Allocation of Fringe Benefit Dollars on Prevailing Wage Jobs

Recently we’ve met some contractors who believe that the fringe portion of the wage on Davis Bacon projects must be allocated in a specific way.  In other words, there are some misconceptions among government contractors that a certain amount must go to provide health insurance, a specific amount invested in a retirement plan, and so on.

While the state of California does break out the fringe amount by line item on the wage determination, even there employers can contribute the fringe however they see fit, provided the benefits meet the Davis Bacon Act criteria for being “bona fide”.

Employers who are interested in maximizing tax savings, both for the company as a whole and for themselves as individuals, may want to look at increasing the amounts contributed for their hourly workers into company retirement plans.  Of course annual retirement plan limits apply to the total amount that can be contributed each year for retirement.  But increasing contributions made on behalf of hourly workers can result in huge tax benefits for company owners and key employees.