By Adam Bonsky, contributor
Many contractors who turned to publicly-funded projects two years ago probably thought they'd be shifting their focus back to private sector work by now. But with economic recovery taking longer than anticipated, and certain areas of the country lagging behind, concrete and asphalt contractors are discovering they may be bidding and working on prevailing wage jobs for the foreseeable future.
Now shrinking state and federal budgets are making these projects less plentiful as well, and competition is exploding. Contractors who once saw five bidders per project are now competing with 20 bidders. With rising concrete prices, contractors are squeezed and forced to find other ways to cut costs and gain a competitive edge. One way to do this is by using the fringe portion of the specified prevailing wages on covered jobs as intended, to provide benefits for hourly workers.
Using Prevailing Wages to Trim Payroll Costs
The Davis-Bacon Act applies to all federally-funded construction projects with a value over $2,000; and to all projects funded in part or in total by ARRA funds, regardless of project size. It requires all contractors and subcontractors performing work on federally-funded construction contracts to pay their laborers and mechanics not less than the prevailing wage rates and fringe benefits for corresponding classes of laborers and mechanics employed on similar projects in the area. Prevailing wage rates and fringe benefits are determined by the U.S. Secretary of Labor, and are specified in the terms of the request for bid. Thirty-one states have their own prevailing wage laws, often referred to as "little Davis-Bacon Acts."
When contractors use the fringe portion of the prevailing wage to provide "bona fide" benefit plans for their workers, these dollars are taken off the payroll and are therefore exempt from payroll taxes such as FICA, FUTA and SUTA as well as workers compensation and general liability. Examples of benefits that might be included in a bona fide benefit plan are retirement plans and medical, dental, vision disability, and life insurance. Although there are variances in the rates for the last two, conservatively these taxes represent an additional 25 cents on each dollar paid as cash wages. Here's an example of how much can be saved by removing these dollars from payroll:
For purposes of this example, the company has 15 employees doing prevailing wage work. These employees work approximately 1,000 hours each per year. The fringe amount above the base rate is $10/hour and the average approximate additional payroll cost when paying fringe dollars as cash wages is 25 percent.
15 employees X 1000 hours = 15,000 total hours
15,000 hours X $10.00 = $150,000 in additional payroll
$150,000 X 25% = $37,500 Company Savings
Savings realized over 5 years: $187,500
Savings realized over 10 years: $375,000
Hour Banking Offers Unique Approach
Prevailing wage benefit plans also offer some other unique features which are attractive to contractors affected by the seasonal nature of their jobs, which is common in the concrete industry. For example, workers can "bank" hours during peak work periods, then use their excess hours to maintain coverage during slow periods (such as inclement weather and layoffs). Three to six months of health benefits can be banked and employers only pay for actual hours worked, ensuring you don't overpay for benefits.
Pennie Astle, president of Strongform, Nationwide Industrial Builders, is a contractor who decided to aggressively pursue prevailing wage work two years ago. "Prior to that time, prevailing wage jobs only accounted for about 10 percent of our business," she says. "But with the slowdown in the economy, I decided it was time to learn more about public works jobs." While researching the laws and regulations that apply to prevailing wage projects, Pennie came across the website for The Contractors Plan.