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Understand The Basics Of Prevailing Wage And The Davis Bacon Act

The Davis-Bacon Act of 1931 is the anchor law to the prevailing wage act. The laws argue that contractors must pay their employees a set wage when working on a federally funded project with a budget of over $2000. The US Labor Department sets the prevailing wages paid to employees on the same projects.

But why was this act passed in the first place?

The law was passed to prevent situations where these contractors fail to pay because they are running the state-funded project. However, 27 states have set their prevailing wage acts. The state laws are called Little Davies-Bacon for state-funded projects. The law extends such projects to municipalities and local state offices.

So, can we say the prevailing wage is a worker’s hourly wage?

The prevailing wage can be said to be workers’ hourly pay. The wage has two parts: the basic hourly-paid to workers. It also has the Fringe benefits; a separate per hour dollar paid as a workers wage. It funds the bona fide benefit plan.

If the base pay is $30 and the fringe benefit of $10, the employee will pay the $10 as fringe benefits as wages. Therefore, the worker’s wage comes to $40. The employee can also choose to put the $10 in an employee’s benefit plan.

But what benefits an employee, the bona fire, or cash plan?.

To comply with the law, contractors pay tee fringe benefits. This becomes costly because of the taxation in payroll. The contractor ends up paying 25 cents for the cash dollar wage paid.

Check this example explaining the payments made.
If an employee has 25 workers who work on that prevailing wage job lasting six months, here is the breakdown. The worker might be spending 500 hours. The fringe benefit of $10 is applied. The total number of employees run to 12,500 hours. The fringe benefits dollar totals $125,000.

For the contractor that pays the above amount of fringe benefits wage to the workers, they have a burden of 25% on each dollar. The labor burden totals $31,250 as additional payroll cost.

If the Prevailing Wage Contractors puts the fringe benefits payable to a bona fide benefit plan, such as the 401 k account, there will be no payroll tax. Therefore, they save more.

Using the fringe dollars well ensures a contractor improves existing benefits programs. The employers paying fringe cash are funding benefits in duplicity.

By using the employees and employer fringe dollars, it cuts on expenses. This plan allows companies to bolster their current programs. Additionally, the competitive labor market forces the employees to go for the total compensation packages that include the benefits. This comes by getting additional benefit options and coverage. This can help owners and employees contribute to retirement. As they contribute this, they also make sure that the company retirement packages pass the yearly testing.

What happens when utilized correctly?

The Prevailing Wage utilized well comprises of per hour benefits wage and per hour cash wage brings some benefits. The contractors and laborers working on state-funded projects will enjoy these benefits.

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