New York State Governor Kathy Hochul signed the Roadway Excavation Quality Assurance Act, codified as NYS Labor Law section 224-F, on August 16, 2023 and it became effective September 15, 2023. This new law expands prevailing wage and fringe benefit requirements as described in Article 8 Section 220 of the NYS Labor law to utility contractors and subcontractors, herein referred to as employers, where a permit is issued by the state, a county, or a municipality to use, excavate, or open a street – otherwise known as “covered work.”
Before this new law passed, employers performing covered work were exempt from paying utility workers the mandated prevailing wage and fringe benefit rates.
Challenges for Non-Union Employers
Union shops are unaffected by the new law as their pay and fringe benefit rate is the same as the prevailing rate. They pay the hourly fringe benefit rate to the union benefit plan to meet their obligation under the law, however, it is more complicated for non-union shops and requires a deep dive.
There are two ways a non-union employer can satisfy the hourly fringe benefit requirements under the new law:
- Pay the hourly fringe benefit rate as additional cash wages in weekly paychecks; or
- Pay the hourly fringe benefit rate to a bona fide benefit plan, fund, or program.
If an employer decides to pay the hourly fringe benefit rate as cash wages, those amounts are subject to payroll-related taxes and premiums such as FICA, FUTA, SUTA, workers’ compensation, etc.
If an employer decides to pay the hourly fringe benefit rate to a bona fide plan, fund, or program, the employer must pay the hourly rate on all hours, including non-covered private work hours, to receive full credit for those contributions. If they do not pay the hourly rate for public and private work hours, the New York State Department of Labor (NYSDOL) will annualize the contributions, diminishing the credit received. The difference between the required fringe benefit rate and the allowable credit must be paid as additional cash wages in the employees’ weekly paychecks.
There are other considerations complicating factors when developing an effective, compliant strategy to meet the fringe benefit requirements for prevailing wage:
- Total public work hours compared to non-public (private) work hours;
- Current employee benefits being provided to employees;
- Administrative capacity of the contractors or subcontractors; and
- Demographics and seasonality of the workforce.
As mentioned previously, paying the fringe benefit rate as additional cash wages results in higher payroll related taxes and expenses which raises overall costs and can make bidding less competitive. However, this certainly might be an option for employers that infrequently engage in covered work.
Contractors that frequently perform covered work and offer robust bona fide benefit plans can take credit for the benefits provided but must perform the annualization calculation regularly. They must also make up any differences between the prevailing fringe benefit rate and the allowable benefit plan credit. This method can be administratively burdensome and if done incorrectly can result in NYSDOL enforcement actions.
Direct Advisors, a division of HUB Retirement and Wealth Management, offers the Direct Advisors Trust which is a bona fide benefit plan fund to streamline and simplify the administration of prevailing wage compliant benefit plans. This solution offers a flexible suite of bona fide benefit options such as medical, dental, paid time off, safety training, supplemental unemployment, and retirement plan benefits. A contractor’s existing employee benefits can be seamlessly integrated into the program without disrupting existing relationships with brokers and advisors.
How We Can Help
Direct Advisors, a division of HUB Retirement and Wealth Management, was established in 2001 and is located in the Albany, New York area. We provide bona fide benefit plan consulting and third-party administrative services to merit shop (non-union) construction companies that are subject to the Davis-Bacon Act and state prevailing wage regulations. Our clients are located throughout the United States.
To learn more about how we can help, contact us to set up a consultation.