Fact Sheet #66E: The Davis-Bacon and Related Acts – Compliance with Fringe Benefit Requirements

This fact sheet provides general information regarding compliance with the fringe benefit requirements of the Davis-Bacon and Related Acts (DBRA).

Basic Provisions/Requirements

The DBRA require payment of prevailing wages to laborers and mechanics working on federally funded or assisted construction projects. (See Fact Sheet #66). The DBRA “prevailing wage” is the combination of the basic hourly rate (BHR) and any fringe benefits for the applicable classification listed in a DBRA wage determination. Prevailing wages, including fringe benefits, must be paid on all hours worked on the site of the work. See 40 U.S.C. § 3141(2); see also 29 CFR § 5.23.

Compliance with Fringe Benefit Requirements Generally

The contractor’s obligation to pay at least the prevailing wage listed in the contract wage determination can be met by (1) paying each laborer and mechanic the applicable prevailing wage (including the amount of fringe benefits) entirely as cash wages or (2) providing a combination of cash wages and contributions to or incurred costs for bona fide fringe benefits. The required rate of contribution or cost for fringe benefits for the applicable classification listed in the wage determination is ordinarily an hourly rate. Under the DBRA (unlike the Service Contract Act), cash wages paid in excess of the BHR may be used to offset the fringe benefit portion of a contractor’s prevailing wage obligation. Thus, a contractor may satisfy its prevailing wage obligation, for example, in the following ways:

Although applicable fringe benefits must be paid for all hours worked, including overtime hours, additional half-time does not need to be computed and paid on cash wages paid in lieu of a fringe benefit contribution, as such payments are excluded from the overtime premium required under the Fair Labor Standards Act (FLSA) or the Contract Work Hours and Safety Standards Act (CWHSSA) for hours worked in excess of 40 in a workweek.

A question sometimes arises over whether a cash payment made to a laborer or mechanic is paid in lieu of a fringe benefit contribution, or whether it is simply part of the individual’s regular rate of pay. If the laborer or mechanic is consistently paid a regular rate above the basic hourly rate listed in the applicable wage determination, even when performing other work where the fringe benefit requirement does not apply, the additional cash payment is not considered cash wages paid in lieu of a fringe benefit contribution and is not excludable in computing the overtime pay obligation.

Some wage determinations may express the fringe benefit amount as a percentage rather than a specific dollar amount per hour, or as a specific dollar amount plus a certain percentage. In those situations, the percentage to be calculated is a percentage of the BHR. It is not added to the BHR for overtime purposes.

See 29 CFR § 5.31; see also Field Operations Handbook (FOH) 15f07.

Bona Fide Fringe Benefits

Bona fide fringe benefits generally include those benefits which are common in the construction industry. The DBA contains an illustrative list of bona fide fringe benefits, which includes, for instance, medical care, compensation for injuries or illness, and pensions for retirement or death, as well as insurance to provide such items. To be considered bona fide, fringe benefits must also be provided pursuant to a plan, fund, or program which is legally enforceable and meets certain criteria, such as the requirements of the Employee Retirement Income Security Act (ERISA), laws and regulations enforced by the Internal Revenue Service (IRS), and state insurance laws. See 40 U.S.C. § 3141(2)(B); 29 CFR § 5.29(a), (d).

Funded Plans. A contractor or subcontractor may take credit towards its prevailing wage obligation for irrevocable contributions to a trustee or other third party that is not affiliated with the contractor or subcontractor for bona fide fringe benefits which are made pursuant to an insurance agreement, trust, or other funded arrangement on behalf of its laborers and mechanics. The trust or fund must not permit the contractor or subcontractor to recapture any of the contributions paid in or any way divert the funds to its own use or benefit. The contributions must be made periodically, at least quarterly. A trustee must also assume the usual fiduciary responsibilities imposed upon them by applicable law. Contractors may take credit for contributions made under such conventional plans without requesting the approval of the Department. See 29 CFR §§ 5.5(a)(1), 5.26, 5.27.

Unfunded Plans. Unfunded plans are defined as any plan funded from the general assets of the contractor or subcontractor. For example, many vacation and sick leave plans in the construction industry are “unfunded plans.” A contractor may take credit towards its prevailing wage obligations for the costs it incurs to provide bona fide fringe benefits to its mechanics and laborers under an unfunded plan, provided the plan has been communicated to the employees in writing, the cost reasonably anticipates the cost of providing a bona fide fringe benefit, and the plan represents an enforceable commitment to provide such benefits and is carried out under a financially responsible plan or program. To ensure unfunded plans are not used to avoid compliance with the DBRA, contractors must set aside sufficient funds to ensure that the benefits will be available when the workers are eligible for the benefits.

Contractors with unfunded fringe benefit plans must obtain prior approval from the Department, and must submit a written request to the Department by email to unfunded@dol.gov, or its successor email address, or by mail to:

United States Department of Labor 
Wage and Hour Division, Director, Division of Government Contracts Enforcement 
200 Constitution Ave., NW, Room S-3502  
Washington, DC 20210.

For more information on unfunded fringe benefit plans or programs, see 29 CFR § 5.28.

Eligibility and Participation. Eligibility standards are permissible in an otherwise bona fide fringe benefit plan under the DBRA. Employers may take credit for contributions made on behalf of laborers and mechanics who will likely become participants in a plan but are not yet eligible to receive benefits (for example, a health insurance plan with a 30-day waiting period for new participants). However, contractors may not take credit for contributions for laborers and mechanics who are not eligible to participate in the fringe benefit plan, such as employees who are excluded because of age or part-time employment. See FOH 15f13.

Annualization Principle

Annualization is a computation method to determine the hourly rate of contribution or costs incurred for bona fide fringe benefits that is creditable towards meeting a contractor’s or subcontractor’s prevailing wage obligation. See 29 CFR § 5.25(c). DBRA credit for contributions made to fringe benefit plans is allowed based on the effective annual rate of contributions or costs incurred for hours worked during the year by an individual. In practice, annualization limits the DBRA credit to an amount equal to the hourly cost of the fringe benefit averaged over all hours an individual laborer or mechanic works during a year or other representative period (including both DBRA and non-DBRA hours). This method ensures that DBRA work is not used as the sole or disproportionate source of funding for a fringe benefit plan that provides benefits or coverage to an employee for all hours (both Davis-Bacon hours and non-Davis-Bacon hours) that the employee works. This principle is important because the amount of credit a contractor may claim as an offset against the prevailing wage obligation can be as significant in determining DBRA compliance as whether a particular fringe benefit plan is a bona fide fringe benefit plan under the DBRA.

Contractors, plans, and other interested parties may request an exception from the annualization requirement by submitting a written request to the Wage and Hour Division. The request for an exception will be granted if the benefit provided is not continuous in nature (i.e., it is not available to a participant without penalty throughout the year or other time period to which the cost of the benefit is attributable) and the benefit does not compensate both non-DBRA work and DBRA-covered work. Contributions to defined contribution pension plans are excepted from the annualization requirement without the need for an exception request if the plan is not continuous in nature, does not compensate both non-DBRA and DBRA-covered work, and provides for both immediate participation and essentially immediate vesting. A plan provides essentially immediate vesting if the benefit vests within the first 500 hours worked.

See 29 CFR § 5.29(g).

Payment of Fringe Benefits to Apprentices

Fringe benefits typically should be paid to apprentices in accordance with the provisions of the approved apprenticeship program. Generally, if the program does not mention fringe benefits, apprentices must be paid the full amount of the fringe benefits listed in the wage determination for their journeyworker classification. Even where an apprenticeship program does address the payments for fringe benefits, those provisions only apply when the apprentices are employed in accordance with the applicable ratio of journeyworkers to apprentices and other specifications of the program. See 29 CFR § 5.5(a)(4)(i); FOH 15e01(g).

Creditable Costs of Bona Fide Apprenticeship Programs

Contractors may only take credit for costs of apprenticeship programs registered with the Department of Labor’s Employment and Training Administration, Office of Apprenticeship (“OA”), or with a State Apprenticeship Agency recognized by the OA. A contractor may only take credit for amounts reasonably related to the costs of the apprenticeship benefits actually provided to the contractor’s employees, such as instruction, books, and tools or materials. It may not take credit for voluntary contributions beyond such costs. Amounts the employer is required to contribute by a collective bargaining agreement or by a bona fide apprenticeship plan will be presumed to be reasonably related to such costs in the absence of evidence to the contrary.

Contractors must annualize the costs or contributions to the apprenticeship program to determine the amount of hourly credit that can be claimed. To annualize, the contractor must divide the total cost or contribution by the total number of hours worked by all of the contractor’s laborers and mechanics in the apprenticeship program’s classification. The contractor should not include hours worked by laborers and mechanics in another classification when annualizing, nor may the contractor claim a fringe benefit credit for the apprenticeship costs towards it prevailing wage obligations to workers in other classifications.

For example, if a contractor enrolls an employee in an apprenticeship program for carpenters, the permissible hourly Davis-Bacon credit is determined by dividing the cost of the program by the total number of hours worked by the contractor’s carpenters and carpenters’ apprentices on covered and non-covered projects during the time period to which the cost is attributable.

Items Not Considered Bona Fide Fringe Benefits and Not Creditable Towards Prevailing Wage

Contractor’s Administrative Expenses. A contractor’s own administrative expenses incurred in connection with the provision of fringe benefits are not creditable towards the contractor’s prevailing wage obligations, including when the contractor pays a third party to perform such tasks in whole or in part.

For example, the contractor could not claim a fringe benefit credit for the costs of performing tasks such as filling out medical insurance claim forms for submission to an insurance carrier, paying and tracking invoices from insurance carriers or plan administrators, updating the contractor’s personnel records when workers are hired or separate from employment, sending lists of new hires and separations to insurance carriers or plan administrators, sending out tax documents to the contractor’s workers, or tracking the amount of a contractor’s fringe benefit contributions and making sure contributions cover the fringe benefit amount claimed, whether those tasks are performed by the contractor’s own employees or by a third party. See, e.g., 29 CFR § 5.33; see also FOH 15f18.

Although contractors cannot claim a fringe benefit credit for their own administrative expenses, contractors may claim a credit for costs incurred by a contractor’s insurance carrier, third-party trust fund, or other third-party administrator that are directly related to the administration and delivery of bona fide fringe benefits to the contractor’s laborers and mechanics. Any questions regarding whether a particular cost or expense is creditable towards a contractor’s prevailing wage obligations should be referred to the WHD Administrator before the contractor claims a credit for that expense.

Benefits Required by Other Federal, State or Local Law. The DBRA does not permit contractors to claim a credit for the costs of bona fide fringe benefits when the contractor or subcontractor is obligated to provide under other Federal, State, or local law. No credit may be taken by the employer for the payments made for such benefits. For example, payment for worker’s compensation insurance under either a compulsory or elective state statute are not considered payments for fringe benefits under the DBRA. Likewise, if state law requires contractors to make certain contributions to training funds for apprentices, for example, the cost would not be creditable towards the contractor’s fringe benefit obligations, since it is required by state law. See 29 CFR § 5.29(f).

Transportation, Board, Lodging and Other Facilities. The cost or value of transportation, board, lodging or other facilities, determined in accordance with regulations under the Fair Labor Standards Act (contained in 29 CFR part 531), do not constitute fringe benefits under the DBRA. While each situation must be separately considered on its own merits, the furnishing of facilities which are primarily for the benefit or the convenience of the contractor, such as payments made for travel and subsistence that are incidental to employment or to industry promotion funds, are not normally payments for fringe benefits under the DBRA (nor are they part of an employee’s wages). See 29 CFR § 5.29(f).

Common Violations

The following practices may lead to violations under the DBRA, resulting in failure to pay the applicable prevailing wage rate (basic hourly rate plus fringe benefits):

• Misclassifying laborers and mechanics for the type of work performed;
• Failing to obtain prior approval from the Department of Labor for unfunded fringe benefit plans;
• Failing to annualize (or incorrectly annualizing) the hourly equivalent of fringe benefit amounts, such as by failing to include all hours worked on private and public projects in the annualization computation;
• Paying hourly rates and/or fringe benefit amounts pursuant to a Collective Bargaining Agreement (CBA), where the CBA specifies rates lower than those required in the applicable wage determination; and
• Improperly taking credit towards fringe benefit obligations for certain expenses, including, for example, administrative expenses incurred by the contractor in providing fringe benefits, as well as expenses incurred by the contractor for travel, per diem, lodging, use of a company cell phone or vehicle, or holidays that are already required by the applicable wage determination.

Additional Resources

• Labor Standards Provisions Applicable to Contracts Covering Federally Financed and Assisted Construction – 29 CFR part 5
• More information about coverage under the DBRA
• Frequently asked questions
• General wage determinations and other information relevant to the DBRA
• A presentation on compliance with the DBRA, including the DBRA’s fringe benefit requirements