By Gabrielle Kehoe, Sheats and Bailey, PLLC
As you all know, if you work on public projects, either New York or Federal, you must pay prevailing wages. The prevailing wage rate is based on geography and classification of the work being performed. Prevailing wages consist of two things: hourly wages and supplemental (or fringe benefit) wages. The former is the wage paid to the employee in his/her check and supplemental wages are meant to represent the hourly value of benefits like health insurance, retirement contributions or paid time off.
Supplemental wages, what counts?
If your company contributes to a retirement plan, provides health insurance, disability insurance, sick leave or vacation pay, training or apprenticeship programs, or more, those qualify as supplemental benefits or “bona fide” benefit contributions. However, statutorily required payments such as social security, workers’ compensation, or reimbursements for travel expenses are not included in fringe benefits.
What weight do these benefits bear on prevailing wages?
Under both New York and federal law, contributions to bona fide benefits can offset the prevailing wage’s supplemental wage allocation. If your company contributes to a bona fide benefits plan, you can deduct these contributions from that supplemental wage allocation. However, New York and federal projects differ on how to calculate these contribution deductions.
New York’s calculation
Under New York’s Labor Law, annualization is used to calculate deductions. Annualization requires that all qualifying benefits paid to an employee to be identified and totaled for the year. Then, that total must be divided by the total hours the employee worked on both public and private projects. Once that is calculated, the hourly rate for the annual bona fide benefits paid to an employee is found. This number should be compared to the supplemental fringe benefits set on the prevailing wage schedule, and the difference between the two must be paid weekly to the employee.
For example: Let’s say the total annual contributions to a bona fide benefits plan for one employee equals $10,000 and that employee worked full time on both public and private projects for a total of 2,080 hours. Meaning, there was $4.80 paid ($10,000/2080 hrs) to that employee in fringe benefits every hour on top of their hourly rate over the past year. Now consider that the hourly supplemental benefit rate is $39.80 on top of the basic hourly wage rate. Only $35.00 needs to be paid on top of the basic hourly wage to satisfy the prevailing wage rate.
Federal calculations
Federal law differs from New York in that there are two different ways to calculate supplemental wage deductions. The choice between the two relies on whether the employee has immediate eligibility (or are expected to become eligible) and immediate 100% vesting (i.e., there are no conditions to be satisfied to receive the contributions to the plans) of the prevailing wage contributions for their bona fide benefit plans or if the employee has not yet and is not expected to qualify for the plans due to being a member of an excluded class.
First is the dollar-for-dollar method. This method can be used toward fringe benefit obligations for contributions to eligible retirement plans. To be eligible the retirement plan must require that the employee be immediately eligible for the plan and 100% vesting (i.e., has complete ownership) of the plan contributions. This formula excludes hours worked on non-governmental or ineligible projects. This method allows full credit for the amount of contributions made on Davis-Bacon Work.
For example: an employee worked 1,000 hours on Davis-Bacon projects and the fringe benefit rate is $10 an hour for the year. The employer contributes $7.00 an hour to a fully vested, immediately eligible retirement plan for an employee working on a Davis-Bacon project, the employer can then credit the full $7.00/hour or $7,000.00 a year toward their fringe benefit obligation. Please note this dollar-for-dollar method cannot be used when calculating a credit on fringe benefits for NYS prevailing wage projects.
Second, like New York, the annualization method is used when an employee does not have immediate or expected eligibility to the bona fide benefits plan. This formula allows for all hours worked on both eligible government projects to be balanced against the total hours worked on ineligible projects.
This will look like New York’s annualization calculation from the previous section.
How can fringe benefits be paid to laborers?
Under New York and federal law, these benefits can either be paid in weekly cash wages, or on a bona fide benefits plan, such as a retirement account. However, those who work both State and Federal Jobs need to make sure they do not apply the dollar-for-dollar federal method when determining contribution credits on New York prevailing wage jobs. The dollar-for-dollar method can only be applied to federal projects, and New York only uses the annualization method to calculate prevailing wages. Misapplying the dollar-to-dollar method on New York jobs can lead to underpayment of fringe benefits and result in a DOL audit and costly fines.
The information provided in this article is not intended to serve as specific legal advice for any particular situation. Competent legal and experienced counsel should be consulted.