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How to Use Fringe Dollars to Help with the Construction Worker Shortage

January 25, 2014 Written by: Written by Adam Bonsky, EVP Government Markets. One of the construction industry's most well-respected economists recently said his biggest concern for 2014 is the shortage of workers. He goes on to say that contractors will likely have to spend more on wages, benefits and bonuses to lure experienced workers back to construction jobs. This is actually good news for prevailing wage contractors, especially since dollars intended specifically for benefits are included in the wage determination for each job classification in a contract.

The AGC’s Ken Simonson is one of the most well-respected economists in the construction industry. So when he states that his main concern for 2014 is the shortage of workers, you can pretty much take that information to the bank.

In a recent blog, Simonson states that between November 2012 and November 2013, 830,000 construction employees left the unemployment line – but the construction industry only added 327,000 employees during that time. The conclusion? Most of the experienced workers are no longer working in the industry.

Simonson goes on to say that getting experienced workers back will be a challenge in the coming year. “To get them back, contractors will likely have to spend more on wages, benefits and bonuses.”

The good news for government contractors is that prevailing wage work pays higher wages than private jobs, making it more attractive to these workers. More good news: the wages specified for these jobs contain dollars intended specifically for the benefits Simonson lists as a key factor in attracting workers.

Each job listed in a contractor for a project funded by taxpayer dollars includes a list of wage determinations for its required positions – such as welder, carpenter, and so on. These wage determinations include a specified amount for both the base wage and the fringe benefit amount.

Using fringe dollars to provide benefits for workers has several benefits in addition to making employment with your firm more attractive to experienced workers:

  • Reduction of payroll burden. Dollars contributed to fringe benefits plans for workers on prevailing wage jobs are not subject to payroll burden, and are therefore exempt from costs such as FICA, FUTA, Workers Compensation and – in some states – general liability.  Generally speaking, this amounts to a savings of 30 cents for every dollar used to provide benefits. Over the life of a contract, that adds up to significant savings.
  • Reduction in tax liability. When employers provide benefits for their workers, they can take advantage of applicable tax breaks.
  • Compliance with the Affordable Care Act. Contractors with 50 or more FTEs will be required to cover their workers in less than a year. Even companies that are not subject to the mandate should consider offering health insurance as a recruiting incentive and cost-reduction strategy.
  • Increased ability for owners and key employees to save for retirement. The more your employees contribute to retirement plans, the more you can contribute.

Using prevailing wage contributions to lower job costs also has the advantage of making your bids more competitive, which will be especially crucial in the coming year.

In the same blog post, Simonson writes that he expects a small decline in public construction in 2014. That means increased competition for fewer jobs. If you’re bidding against contractors that are taking advantages of costs reductions as a result of using fringe dollars to provide benefits – and you’re not – you’ve already lost the bid.

To learn more about using fringe dollars on prevailing wage jobs to benefit your employees and your company, contact us at The Contractors Plan. We’ve focused exclusively on benefits for government contractors for more than 30 years, and we understand the specific needs of the industry.