How to Calculate Davis-Bacon Fringe Benefits

The Davis-Bacon Act (DBA) ensures fair wages for laborers and mechanics on federally funded construction projects exceeding $2,000. This legislation mandates that contractors and subcontractors pay employees no less than local prevailing wages, which include a basic hourly rate and designated fringe benefits. The DBA’s objective is to prevent wage undercutting and uphold local labor standards on public works. Accurately calculating these fringe benefits is integral for contractors to maintain compliance and execute government contracts. This article guides readers through identifying, determining, and calculating Davis-Bacon fringe benefits.

Defining Davis-Bacon Fringe Benefits

Under the Davis-Bacon Act, “fringe benefits” are additional compensation provided to workers beyond their standard hourly wages. These benefits must qualify as “bona fide,” meeting specific regulatory criteria. The prevailing wage under the DBA combines the basic hourly wage rate and the amount contributed for these fringe benefits. This obligation can be satisfied through various combinations of cash wages and creditable bona fide fringe benefits.

To be considered bona fide, fringe benefits must be part of a legally enforceable plan, fund, or program. This plan must be communicated in writing to employees. Contributions must be irrevocably made to a trustee or a third party, or costs incurred must be pursuant to an enforceable commitment for an unfunded plan. Benefits mandated by federal, state, or local law, such as Social Security, unemployment compensation, or workers’ compensation, do not count as creditable fringe benefits under the DBA. Recognized benefits include health insurance, pension contributions, and paid leave.

Identifying Allowable Fringe Benefits

Health and welfare benefits are a primary category, encompassing medical, dental, and vision insurance, life insurance, and disability insurance. Contributions for these benefits must be irrevocably made to a trustee or third party.

Pension and retirement contributions are also allowable, provided they are made to qualified plans. These can include money purchase pension plans, profit-sharing plans, and 401(k) plans. Contributions must be made regularly and irrevocably to a fund or program. Vacation, holiday, and sick pay are recognized as bona fide unfunded benefits, with costs typically paid from the contractor’s general assets.

Contributions to approved apprenticeship programs can also be credited. These costs are annualized to determine the hourly credit. Other permissible bona fide fringe benefits include supplemental unemployment benefits and compensation for injuries or illness resulting from occupational activity. These benefits must provide for employee welfare and not be administrative expenses of the contractor.

Determining the Prevailing Fringe Benefit Rate

Contractors must identify the specific prevailing wage rates, including the fringe benefit component, applicable to their projects. This information is found in wage determinations issued by the Department of Labor (DOL). These determinations list the wage rates and fringe benefit rates for various classifications of laborers and mechanics.

Wage determinations are categorized by geographic area, often by county, and by the type of construction. Contractors can access these determinations through the System for Award Management (SAM.gov) website. Contractors must select the correct wage determination that matches the project’s location and construction type.

Each wage determination specifies a total prevailing wage, composed of a basic hourly rate and a separate fringe benefit amount. For example, a determination might show a basic hourly rate of $25.00 and a fringe benefit rate of $5.00, meaning the total prevailing wage is $30.00 per hour. Contractors are responsible for ensuring their total compensation to employees meets or exceeds this combined rate. If a specific classification is not listed, a conformance process may be initiated to establish an appropriate rate.

Calculating the Hourly Fringe Benefit Equivalent

Calculating the hourly equivalent of provided fringe benefits is a key step in ensuring Davis-Bacon compliance. This process begins by determining the total annual cost of each benefit for an individual employee. For example, if health insurance premiums are $500 per month, the annual cost is $6,000. The annual cost of vacation pay accrual is calculated based on the employee’s hourly rate and accrued hours.

Next, determine the total annual hours an employee works on Davis-Bacon covered projects, or total hours if benefits apply to all work. A common estimation for full-time employment is 2,080 hours per year (40 hours/week for 52 weeks). This total annual hour figure converts the annual benefit cost into an hourly equivalent. The formula for this conversion is: (Total Annual Cost of Benefit per Employee) / (Total Annual Hours Worked by Employee).

After calculating the hourly equivalent for each individual benefit, sum these hourly values to arrive at the total hourly fringe benefit credit provided to the employee. For instance, if health insurance is $2.88/hour and pension is $1.50/hour, the total fringe benefit credit is $4.38/hour. This total is then compared to the required prevailing fringe benefit rate specified in the wage determination. If the calculated hourly equivalent of provided benefits is less than the required prevailing fringe benefit rate, the difference must be paid directly to the employee in cash.

Documenting and Reporting Fringe Benefit Compliance

Maintaining meticulous records and submitting accurate reports demonstrate compliance with Davis-Bacon fringe benefit requirements. Contractors are mandated to submit certified payrolls, typically on Form WH-347, on a weekly basis. This form details the wages paid and fringe benefits provided to each laborer and mechanic. On the WH-347, contractors must clearly differentiate between fringe benefits paid to approved plans or funds and any cash payments made in lieu of benefits.

Supporting documentation must be retained to substantiate the information reported on certified payrolls. This includes detailed benefit plan documents, proof of contributions made to benefit funds, and records of costs incurred for unfunded plans. Time cards and other payroll records, such as those showing cash payments made to employees to cover fringe benefit shortfalls, are also important. These records provide evidence that the employer has met their prevailing wage obligations.

Contractors must preserve these records for three years following the conclusion of work on the relevant prime contract. This retention period allows for verification during potential audits or investigations by the Department of Labor. Accurate and timely submission of certified payrolls, along with comprehensive supporting documentation, supports Davis-Bacon fringe benefit compliance.