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Prevailing Wage Explanation

Male Worker Kneeling Down Holding Wire and Reaching into a BoxThe Davis-Bacon Act established requirements for providing a minimum base wage for different trade groups while working on public projects involving federal funds – Municipal, State and Federal.

Each geographic region of a state has different wage scales for the various trades that would work on a project ie: carpenters, electricians, painters, roofers, wallboard, etc. These “prevailing wages” are closely tied to union wages and are updated from time to time by the federal government.

In addition, the Davis-Bacon Act requires that a “fringe benefit amount” be paid in addition to the base wage for each employee within a given trade and class ie: Electrician (Journeyman – base of $30 per hour and $10 fringe) (Apprentice – base of $25 per hour and $8 fringe). This “fringe wage” is key to the savings found by using a prevailing wage pension plan because the act allows the employer to use this money to purchase fringe benefits for the employee – pension, health insurance, etc. – as an employer expense, not as employee wages. If an employer does not use this fringe money for benefits then the money must be included in the employee’s paycheck and therefore subject to payroll taxes. If the money is used to purchase bonafide benefits then it is never part of payroll and therefore not subject to Social Security Taxes, State and Federal Unemployment Taxes, Workers Compensation Premium or General Liability Premium.

See our “Payroll Savings Calculator” to see how much you can save!