I have previously written on a contractor’s potential tax savings when utilizing a bona fide benefit plan to satisfy the requirements of the prevailing wage law. However, there are other ancillary advantages that can provide a competitive advantage for contractors.
Savings on Overtime Pay
The Davis Bacon Act (DBA), Service Contract Act (SCA) and some states do not require an increase in the fringe benefit rate for periods of overtime as they do with wages.
Satisfy Government Mandates
Federal and state governments often require employers to provide certain benefits to employees.
The Patient Protection and Affordable Care Act of 2010 (ACA) is the best example at the federal level.
In addition to federal mandates such as the ACA, many states have mandated paid time off benefits for a variety of reasons such as the birth of a child, sick pay, etc.
Health insurance under the ACA and paid time off programs mandated by state or local governments are all considered bona fide benefits and can be paid for with prevailing wage fringe benefit contributions unless exempted by state prevailing wage laws.
Offset Cost of Other Benefits
Contractors that choose to pay prevailing wage fringe benefit contributions as cash wages and also provide certain bona fide benefits are essentially paying for benefits twice. This is common with employer-provided retirement programs such as 401(k) plans. However, with proper planning, employers that match employee contributions to a 401(k) plan (or make other types of contributions to retirement plans) can take credit for that cost against their prevailing wage fringe benefit obligations. This type of planning generates magnified savings when you take into consideration the labor burden savings outlined earlier.
Compete with Labor Unions
Utilizing prevailing wage fringe benefit contributions to fund employee welfare and pension programs can result in benefit programs that make merit shop contractors more attractive for existing and prospective employees, as properly structured plans can far exceed those offered by labor unions. For example, union benefit plans are a pool, providing funding for benefits for existing workers as well as previously retired workers. Union retirement plans are defined benefit plans that promise a certain benefit at a certain age but are not tied to the amount that an individual worker actually contributes. Union retirement plans typically have long waiting periods before benefits start and long vesting periods that can be punitive to employees.
A merit shop contractor has tremendous flexibility in the design of its benefit programs. Proper benefit planning can help retain employees and attract potential new employees because benefits are linked to individual workers.