The Davis-Bacon Act is a law that requires the payment of a prevailing wage to all laborers on construction/improvement jobs for government property.
Prevailing wage is set by the Department of Labor. This wage is different depending on the location and year as well as the type of work performed. This wage has two components to it, the hourly pay rate and the hourly fringe benefit. The hourly pay rate is always paid directly to the employee, but there is a choice of how companies pay out the hourly fringe benefit. Fringe benefits can be paid straight to the employee the same as the hourly pay rate or they can be contributed to as fringe benefits. As an example: if a job is to be paid at a $35/hour rate $25 can be paid in cash and $10/hr is eligible to be paid as fringe benefits.
Fringe benefits under Davis-Bacon can be paid as health, dental, vision, life insurance, contributions to health reimbursement accounts, and retirement plans including 401(k), profit sharing, and pension plans.
Paying out a fringe benefit as a retirement plan can pay off significantly for employers. When a fringe benefit is paid as compensation it still qualifies for all employer payroll taxes etc. These charges can be anywhere from 14 to 25%.
Neither employers or employees are required to pay taxes on fringe benefits that are deposited into a plan. Since retirement accounts are included as an eligible fringe benefit a portion or the whole part of prevailing wage benefits can be used to fund a company retirement plan. Retirement plans designed for prevailing wage fringe benefits are known as Davis-Bacon Pension Plans or Prevailing Wage Retirement Plans. Since this money is not taxed employees and employers alike save money.
The savings of contributing to a Davis-Bacon Plan do not just stop at the savings in taxes, however, a strategically set up Davis-Bacon plan can be used to also enhance an existing retirement plan program. Company owners have a chance to enhance their contribution portion to a company retirement plan.
Looking for ways to enhance your employee’s retirement plans, be able to bid competitively on prevailing wage projects, and save the company money at the same time? Let us get you set up with a Davis-Bacon Pension plan. Want more information on how a Davis-Bacon Pension Plan will benefit your company? Please feel free to browse our website for more information or contact us at any time.