Services | Prevailing Wage

The  wage determination belongs to the contractor (not the employee) with  the mandate that it be spent for the employee’s benefit in some  combination of wages and bona fide third party administered benefits  (i.e. health insurance, qualified retirement plans, flexible spending  accounts, certified training programs, vacation plans and severance pay  plans).
 

In California, the base wage must be paid out as cash compensation. Contractors  not governed by Collective Bargaining or Project Labor agreements may  redirect some or the entire fringe portion of a wage determination into  the aforementioned plans at their discretion. The employee has no say in how the fringes are allocated. These monies are clearly viewed as employer contributions – not employee elective contributions.
 

An Merit Shop contractor has enormous flexibility in allocating fringe  dollars (absent a Project Labor Agreement) to include allocating some or  the entire fringe as an add-on to base wages.
 

In addition, these allocation choices can be made on a job by job and labor classification basis. As  a result, if it is advantageous to pay additional cash wages to compete for labor or to attract certain trades on a  particular job, there is latitude to do it.
 

Because  of the discretionary nature of the fringe allocations, benefit plan  designs can be customized to meet a contractor’s individual  specifications. This flexibility often allows benefit plans to operate off the same platform for work performed in either the public or private sector – or, conversely, prevailing wage driven benefit plans can be established to operate concurrently with existing core benefit plans.
 

The ability to redirect fringe dollars into benefit plans affords a significant tax savings to both the employer and employee.
 

Since these dollars don’t flow through payroll, they are not subject to payroll taxes (FICA, FUTA, SUTA, Workers Compensation or General Liability insurance based on payroll) nor are they subject to income tax at any level.
 

This tax advantage allows an Open Shop contractor to compete with Union contractors who realize this savings by virtue of being mandated to contribute fringe dollars to Union Trusts under Collective Bargaining Agreements.
 

How these tax savings (often 5% or more of the labor cost associated with a project) are applied is at the total discretion of the contractor. They can be utilized to reduce bids or increase profits – and that decision can be made on a job by job basis.
 

Visit www.mbottinelli-fis.com to learn more.