Labor Compliance Newsletter - April 2010
| In This Issue | |
| Using the Appropriate Classification | |
| More on Fringe Benefits | |
Classification Back to Top
Using the Appropriate Classification
The employee classification is an important and integral part of the prevailing wage rate program. The Davis-Bacon Act specifies minimum rates of pay for various classifications and the Copeland Act requires the certified reporting of employee's
classification and pay. Obviously, the correct classification of employees bears directly on the required pay, but it is also essential that all reported classifications be correct and accurate, as they are certified to be so each week on the
required certification. The certification language states, in part:
That any payrolls otherwise under this contract required to be submitted for the above period are correct and complete; that the wage rates for laborers or mechanics contained therein are not less than the applicable wage rates contained in any wage determination incorporated into the contract; that the classifications set forth therein for each laborer or mechanic conform with the work he performed. (emphasis added)
Though critically important, the USDOL guidance on the matter of classification includes no descriptions of the classifications included on the wage determinations, nor do they provide clear and specific criteria to be applied in the classification of
employees. Instead, pursuant to administrative rulings, "...the proper classification of work performed by laborers and mechanics is that classification used by firms whose wage rates were found to be prevailing in the area and incorporated
in the applicable wage determination." This has become known as, "Area Practice" and questions as to the proper classification for the work performed by a laborer or mechanic are resolved by making an area practice survey. The concept
of Area Practice and the principles for conducting surveys is more fully defined in the following USDOL guidance: Area Practice Attachment
The issuance of new wage determinations in 2009 has thrown a wrinkle into the classifications used by contractors in Florida. Some of the established classifications included on the old tables and used by contractors for years are not included on the new tables (for instance, Traffic Control Specialist, Traffic Signalization Installer, and Traffic Signalization Mechanic). The appearance of these classifications on past wage determinations no doubt influenced contractors in the traffic signalization business to adopt these classifications such that the use of these classifications became the standard practice. In other instances, such as Truck Driver and Laborer, the old tables included three or four categories where the new tables expand these into as many as 10 Laborer classifications and 11 Truck Driver classifications. Faced with these changes, contractors have been asking for guidance on the expected use and reporting of classifications.
As a matter of practice, the classifications listed on the payroll must be correlated to the applicable wage determination. The employer must do so to assure that the wages paid are, in fact, compliant with those required. FDOT compliance personnel must also correlate the classifications on the payroll to the ones on the wage determination as they review and evaluate the payrolls for compliance. Obviously, the use of identical classifications makes the process of correlation a no-brainer. However, this may not always be possible unless the contractor reclassifies all employees as they are assigned to each job (and that doesn't seem a reasonable expectation). When the classification on the payroll does not match the classification on the wage determination, the contractor should provide additional information to clearly indicate their intent relating to the classification on the wage determination. This additional information may be in the form of a supplemental schedule, notations on the face of the payroll or other suitable means which makes clear the intent of the contractor as to the wage rate criteria that apply.
More on Fringe Benefits Back to Top
More on Fringe Benefits - Calculating the Value of Leave Time
We continue to get questions on fringe benefits, especially as it relates to how the hourly benefit is to be calculated. The October 2009 Newsletter included guidance on this matter, and also included a link to an excerpt of the USDOL guidance appearing
in the Prevailing Wage Resource Book. As it relates to calculating the value of leave time, the following is offered as additional guidance.
Leave claimed as fringe benefit must be part of a bona fide plan - it must be communicated in writing to the employees and must be legally enforceable and it must be carried out under a financially-responsible plan or program. If an employee is
not eligible during the first year of employment, or receives a diminished benefit during the first few years of employment, then the calculation of fringe benefit must reflect this. The basis for any estimates or judgments used in the calculations
should be reasonable and be documented so that they may be substantiated during audits and reviews. Estimates of sick leave usage or annual hours worked should normally be based on historical data.
The calculation of an employee's hourly fringe benefit for leave will be based in part on their rate of pay. Thus, each employee's hourly fringe rate for leave must be calculated individually. If the pay rate changes, the value of the benefit will change. However, if an employee's pay is temporarily increased when they are assigned to a Federal-aid job and their pay will revert back to their previous pay rate, then the calculation of leave benefit cannot assume the higher rate when calculating the hourly benefit. In this case, a good faith estimate of their annualized average pay rate must be used.
Reporting of Fringe Benefits
The USDOL standardized payroll reporting form (Form WH-347) has no provision for reporting of fringe benefits. Instead, it is designed to rely on a box in Section 4 of the payroll certification. This box states that, "in addition to the basic
hourly wage rates paid to each laborer or mechanic listed in the above referenced payroll, payments of fringe benefits as listed in the contract have been or will be made to appropriate programs for the benefit of such employees, except as noted in
section 4(c) below." The problem with the use of, and reliance upon, this portion of the certification form is that the fringe benefits specified in the wage determinations for the various classifications differ widely making it nearly impossible
to make payment of fringe benefits as listed in the contract. The benefits provided employees will never match precisely the fringe benefits called for in the wage determination.
When reporting wages for an employee that is paid additional cash in lieu of fringe benefits, the USDOL allows for reporting of the cash in lieu of fringe in a manner that allows the overtime premium (time-and-a-half) to be paid on only the base rate.
The instructions for completing form WH-347 specify that the reporting
in such instances is to include an indication of the base rate and the cash in lieu of fringe, as follows:
In the "straight time" box for each worker, list the actual hourly rate paid for straight time worked, plus cash paid in lieu of fringe benefits paid. When recording the straight time hourly rate, any cash paid in lieu of fringe benefits may be shown separately from the basic rate. For example, "$12.25/.40" would reflect a $12.25 base hourly rate plus $0.40 for fringe benefits. This is of assistance in correctly computing overtime. When overtime is worked, show the overtime hourly rate paid plus any cash in lieu of fringe benefits paid in the "overtime" box for each worker; otherwise, you may skip this box. Payment of not less than time and one-half the basic or regular rate paid is required for overtime under the Contract Work Hours Standard Act of 1962.
If an employee's regular hourly rate is in excess of the required base rate, then the time-and-a-half must be calculated based on the regular hourly rate. In the example above, an employee whose regular hourly rate is $12.25 and is paid an additional
40 cents per hour for the cash in lieu of fringe may then be paid overtime at $18.38 per hour plus the 40 cents per hour fringe. However, if the employee's regular hourly rate is $13.00 per hour, the employer may not elect to designate some
portion of that rate as a fringe benefit and overtime must be paid at $19.50 per hour.
FDOT contractors (and subcontractors) wishing to claim credit for fringe benefit contributions will need to include a statement of fringe benefits by employee. This reporting is consistent with the requirements of the FHWA-1273, Section V, b) and
c). As with all payroll reporting, the contractor may report in any form desired as long as it sets out accurately and completely all of the information required. The suggested format for reporting is included here in MS Excel Format (
Fringe Reporting). If this form is used, the column headers titled "Type of Fringe" should be replaced with descriptive titles such as "Health Ins.", "401K Contribution", etc., and the amounts listed for each employee should be the
hourly rate as calculated based on the guidance provided. Contractors claiming credit toward fringe benefits should check box 4)a) of the certification form. That box indicates that, "...fringe benefits as listed in the contract have
been or will be made..." Because the fringe benefits on the Wage Determination vary widely, it is unlikely that any employer will make the fringe benefit contribution "...as listed in the contract..." Rather than trying to list the
differences in box 4)c) of the certification form, we ask that you use the suggested form or something similar.
A Final Note...
Watch for USDOL guidance relating to health insurance as a fringe benefit. The basic rule for allowing the cost of benefits to be claimed as a fringe benefit toward the Davis-Bacon requirement specifies that:
No credit may be taken for any benefit required by federal, state or local law, such as:
Workers compensation
Unemployment compensation
Social security contributions
I'm not familiar with the specific terms and requirements of the new Federal healthcare legislation, but it is my understanding that it will require employers to provide healthcare coverage. Taken in the context of the stated USDOL policy, this might mean that health insurance would no longer qualify as a fringe benefit (since it is required by law); however, given that the rates (including benefits) were established under a framework where health insurance was considered a fringe benefit, it should continue to be considered as such. Expect the USDOL to issue more formal guidance on this topic.