Fringe benefits on a Davis-Bacon job: cash, plan, or both

A Davis-Bacon wage determination gives 2 numbers for each classification: a basic hourly rate and a fringe rate. The prevailing wage is the sum. A determination that says $42.15 and $18.40 means the worker must receive at least $60.55 per hour in some combination of cash and bona fide benefits.

How you split that between cash and benefits is your choice. The regulation at 29 CFR 5.31 gives 3 ways to meet it.

The 3 ways to pay fringe

The regulation's own example uses a laborer classification at $21.93 basic and $6.27 fringe.

Contribute to plans. Pay the $21.93 basic rate in cash and contribute at least $6.27 per hour to bona fide fringe benefit plans. Health insurance, pension, vacation funds, and apprenticeship training funds are typical.

Pay it all as cash. Pay $28.20 (the regulation's example misprints the total as $28.60) per hour in cash: the basic rate plus the fringe rate. This is what a contractor with no benefit plans does, and it is common among small subs.

Combine. Pay some fringe into plans and the rest as cash, as long as the total reaches $28.20. A contractor whose health plan costs $4.00 per hour pays $2.27 in cash in lieu.

The obligation is met when basic cash plus plan credit plus cash in lieu is at least the determination's basic rate plus fringe rate. There is one floor inside that flexibility: the basic cash rate you pay sets the overtime base, and it can never be treated as lower than the determination's basic rate for overtime purposes. Why that matters.

What "bona fide" means

A plan counts toward the fringe obligation if the contributions are irrevocably made to a trustee or third party under a fund, plan, or program, or if the plan is one whose reasonably anticipated costs the Secretary of Labor has approved. The everyday examples are funded plans: insurance premiums paid to a carrier, contributions to a union trust fund, payments into a 401(k).

Things that are not fringe benefits for this purpose: payments the law already requires you to make. Employer FICA, unemployment insurance, and workers' compensation premiums do not count. A truck allowance or a per diem is not fringe either.

Unfunded plans, where the contractor promises a benefit and pays for it out of pocket when it comes due (a company-paid vacation policy with no fund behind it, for example), can be credited only with prior approval from the Department of Labor. The WH-347 instructions repeat this: where the contractor claims credit for "reasonably anticipated costs of fringe benefits provided directly by the contractor," it "must have prior approval from the Department of Labor." Without that approval, the value of the unfunded benefit does not count, and the fringe must be paid as cash or into a funded plan.

Annualization

Plan contributions are credited per hour worked on the Davis-Bacon job, but many plans cover the worker's whole year, including hours on private jobs. The rule since October 2023 codifies what the Department of Labor had long applied: the credit for a contribution is the annual cost divided by all hours the worker works in the year, on covered and uncovered projects alike.

Example. Health insurance costs the employer $10,400 a year for a worker who works 2,000 hours a year, 600 of them on Davis-Bacon projects. The credit is $10,400 ÷ 2,000 = $5.20 per hour, on every hour. It is not $10,400 ÷ 600 = $17.33, even though that would cover the whole fringe on the covered hours.

The exception is defined contribution pension plans with immediate participation and essentially immediate vesting (within the first 500 hours worked), where the contribution is tied to the hour it was earned. A 401(k) match of $2.00 for every hour worked on the project can be credited at $2.00 on those hours.

Hourly credit, not weekly totals

The WH-347 works in hourly rates for the check and weekly totals for the form. To fill it out you need each plan's credit per hour for each worker.

For a plan billed per month, divide the monthly cost by the worker's monthly hours, using the annualized approach above. For a union trust fund that is billed per hour, the rate is already hourly. Add the plans together for the worker's total hourly plan credit.

On page 1, column 6B is that hourly credit times the worker's hours for the week. Column 6C is the cash in lieu rate times hours. On page 2, box 5 is checked and the table lists each plan's name, type, plan number, whether it is funded, and the hourly credit per worker, with a total hourly credit column that should match what you used for 6B.

A complete example

The determination says Electrician: $42.15 basic, $18.40 fringe. The contractor pays a union health and welfare fund $11.20 per hour and a pension fund $7.20 per hour, totaling $18.40. The worker works 40 straight and 2 overtime hours.

Gross excludes the plan contributions because the worker never receives them as pay. Page 2 lists both plans with $11.20 and $7.20 next to the worker's name and $18.40 in the total column.

Now the same worker at a non-union shop with no plans. Fringe is paid as cash.

Same $18.40 on every hour, overtime included. The cash version raises gross and therefore the worker's taxable wages, which is one reason contractors who can set up a plan do.

Records you must keep

When you take credit for plan contributions, the regulation requires records showing that the commitment to provide the benefit is enforceable, that the plan is financially responsible, that the plan was communicated in writing to the workers, and what the costs anticipated or actually incurred were. Keep the plan documents, the premium invoices, and the remittance reports with the certified payroll file for the same 3 years. Retention rules.

Apprentices and fringe

Apprentices are paid fringe according to their program. If the program does not specify fringe, they get the full fringe rate on the determination for their classification, even though their basic rate is a percentage of the journeyworker's. The apprentice rules.

The mistakes reviewers look for

Multiplying the fringe into the overtime rate. Counting employer FICA or workers' comp as fringe. Taking credit for an unfunded vacation policy without approval. Crediting the whole annual health premium against only the covered hours. Filling column 6B without the page 2 table. Each is a rejection, and the first two are underpayments or overpayments you will be asked to reconcile.