Labor Compliance Newsletter - October 2009
| In This Issue | |
| New Wage Tables | |
| Fringe Benefits | |
| Using the Proper Classification |
New Wage Tables Back to Top
In July 2009, the US Department of Labor (USDOL) began issuing new wage tables for Florida. These were not merely updates to the existing tables, but totally new tables with new reference numbers. These tables are used in the Department's lettings, beginning 10 days after their issuance. Any existing contracts or contracts let prior to the issuance of these tables are not affected - those contracts continue to use the wage table that was assigned (the one published up through 10 days prior to the letting of that contract). On July 10, 2009 the USDOL issued General Decisions FL104 through FL170 for "Building" construction and FL171 through FL231 for "Residential" construction. On September 11, 2009 the USDOL issued General Decisions FL232 through FL281 for "Heavy" construction. On October 9, 2009 the USDOL issued General Decisions FL282 through FL340 for "Highway" construction.
In many instances, these new wage tables include wages and benefits that are significantly higher than those in the tables they replaced. In addition, the new tables may include new classifications that were not previously listed, they may omit classifications that were previously listed, or they may list a classification with a slightly different title. Also notable in some of the Highway and Heavy tables is a requirement to have two operators for cranes over 150 tons. Of course, contractors and subcontractors need to carefully consider the all of the requirements in the new wage tables when preparing bids or quotes. All Federal Aid jobs now being let will include the new wage tables.
The new wage tables include many instances where fringe benefits are included, some in significant amounts. Employers may pay any combination of cash and bona fide fringe benefits to meet the total requirement for the classification. If claimed, the fringe benefits must be paid for all hours worked, including overtime (but the fringe benefit amount shown in the wage determination may be excluded from the half-time premium due for overtime worked). This is an important but subtle reason for the fringe benefit to be listed separately rather than merely combined with the base rate.
The following examples illustrate the wage requirements that apply when fringe benefits are involved:
Under FL 307 (Highway construction, Broward County)
Classification Rates Fringe
Cement Mason/Concrete Finisher $12.00 $0.00
Ironworker, Reinforcing $15.00 $2.45
Note: The below examples address the minimum requirements. References to "cash" does not mean currency or off-the-books payment, it refers to the basic hourly rate of pay.
The cement mason may be paid $12.00 cash or may be paid $11.00 cash plus fringe benefits of $1.00 per hour. If this employee works overtime, they must be paid time-and-a-half their regular rate of pay for hours over 40. So, where the payment is cash wages, this means they must be paid an minimum of $18.00 per hour for overtime. Where the payment includes fringe benefits, the normal calculation of overtime would be $16.50 (1.5 times $11.00) along with the $1.00 fringe benefit, but that does not satisfy the Davis-Bacon requirement! The overtime pay in this example must total at least $18.00 per hour (cash payment and fringe). In this case the overtime rate must be $17.00 per hour plus the $1.00 fringe. Of course, if the employee is making more than the required minimum rate, say $15.00 per hour, then overtime must be compensated at one-and-a-half times their regular rate - $22.50 per hour in this case. This is required by the Contract Work Hours and Safety Standards Act which applies to all Federal Aid contracts.
In the other example, with the ironworker, reinforcing; they may be paid $17.45 in cash; they may be paid $15.00 in cash and $2.45 fringe benefits; or they may be paid $13.00 in cash and $4.45 in fringe benefits. If the employee works overtime and was paid $17.45 per hour for their regular rate of pay, overtime is required at $26.18 per hour. Where payment was at $15.00 in cash and $2.45 in fringe, then overtime pay must be at $22.50 per hour plus $2.45 fringe. Where payment was at $13.00 per hour plus $4.45 fringe, the normal calculation of time-and-a-half doesn't cut it. The total minimum required overtime payment is 1 1/2 times the base rate ($15.00*1.5 = $22.50) plus the fringe benefit of $2.45 or $24.95. If fringe benefits are provided at $4.45 per hour, then the cash rate for overtime must be at least $20.50.
More complete guidance on the issue of fringe benefits is in the next section.
Fringe Benefits Back to Top
While the rules governing prevailing wage requirements have included fringe benefits since the 1964 amendment to the Davis-Bacon Act, the new wage tables include more classifications showing fringe benefits and the fringe benefits listed are frequently much higher. The rates required in the past were low enough in many cases that employers easily met the requirement without claiming any fringe benefit, even though some benefits may have been provided. With the adoption of these new higher rates, we anticipate that a greater number of contractors will be claiming fringe benefits towards the payment of the required wage. The record-keeping and reporting for fringe benefits can be somewhat complicated, so the following guidance is being provided to assist in the correct reporting of fringe benefits. USDOL's guidance from the 2009 Prevailing Wage Resource book is included in the linked .PDF below.
View Guidance Document
(Contractors claiming fringe benefits are encouraged
to read and become familiar with this document)
REPORTING AND RECORDKEEPING
When claiming fringe benefits, payroll submissions must include detail of the value of fringe benefits provided for each employee listed and must also maintain supporting records to demonstrate that the claimed benefits
comply with USDOL requirements. Credit may not be taken for fringe benefit contributions made on behalf of employees who are not eligible to participate in a plan (for instance, those excluded due to age, pre-existing condition, or part-time
employment).
WHAT IS A FRINGE BENEFIT?
The definition of a fringe benefit is quite broad, but includes an important exclusion - it cannot be something required by law. Specifically, the Code of Federal Regulations lists the following as fringe benefits:
Medical or hospital care, pensions on retirement or death, compensation for injuries or illness resulting from occupational activity, or insurance to provide any of the foregoing, unemployment benefits, life insurance, disability and sickness insurance,
or accident insurance, vacation and holiday pay, defrayment of costs of apprenticeship or other similar programs, or other bona fide fringe benefits, but only where the contractor or subcontractor is not required by other Federal, State, or local
law to provide any of such benefits.
WHAT IS NOT A FRINGE BENEFIT?
According to the exclusion based on requirement of law, the following are not allowed to be claimed as fringe benefits:
Employer contributions for Social Security taxes (or FICA), workers compensation insurance, and unemployment compensation taxes.
Also, the guidance in the Prevailing Wage Resource Book states that the use of a truck is not a fringe benefit, a Thanksgiving turkey or a Christmas bonus is not a fringe benefit.
Profit sharing plans, bonus and incentive plans generally cannot be claimed as fringe benefits because the value of such plans cannot reasonably be determined as they are contingent on unforeseeable events. Profit sharing plans that provide for
a payment only if the company enjoys a certain profit goal have no assurance that the payment will occur and hence are not subject to a reasonable estimation of the annual value of the benefit. Likewise, bonus or incentive plans that are based
on employee attendance, injury-free workdays or other such goals by their nature provide no assurance of payment and thus cannot be claimed as fringe benefits.
TYPES OF FRINGE BENEFIT PLANS
The regulations recognize two distinct types of fringe benefit plans; funded and unfunded.
Funded Fringe Benefit Plans: These plans require that contributions be made irrevocably, at least quarterly, to a trustee or third party pursuant to a fund, plan or program. These plans most commonly provide for health or life insurance and pensions. The contractor must make payments or incur costs with respect to each individual and the amount claimed for each employee towards the required wage is to be determined separately (it is not permissible to claim an average premium or contribution).
Unfunded Fringe Benefit Plans: These are plans or programs where the contractor may reasonably anticipate the cost of providing the benefit, and the cost will be paid from the general assets of the contractor. These plans most commonly provide for holiday, vacation, or sick pay. There are four criteria which must be satisfied for an unfunded plan to qualify as an eligible benefit that may be claimed by the employer:
1. It can be reasonably anticipated to provide benefits described in the Davis-Bacon Act;
2. It represents a commitment that can be legally enforced;
3. It is carried out under a financially responsible plan or program, and;
4. The plan or program has been communicated in writing to the covered employees.
To ensure that unfunded plans are not used to avoid compliance with the Act, the USDOL requires that contractors set aside, in an account, no less often than quarterly, sufficient assets to meet the future obligations of the plan.
CALCULATING THE VALUE OF THE FRINGE BENEFIT
Employers may claim credit for fringe benefit contributions based on the effective annual rate of contributions for all hours worked during the year by an employee. This is referred to as "annualization"
and will necessarily require certain estimates and judgments.
For instance, if the employer subsidizes medical insurance at a cost of $200 per month, this would be a total annual cost of $2,400. At the standard 40-hour week, there would be 2080 worked in the year and the hourly credit for medical insurance
would be $1.15 ($2,400/2080). If the employer allows two weeks of vacation (see below for determining credit for leave), then the total anticipated work hours for the year would be 2000 and the hourly credit for medical insurance would be $1.20
($2,400/2000). If the employer's typical work week is more than 40, then the calculation needs to reflect a reasonable expectation of this. For instance, if 50-hour weeks are the norm and two weeks of vacation are allowed, then the annual
hours worked would be 2500 and the hourly credit for medical insurance would be $.96 ($2,400/2500).
For paid vacation or leave time, the first step is to determine the annual value of the benefit. If an employee is paid $15.00 per hour and is allowed a two-week paid vacation each year, the annual value is $1,200. With a standard 40-hour
week (and 80 hours off for vacation), the annual hours worked would be 2000 and the hourly credit would be $.60. If an employee's hourly pay changes, or their standard work-week changes, then the calculation must be revised.
Sick pay plans can be tricky since it is nearly impossible to predict the use of sick time. The USDOL regulations list "sick pay plans" as one of the allowed types of unfunded plans, but guidance or examples are not given. The following is the interpretation of the FDOT. If a plan provides for paid sick days, say 5 per year, but makes no allowance for payment if sick days are not used, then the contractor must establish a reasonable estimate of the days that are expected to be paid. The best estimate is likely to be derived from past experience by the contractor. Obviously, in this instance, averaging techniques must be used to derive an estimate of expected annual use of sick leave. If employment history of the contractor shows that the average employee takes 2 1/2 days of sick leave per year, or 20 hours, then this would be used in the same manner as calculating paid vacation and could actually be calculated as a single "paid leave" calculation as follows:
Leave Type | Annual Hours | Rate of pay | Annual Cost |
Paid Vacation (10 days) | 80 | $15.00 | $1,200 |
Paid Sick Leave (2 1/2 days) | 20 | $15.00 | $300 |
Paid Holidays (6 days) | 48 | $15.00 | $720 |
Totals | 148 | $2,220 |
With a standard 40-hour work-week and 2080 hours available in a 52-week year, the hours worked would be estimated at 1932 (2080-148). The hourly credit for paid leave would be $1.15 ($2,220/1932).
When using the annualization technique, contractors must consider all hours worked by the employee during the year (or anticipated to be worked). Contractors may not consider only those hours worked on Davis-Bacon jobs when determining creditable fringe benefits. For instance, if an employee worked 1500 hours of the year on a Davis-Bacon covered project and 500 hours on other jobs, the annualization calculation must use the 2000 total hours to arrive at an hourly rate for fringe benefit credit. Following through with this example, if the pension benefit was computed to be $2,000 for the year, then the fringe benefit credit would be $1.00 per hour ($2,000/2000 hrs.). A calculation using only the Davis-Bacon hours ($2,000/1500 hrs.) is not allowed.
Using the Proper Classification Back to Top
One of the most frequent questions regarding Davis-Bacon is the question of proper classification of an employee. We have posted a listing of common descriptions of various classifications, but the official USDOL guidance provides no such description. The USDOL guidance states:
◊ There are no nationwide standard classification definitions under the DBA. (This differs from the SCA, as SCA classifications are defined in the SCA Directory of Classifications.)
Note: The Dictionary of Occupational Titles, published by the Department's Employment and Training Administration, cannot be relied on for making Davis-Bacon determinations regarding proper employee classification.
◊ The Wage Appeals Board ruled in Fry Brothers Corp. (WAB Case No. 76-6, 6/14/77) that 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 Davis-Bacon wage determination.
◊ Questions as to the proper classification for the work performed by a laborer or mechanic are resolved in accordance with prevailing local area practice. An "area practice survey" may be conducted by the WHD or by the contracting agency to determine
proper classification of workers.
Note: SCA refers to the Service Contract Act, another program administered by USDOL.
While this guidance defers to the prevailing local area practice, this practice must be within certain limits to be acceptable to FDOT. The following are some of the criteria that will be applied in evaluating the classification:
1. The employee classified as an "Unskilled Laborer" cannot be performing skilled craft work or operating power equipment. The skilled crafts and equipment operators are different categories in the Wage Determination and reported classifications must comport to these categories regardless of any assertion of local area practice.
2. If a classification appears on the Wage Determination, that classification is to be used for the employee performing that task. For instance, where the Wage Determination shows the classification "Power Equipment Operator: Guardrail Post Driver", and the contractor's employees are primarily engaged in the activity of driving guardrail posts with a piece of equipment or apparatus, then this established classification should be used. An argument of a prevailing local area practice is unlikely to prevail and allow this employee to be otherwise classified.
3. Where the employee is operating a piece equipment that is not substantially similar in operation to the equipment for the classification used, the classification will not be allowed. For instance, an employee operating a directional boring machine would not be allowed to be classified as a "Power Equipment Operator; Tractor". Claims of prevailing local area practice must be reasonable in terms of the duties performed - those duties should be substantially similar to the duties of the classification used.
Additional classifications are routinely processed to add classifications under FDOT contracts. Where the operation of specialty equipment does not clearly fall within an existing classification, and there is little in the way of local area practice, the additional classification is the most appropriate course of action (as opposed to forcing it to fit under an existing classification).