law, President Obama issued an Executive Order mandating that all projects receiving ARRA funding – regardless of the value of the contract - comply with the Davis-Bacon Act. (The Davis-Bacon Act applies to all other federally-funded projects with a value of at least $2,000.)
What is the Davis-Bacon Act?
The Davis-Bacon Act, passed in 1931, requires payment of locally “prevailing wages” including the “anticipated cost of prevailing benefits.” This is generally expressed as a per-hour wage and per-hour cash equivalent value of benefits, and is often based on a union scale. Prevailing wages are set by the U.S. Department of Labor and are included in the bid specifications of covered contracts.
In addition to this federal law, Massachusetts is one of 32 states with its own prevailing wage legislation. Under Massachusetts law, prevailing wage rates apply to all public construction contracts regardless of the estimated price of the project. Failure to classify workers correctly and pay them the correct wage for work performed can result in serious consequences – even debarment from work on future government contracts. It’s critical that contractors take advantage of all resources available to help them understand and comply with these laws.
How Can the Davis-Bacon Act Help My Business?
Contractors who understand how prevailing wage laws work can significantly reduce their payroll burden on public works projects. When the fringe portion of the prevailing wage is used as intended, to provide “bona fide” benefits for hourly workers, these dollars are taken off the payroll and are therefore exempt from payroll taxes such as FICA, FUTA and SUTA as well as workers compensation and general liability in most states. Examples of benefits that might be included in a bona fide benefit plan are retirement plans and medical, dental, vision, disability, and life insurance.
Using fringe dollars this way creates advantages for both employer and employee on several levels:
• In general, contractors save between 25 and 30 cents on each dollar used to provide benefits.
• Employees have savings for retirement, health insurance for themselves and their families, and additional benefits as selected by the employer.
• Employees with a 401(k) program have lower taxable income.
• The fact that hourly workers are contributing to a retirement plan reduces the company’s tax burden, and can significantly increase the ability of owners and key employees to contribute to the company 401(k) program.
Hour Banking
For employers who choose to offer health insurance as part of their bona fide benefits program, hour banking can address many challenges related to accounting and administration. In general terms, hour banking is a means for employees to “bank” excess hours worked during busy times, then draw from that bank to extend medical coverage during times when they may not have worked enough hours to qualify for coverage. When using an experienced benefits provider, hour banking enables employers to know exactly how much per hour benefits will cost. This results in more accurate bids and prevents the potential for overpayment of premium.
Compliance is Crucial
Concurrent with the passage of the ARRA, President Obama announced that measures would be taken to ensure transparency and accountability for taxpayer monies used for these projects and programs. As a result, the U.S. Department of Labor has significantly increased the number of investigators on its staff, and its budget for enforcement has grown as well. Many prevailing wage experts agree that getting audited is no longer a question of “if” but “when”.
Working with a benefits partner which has experience with bona fide benefits plans that comply with both state and federal laws can greatly help contractors working on government projects. For example, providers should be able to assist contractors by compiling records requested for an audit and/or contacting government officials on the contractors’ behalf to clarify issues and questions.
Conclusion
Public works projects can offer dependable income for contractors, but any project using taxpayer dollars comes with laws and regulations attached, such as the Davis-Bacon Act and Massachusetts prevailing wage law. Rather than attempting to navigate these laws alone, contractors should seek out and partner with a benefits plan provider with experience in this complex niche. Letting your benefits partner take care of your prevailing wage plan will let you focus on building your business.
About the author
Steven Walsh is a benefits professional at Fringe Consulting in Quincy, MA, where he assists contractors with prevailing wage benefit plans. He can be reached at 781 740-0064 or steven@prevailingwageguide.com. Visit www.prevailingwageguide.com for more information |
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