Understanding Fringe Benefits in Government Contracts
Fringe benefits in government contracts refer to additional compensations beyond wages, such as life insurance, health insurance, pension, vacation, holiday, and sick leave. Contractors must maintain records to show the enforceability and financial responsibility of providing these benefits. Funded and unfunded fringe benefit plans have specific criteria for compliance with regulations. Contractors can take credit for contributions made to third-party trustees or insurers under certain conditions.
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DBA/DBRA FRINGE BENEFITS NOTE: The information in this presentation was drafted from a presentation the Wage and Hour Division included in their 2017 Prevailing Wage Seminar FLORIDA DEPARTMENT OF TRANSPORTATION-JUNE 2017
DEFINITION OF FRINGE-29 CFR 5.28 The costs to a contractor or subcontractor which may be reasonably anticipated in providing benefits of the types described in the act pursuant to an enforceable commitment to carry out a financially responsible plan or program, are considered fringe benefits within the meaning of the act. 2 FLORIDA DEPARTMENT OF TRANSPORTATION
EXAMPLES OF FRINGES LIFE INSURANCE HEALTH INSURANCE PENSION VACATION HOLIDAY; AND SICK LEAVE 3 FLORIDA DEPARTMENT OF TRANSPORTATION
RECORD OF FRINGES-29 CFR 5.5 The contractor shall maintain records which show that the commitment to provide such benefits is enforceable, that the plan or program is financially responsible, and that the plan or program has been communicated in writing to the laborers or mechanics affected, and records which show the costs anticipated or the actual cost incurred in providing such benefits. 4 FLORIDA DEPARTMENT OF TRANSPORTATION
FUNDED FRINGE BENEFIT PLANS Contractors may take credit (without prior approval from DOL) for bona fide FB fund contributions made to third-party trustees or insurers that: Are irrevocably paid; and Are made regularly not less often than quarterly. Credit is for payments made for individual workers eligible to participate in the plan program or fund. 5 FLORIDA DEPARTMENT OF TRANSPORTATION
UNFUNDED FRINGE BENEFIT PLANS Costs for an unfunded FB plan count towards WD obligation if specific criteria are met: The contributions reasonably anticipate the cost to provide a bona fide FB; Contributions are made pursuant to an enforceable commitment; That is carried out under a financially responsible plan; The plan has been communicated in writing to affected workers; The plan has been approved by WHD. 6 FLORIDA DEPARTMENT OF TRANSPORTATION
UNFUNDED FRINGE BENEFIT PLANS Unfunded FB plan criteria: In the previous slide communicated in writing could be as simple as the plan being described in an employee handbook. Contributions still have to be made at least quarterly. The plan or program must be sent to the National office of WHD to be approved. Certified payroll does not have to be accepted without a copy of this approval. But technically if they have been doing everything right-just make them get the approval letter. 7 FLORIDA DEPARTMENT OF TRANSPORTATION
UNFUNDED FRINGE BENEFIT PLANS Unfunded FB plan per 29 CFR 5.5: If the contractor does not make payments to a trustee or other third person, the contractor may consider as part of the wages of any laborer or mechanic the amount of any costs reasonably anticipated in providing bona fide fringe benefits under a plan or program, Provided, That the Secretary of Labor has found, upon the written request of the contractor, that the applicable standards of the Davis-Bacon Act have been met. The Secretary of Labor may require the contractor to set aside in a separate account assets for the meeting of obligations under the plan program. The contractor will have to get approval from the National Office of WHD and will have to set aside in a separate account. 8 FLORIDA DEPARTMENT OF TRANSPORTATION
FRINGE BENEFIT PLANS Employees get no say in what fringe benefits the contractor chooses to provide for them: But the fringes should be communicated to the employee in writing; Contributions are made pursuant to an enforceable commitment; That is carried out under a financially responsible plan; The plan has been communicated in writing to affected workers; The plan has been approved by WHD. 9 FLORIDA DEPARTMENT OF TRANSPORTATION
ELIGIBILITY AND PARTICIPATION Employers may not take credit for contributions for employees who are not eligible to participate in the fringe benefit plan. Employers may take credit for contributions made on behalf of employees who will likely become participants in a plan but are not yet eligible to receive benefits(for example: a health insurance plan with a 30 day waiting period for new participants.) 10 FLORIDA DEPARTMENT OF TRANSPORTATION
ADMINISTRATIVE EXPENSES The administrative expenses incurred by a contractor or subcontractor in connection with the administration of a bona fide fringe benefit plan are not creditable towards the prevailing wage under the DBA. Administrative fees such as book keeping whether done in-house or contracted out-are not allowed to be used toward the cost of providing the prevailing wage. 11 FLORIDA DEPARTMENT OF TRANSPORTATION
ANNUALIZATION PRINCIPLE Annualization is based on all hours worked, both DB and non DB. DB work may not be used as the exclusive or disproportionate source of funding for a benefit in effect during both covered and non- covered work. 12 FLORIDA DEPARTMENT OF TRANSPORTATION
ANNUALIZATION- Computing the creditable hourly rate Determine the hourly rate of contribution that is creditable towards a contractor s DB prevailing wage obligation by: Dividing the total annual contributions by the total annual hours worked (both DB and non DB work). 13 FLORIDA DEPARTMENT OF TRANSPORTATION
ANNUALIZATION- Defined Contribution Plan Example A firm s contribution for an employee s pension plan that does not provide for immediate vesting was computed at $2000.00 a year: The employee worked 1500 hours on a DB project and 500 hours on other jobs that were non DB work. Credit per hour: $2000 / 2000 (hours) = $1.00 per hour. 14 FLORIDA DEPARTMENT OF TRANSPORTATION
ANNUALIZATION- Yes or No Annualization is used for plans that do not have immediate gratuity: In other words there is not immediate vesting. Annualization would not be used for Defined Contribution pension plans that provide: Immediate participation. Essentially immediate vesting. (Example: 100% vesting after an employee works 500 or fewer hours). 15 FLORIDA DEPARTMENT OF TRANSPORTATION
IMMEDIATE VESTING- Definition A person is entitled to the benefits of ownership immediately upon receiving the option or plan, even if he/she no longer works at the company providing it. In other words the person has immediate vesting or ownership of the plan. Annualization would not be used for this type of plan. The period till 100% vestment can not exceed 500 hours. 16 FLORIDA DEPARTMENT OF TRANSPORTATION
COMPUTING HOURLY FRINGE BENEFITS- Creditable for contributions made weekly, monthly, quarterly, etc. In determining cash equivalent credit for fringe benefit payments, the period of time to be used is the period covered by the contribution: If contributions are made weekly, cash equivalents should be computed weekly. If contributions are made quarterly, then cash equivalents should be computed quarterly, etc. So use the period of time of the contributions to calculate the hourly cash equivalent. 17 FLORIDA DEPARTMENT OF TRANSPORTATION
FRINGE BENEFITS- PAYING ALL REQUIRED FRINGE BENEFITS A contractor that pays fringe benefits to approved plans, funds, or programs in amounts not less than were determined in the applicable wage decision of the Secretary of Labor Shall show on the face of the payroll the basic cash hourly rate and overtime rate paid to employees. Such a contractor shall check Section 4(a) of the statement to indicate that payment is also being made to approved plans, funds, or programs not less than the amount predetermined as fringe benefits for each craft. Any exception shall be noted in Section 4(c). 18 FLORIDA DEPARTMENT OF TRANSPORTATION
FRINGE BENEFITS- USE OF SECTION 4(c), EXCEPTIONS Any contractor that is making payments to approved plans, funds, or programs in amounts less than the wage determination required is obliged to pay the deficiency directly to the employees as cash in lieu of fringes. Any exceptions to Section 4(a) or 4(b), whichever the contractor may mark, shall be entered in Section 4(c). Enter in the Exception column the craft, and enter in the Explanation column the hourly amount paid the employees as cash in lieu of fringes, and the hourly amount paid to plans, funds, or programs as fringes. 19 FLORIDA DEPARTMENT OF TRANSPORTATION
FRINGE BENEFITS- NO FRINGE BENEFITS A contractor that pays no fringe benefits shall pay to the employee and insert in the straight time hourly rate column of the payroll an amount not less than the predetermined rate for each classification plus the amount of fringe benefits determined for each classification in the applicable wage decision. Inasmuch as it is not necessary to pay time and a half on cash paid in lieu of fringes, the overtime rate shall be not less than the sum of the basic predetermined rate, plus the half time premium on the basic or regular rate, plus the required cash in lieu of fringes at the straight time rate. To simplify computation of overtime, it is suggested that the straight time basic rate and cash in lieu of fringes be separately stated in the hourly rate column, thus $X.XX/$X.XX. In addition, the contractor shall mark Section 4(b) of the statement to indicate that payment of fringe benefits is being made in cash directly to employees. Any exceptions shall be noted in Section 4(c). 20 FLORIDA DEPARTMENT OF TRANSPORTATION
