On Davis-Bacon work, cash can offset the fringe, but the credit is annualized.
Davis-Bacon prevailing wages on federally funded construction are a base hourly rate plus fringe benefits. How you pay the fringe is more flexible than under the Service Contract Act, and the credit rules are stricter than most contractors expect.
What the rule says, and what we do about it.
How the credit works
- The prevailing wage can be met with cash, fringe contributions or a combination.
- Unlike the Service Contract Act, cash paid above the base rate can offset the fringe. A $41 total can be met with $41 in cash, with $27 plus $14 in fringes, or with $35 plus $6.
- Percentage-based fringes are calculated on the base rate and are not added to it for overtime purposes.
- Cash paid in lieu of a fringe contribution is excluded from the overtime premium calculation, but a worker consistently paid above the base rate whatever the work is receiving regular pay, and that is not excludable.
Limits on credit
- Credit is capped at the hourly cost averaged over all hours the worker logs in the year, covered and non-covered.
- No credit for workers excluded from the plan, for example on age or part-time status.
- Credit is allowed for workers who will likely become participants but face a waiting period.
- The contractor’s own administrative expenses and benefits required by other law, such as workers’ compensation, are not creditable.
Funded and unfunded plans
- Funded plans earn credit for irrevocable contributions to an unaffiliated trustee or third party, made at least quarterly.
- Unfunded plans can earn credit for costs paid from general assets, but only with prior approval, a written and enforceable commitment, and funds set aside.
- Defined contribution pensions escape annualization if they allow immediate participation and essentially immediate vesting, within the first 500 hours.
General information, not legal advice. Your wage determination and contract clauses govern, and contracts counsel decides how they apply to you. We bring counsel in.
Three things employers ask next.
Does annualization apply if only part of the year is Davis-Bacon work?
Yes. Credit is capped at the hourly cost averaged over every hour the worker logs, covered and non-covered. Exceptions exist for benefits that are not continuous, and they require a written request to the Wage and Hour Division.
Can apprenticeship program costs count?
Only for programs registered with the Department of Labor’s Office of Apprenticeship or a recognized state agency, and only for costs reasonably tied to actual apprenticeship benefits, such as instruction and materials.
How is this different from the Service Contract Act?
The biggest difference is cash. See our answer on how the two sets of rules part ways.
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