Although many contractors see the jobs promised by the American Recovery and Reinvestment Act as a lifeboat in stormy economic seas, the thought of sailing in uncharted waters may deter some construction business owners from entering the prevailing wage marketplace.
The transition to government work doesn’t need to be complicated. While state and federal agencies are bolstering compliance efforts—and competition for these jobs is intensifying every day—resources are available for contractors considering prevailing wage work.
The U.S. Department of Labor sets the prevailing wage for federal construction contracts subject to the Davis-Bacon Act. The Davis-Bacon Act requires payment of local prevailing wages, including the “anticipated cost of prevailing benefits.” This generally is expressed as a per-hour wage and per-hour cash equivalent value of benefits, and is often based on a union scale.
What many contractors don’t realize is that allocating the benefit portion of the prevailing wage to a bona fide benefit plan works to their advantage on a number of levels.
More Competitive Bids The most immediate advantage contractors realize from implementing a bona fide benefit plan is significant savings on their payroll burden, which translates into lower bids. When the fringe portion of the prevailing wage is used to provide benefits for hourly workers, this amount is not subject to payroll costs such as social security taxes, federal and state unemployment taxes, and workers’ compensation insurance. Although rates for the last two vary, a conservative estimate is that these costs represent an additional 25 cents on each dollar paid as cash wages.
Assume a company has 15 employees performing prevailing wage work, with each employee working approximately 1,000 hours per year. The fringe amount above the base rate is $10 per hour, and the average approximate additional payroll cost when paying fringe dollars as cash wages is 25 percent.
15 employees X 1,000 hours =
15,000 total hours
15,000 hours X $10 =
$150,000 in additional payroll
$150,000 X .25 =
$37,500 in savings
These savings are immediate. In a fierce bidding environment in which the margin between winning a bid and coming in second is often a few thousand dollars, the savings resulting from a bona fide benefit plan can make all the difference.
Increased Retirement Savings for Owners and Key Employees
Prevailing wage benefit plans also can help business owners and key employees maximize the amount they can contribute to their retirement plans.