Paying Fringe Benefits in Cash vs. in a Benefit Plan

Paying Fringe Benefits in Cash vs. in a Benefit Plan

In 1931, The Davis Bacon Act was put into law requiring companies that perform work on federally-funded jobs to pay all employees working on the job a prevailing wage. The prevailing wage is paid as a per-hour wage and a per-hour cash equivalent value of benefits. These wages are set by the United States Department of Labor and are included with bid specifications for federal projects.

The Davis Bacon Act allows for employers to pay fringe benefits as an additional cash wage added onto the required hourly prevailing wage or pay into a benefit plan. For example if the required prevailing wage was $25 an hour with a $9 an hour fringe benefit an employer could choose to pay each worker the benefit in cash at $34 an hour or pay $25 an hour and set up a bona fide benefit plan with benefits that could include 401k or pension, medical/vision/dental insurance (one or all three), and life insurance.

So which is better? Should an employer pay the fringe in extra money per hour as cash; or should they set up a benefits plan for their employees?

A large number of contractors performing work on federally funded projects will choose the cash option because it seems to be the more cost-effective option and that it is the simplest way to comply with law requirements. To the contrary, paying the fringe benefit as cash on a Davis Bacon job is actually much more expensive for contractors.

The reason that paying fringe benefits in cash on a Davis Bacon job cost so much more than setting up a benefits plan is all in the payroll taxes. Every dollar of cash wages paid to employees is subject to payroll taxes including FICA, FUTA, state unemployment taxes, and worker’s compensation. Each state has its own required rate on the last two tax requirements, but on average the cost works out to around twenty-five cents per dollar paid in cash wages. Paying into a benefit plan saves a company these taxes and also benefits every employee personally because it helps them to have a more secure retirement.

Another great advantage of hiring a reputable Davis Bacon Benefit Plan company is that they can do the work of tracking and recording the fringe benefits for you. This can save a company many valuable hours for supervisors and company owners so that they can focus on what is most important to them, and that is continuing to provide the best services they are contracted for on these projects.

Would you like more information on finding a Davis Bacon benefit plan to suit your company’s needs? We are here to help and share our knowledge about the benefit plans we provide. Contact us anytime!

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