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Common Issues Reviewed by Audits/Investigations
- Was each laborer and mechanic paid the proper predetermined prevailing wage and fringe benefits for the classification of work performed?
- Did employees receive one and one-half their basic rates of pay for hours worked on the contract over forty per week?
- Are the classifications correct?
- Did the contractor use a disproportionate number of laborers and/or apprentices or trainees?
- Did the firm make contributions to bona fide fringe benefit plans that were creditable toward meeting the prevailing wage requirements?
For a plan to be bona fide, the contributions have to be irrevocably made by the contractor or subcontractor to a trustee or third party pursuant to a bona fide fringe benefit fund, plan or program. The rate of costs to the contractor must be reasonably anticipated in providing bona fide fringe benefits pursuant to an enforceable commitment to carry out a financially responsible plan or program, which was communicated in writing to the employees. Contributions to fringe benefit plans must be made regularly—not less often than quarterly.
A retirement plan must meet the ERISA requirements to be bona fide. Credit cannot be taken for fringe benefit contributions made on behalf of employees who are not eligible to participate in the plan. If a retirement plan has a vesting schedule, the same percentage contribution will need to be made for all work, both public and private, for the year. However, if contributions into a retirement plan are 100 percent vested, then under the Davis-Bacon Act rules and in many states, a contractor can take full credit toward the wage determination even if they only contribute on prevailing wage work and not on private work.
In addition to the bona fide plan rules, contractors and subcontractors must maintain basic payroll records during the course of the work and preserve them for three years for federal projects. Some states vary the holding period for records. Federally and in most states, the contractor must submit certified payroll records weekly to the contracting agency. These are submitted on a form provided by the states or the U.S. Department of Labor.
Tim Heffner is president of DESCCO, which is a general contractor employing about twenty-two people, headquartered in Fleetwood, PA. He says, “Utilizing a fringe benefit plan has helped us save tremendously on payroll taxes and simultaneously provided a retirement program for our employees by helping them put something aside for their retirement. When we first implemented the plan, there was a bit of complaining, because the employees were used to seeing the fringe amount in their take-home pay, but today, some of those employees have six-figure sums in their retirement accounts.”
The company survived a state audit last year, and Tim credits their computerized system for making the audit process relatively painless. “It was the first time we had ever been audited, but fortunately we had all the necessary documentation easily available.”
For the construction business owner working in the government contracting arena, there is an added layer of compliance as compared to private work, but the rewards can be worth it. Benefits service companies offer owners years of experience and fringe benefit plans to make the contractor’s job easier in bidding for government work and remaining compliant after they get the job.
C. Ray Smith is president of the Fringe Benefit Group, Austin, TX. Smith may be reached at 800.662.6177.
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