CONSTRUCTION Accounting ARTICLE - Contractor Seeks To Prevail Over Prevailing Wage Confusion
Target Audience: Construction Industry Professionals, General Contractors, Construction Accountants
For one road renovation contractor, opportunities for private construction jobs were scarce. So when his state announced a federally funded bridge renovation on a major highway, he was eager to submit a bid.
The catch? The contractor hadn’t worked on public projects before, so he needed some advice on navigating the confusing prevailing wage laws. He contacted his financial advisor to learn how to comply with the requirements and still keep his costs down.
Doing the research
His advisor began by explaining that the Davis-Bacon Act requires construction companies to pay workers on federally funded projects “prevailing wages,” which are set by U.S. Department of Labor surveys and include a wage and a separate benefit payment. The contractor’s state, like many others, had a separate prevailing wage law as well.
From there, the advisor did some quick research into the state and federal prevailing wage laws that applied to the job in question. For federally assisted state or local construction projects where the state and federal prevailing wages differ, he warned, the construction company generally pays the higher rate for both wages and benefits. Indeed, it appeared the contractor would likely have to pay $20 an hour and an additional $8 per hour in benefits for his 10 workers.
Paying the freight
Next, the two discussed the best way to pay for benefits if the contractor won the job. The contractor didn’t have a formal benefit plan for his workers, so he thought it would be easier to include benefit payments in his employees’ paychecks.
The advisor cautioned that lumping benefits in with the rest of his employees’ wages meant the contractor would have to pay taxes on the benefits — possibly tacking on up to 30% in extra costs. As an alternative, the advisor recommended creating a tax-exempt “bona fide” benefit plan. Based on the contractor’s workers’ hourly benefit rate, such a plan could save his company substantial tax dollars during the project.
Finally, the advisor suggested that the contractor upgrade his generic accounting software to a construction-specific application that could track employees by job, trade and hour; generate certified payroll reports and historical reports; and pay benefits through a qualified plan. The software could help prevent the contractor from violating reporting standards and falling prey to costly fines for missed deadlines.
Cementing a reputation
Armed with that information, the contractor completed a competitive proposal and snagged the bridge project. From there, and with his advisor’s help during the job, the contractor met his paperwork filing deadlines, remained on budget and cemented his construction company’s reputation for dependability with state officials.
Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.
related links
Construction Newsletters & Articles
Specialized Construction Services
Construction Contract Audits
Construction Resources
Auditing & Accounting
Seminars & Events |
