The Allocation of Wages and Fringe Benefits:
The allocation of prevailing wages between wages and fringes can be confusing for contractors. Typically, prevailing wages are designated as a wage rate (referred to as a base wage rate in some jurisdictions) and then a fringe benefit component. Under Davis Bacon and in many states, the fringe benefit amount is set forth in one lump sum. In other States it is set forth in a variety of benefit categories such as Health and Welfare, Pension, Vacation/Holiday, etc.
The important thing to remember is that:
Wages + Fringes= the Total prevailing wage package
This total amount must be paid to the worker or a combination of wages and benefits to the worker or for the worker's benefit. Some states (California and Maryland) designate training contributions as a fringe benefit which cannot be paid to the worker, but must be paid to a third-party training committee or to the State.
Sometimes a contractor may have a fringe benefit obligation which is higher than the amount specified in the prevailing wage determination. Contractors want to know if they can reduce the amount of the base wage rate in order to pay more in fringe benefits. The answer is, "it depends" on the funding source, the state and special circumstances.
For projects subject to Davis Bacon enforcement. A contractor may reduce the base wage rate and shift some of that amount over to pay a higher bona fide fringe benefit so long as the base wage rate is not reduced below the worker's regular rate of pay or below the federal minimum wage rate.
In California, the base wage rate may NOT be reduced to pay higher fringe benefit amounts EXCEPT when the worker is covered by a collective bargaining agreement which requires a higher fringe benefit amount be paid.
Example:
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H&W: $5.00
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Pension: $4
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Other: $2
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Total $49.00
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A union signatory contractor whose collective bargaining agreement requires $6.50 to H&W would be allowed to pay as follows:
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Wages: $33.50
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H&W: $6.50
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Pension: $4
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Vac/Hol: $2
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Training: $1
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Other: $2
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Total: $49.00
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A non-union or open shop contractor is not allowed this exception and must pay not less than the base wage rate to the worker even if the company benefit package is more than the fringe amount set forth in the wage determination.
In Maryland, the base wage rate can be reduced up to a maximum of 20% in order to pay for a higher fringe benefit package.
Example:
Wages: $35 Fringe Benefits: $15 Total Package: $50
The maximum amount which can be distributed to fringe benefits is $7 or 20% of the $35 base wage rate.
Wages: $28 Fringe Benefits: $22 Total Package: $50
Each of the 28 states having its own prevailing wage laws may have their own specific rule.
