Calculating Fringe Benefits For Certified Payroll And Prevailing Wages

When working on contracts, particularly government contracts, you often are subject to Davis-Bacon and Related Acts.  

Under these acts, employers are required to pay a prevailing wage, however what many people do not understand is how this wage can consist of a minimum hourly base pay rate as well as your additional fringe benefit amount.  

Want to learn more about fringe benefits and how they contribute to your prevailing wage? Use the following as a simple guide to learn how to calculate fringe benefits for your certified payroll and prevailing wages. 

The Intricacies Of Fringe Benefits 

There are a few details that can be missed when looking at fringe benefits. For example, an employer must make sure that they do not receive any credit for a benefit given to an employee which is required by law. Things like social security and compensations are a part of the job package and should not be considered or taken credit as a fringe benefit.

We will detail calculating fringe benefits in more detail later in this article, but at its most basic level you can take the hourly equivalent of a non-required benefit into its cash equal. For example, the annual cost of fringe benefit divided by the total number of hours worked in the year.  

Contributions As Fringe Benefits

Employees who do not receive cash benefits should be provided with fringe benefits that are equivalent to the amount they would have received in cash. Contributions can include pension plans, medical assistance, and other similar benefits.  

When it comes to pension plans, immediate vesting guarantees 100% ownership of the benefit. If immediate vesting is not available, the employee earns credit based on an annual rate calculated from the previous year's work hours. 

If an employee terminates employment before receiving the full fringe benefit or contribution, the employer must provide cash payment upon termination. 

How To Calculate Fringe Benefits Credits

To calculate the fringe benefit credits, follow these steps: 

  1. Determine the annual amount of fringe benefits that should be credited to each employee. This amount corresponds to the benefit rate based on the prevailing wage rate for each employee.
  2. Analyze the benefit cost and divide it by the total cost of the benefit given over 40 hours per week in 52 weeks. This calculation provides the hourly amount of the fringe benefit.
  3. Subtract the hourly amount from the benefit rate to obtain the number of fringe benefit credits. 

Additionally, any remaining differences in benefits provided should be deducted from the employee's weekly wage as taxable wages on their paychecks. 

Learning How To Calculate Overtime Fringe Benefits Is Also Important

Calculating fringe benefits for overtime hours requires a slightly different approach. Follow these steps: 

  1. Have employees log their total daily and weekly hours worked individually.
  2. Calculate the average amount of fringe benefits owed to an employee for overtime hours by dividing the total straight-time wages by the total hours worked. 

By following these guidelines and ensuring compliance with relevant labor laws and regulations, employers can accurately calculate fringe benefits for their certified payroll, fostering fair and lawful practices in their organizations. 

Remember, it is always crucial to consult the specific labor laws and regulations applicable to your jurisdiction and seek professional advice to ensure accurate calculations and compliance.  

Get A Custom Certified Payroll Solution That Fits Your Needs

Thousands of contractors throughout the country rely on Certified Payroll Reporting, powered by Points North, to simplify their prevailing wage reporting. Contact us to join them so that you can stop worrying about how to calculate fringe benefits.

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