Davis-Bacon fringe benefits, with the math

The two parts of a prevailing wage rate

Each classification on a wage determination has a base rate (the cash hourly wage) and a fringe rate (the hourly value of benefits). Both are minimums. The examples on this page use a real one: WD OH20260078, Mod 1 (Franklin County, Ohio, building), Electrician $43.00 base plus $26.37 fringe, $69.37 an hour in total.

The statute defines wages as the basic hourly rate plus the contributions to, or reasonably anticipated costs of, bona fide fringe benefits such as medical care, pensions, life and accident insurance, vacation and holiday pay, and apprenticeship costs, but only for benefits the contractor is not required by other law to provide [40 U.S.C. 3141]. You owe the total; how you split it between cash and benefits is up to you.

Paying fringe in cash

The simplest way: pay the fringe amount as extra cash on every hour. The regulation's own example: a $21.93 base and $6.27 fringe can be met with a straight-time rate of at least $28.60 [29 CFR 5.31(b)].

Cash in lieu is taxable wages. That is why many contractors prefer plans: a dollar into a bona fide plan generally is not subject to payroll taxes, a dollar of cash is.

Paying into bona fide plans

Contributions count when they are made irrevocably to a trustee or third party not affiliated with you, under a plan that does not let you take the money back [29 CFR 5.26]. Contributions must be made at least quarterly to count for the weeks they cover [29 CFR 5.5(a)(1)(i)]. Common plans: health and welfare, pension or 401(k) employer contributions, life and disability insurance, vacation and holiday funds, and registered apprenticeship program costs.

Self-funded ("unfunded") plans can count only with prior approval from DOL [29 CFR 5.28].

Annualization: the rule that trips people up

Plan credit is generally figured per hour across all hours the worker works in the year, on Davis-Bacon jobs and private jobs alike. DOL's rule: divide "the total cost of the fringe benefit contribution" by "the total number of hours worked on both private (non-DBRA) work and work covered by the Davis-Bacon Act and/or Davis-Bacon Related Acts" [29 CFR 5.25(c)]. The point: you cannot pay for a benefit that covers the whole year and claim all of it against the prevailing wage hours.

DOL's own handbook example: a pension program costing $15,000 a year with 15,000 total working hours gives a $1.00 hourly credit [FOH 15f12(c)]. When plan costs differ by worker (single vs family coverage), figure each worker separately; you cannot average across the crew.

Exceptions: defined contribution pension plans with immediate participation and vesting within the first 500 hours worked are excepted from annualization, and DOL can approve other exceptions for benefits that are not continuous and do not cover both private and covered work [29 CFR 5.25(c)(2)].

The annualization section of the 2023 rule is being challenged in a pending federal case in Texas; it stays in effect unless a court rules otherwise [status report].

Mixing cash and plans

Most contractors do both: plans for part of the fringe, cash for the rest. From the WH-347 worked example, Daniel Ruiz worked 46 hours:

Plans total $1,062.60 (column 6B on the WH-347) and cash is $150.42 (column 6C). $1,062.60 + $150.42 = $1,213.02, which is exactly 46 × $26.37.

Fringe and overtime

Overtime is 1.5 times the base rate. Fringe, including cash paid in lieu of fringe, is excluded from the overtime calculation [29 CFR 5.32], but it is still owed on overtime hours at the straight amount.

Paying more than required is not a violation, but the overpayment adds up: $13.19 an hour of overtime. Leaving fringe off overtime hours is a violation.

One exception: if you pay a regular rate above the WD base, the overtime rate under the Fair Labor Standards Act is figured on that higher regular rate. Cash in lieu of fringe is still excluded.

What does not count toward fringe

• Benefits required by other law: workers' compensation, unemployment insurance, Social Security and Medicare [29 CFR 5.29(f)].
• Your own administrative costs of running benefits, even if you pay a third party to do the work. Costs of the carrier, trust or third-party administrator tied directly to delivering the benefit can count [29 CFR 5.33].
• Travel, subsistence and industry promotion payments, which are not normally fringe benefits [29 CFR 5.29].
• Unfunded plans without DOL approval [29 CFR 5.28].

Fringe on the WH-347

• 6A: base rate paid, without cash fringe.
• 6B: total plan credit for the week = hours × the worker's total hourly credit from page 2.
• 6C: cash paid in lieu of fringe = hours × cash fringe rate.
• Page 2, statement 5: checked whenever fringe was paid. If you claim plan credit, fill the hourly credit table with each plan's name, type, number, funded or unfunded, and each worker's hourly credit. Cash only: check the box and leave the table empty [DOL instructions].

More on page 2 in the Statement of Compliance, explained.