What is Annualization?

In many states and at the federal level, “annualization” means that public money cannot be used to subsidize a private work benefit such as health insurance or vacation/sick time. An example would be health insurance that is a benefit with a fixed annual cost. Because employees derive the benefit 24 hours a day, seven days a week when they are working both private and prevailing wage jobs, the benefit is annual in nature.

How are benefits Annualized?

An annualized cost creates fairness in allocating expense between public and private work, as an equal expense is created on an hourly basis regardless of whether an employee is working on public or private work.

Do all benefits have to be Annualized?

No. If the plan has received an “exemption” from annualization, such as a defined contribution plan, the contributions do not have to be annualized. “The Contractors Plan” is a defined contribution plan and is exempt from annualization where allowed by State law.

See Example Below

 

Sample Calculations For Fringe Benefit Credits

First: Calculate the total cost of each fringe benefit provided to each employee on an annual basis.
Second: Annualize the cost of the benefit by dividing the total cost of the benefit provided by 2080 hours (40
hours/week x 52 weeks) to obtain the hourly fringe.
Third: Subtract the hourly fringe benefit credit from the benefit rate on the prevailing wage rate schedule.
Fourth: Any difference remaining after the value of all benefits provided is deducted is paid weekly as taxable wages in the employee’s pay check.

Example 1: EMPLOYER PAYS 100% MEDICAL INSURANCE PREMIUM:
Monthly premium for employee: $380.00
Annual cost: ($380 x 12 months) = $4,560.00
Fringe Benefit Credit: (Divide by 2080): $2.19/hour

Cook II prevailing wage rate: $12.55 base +$3.77 fringe
Fringe Benefit Credit: -2.19
Add to base wage due: $1.58

Adjusted prevailing wage rate due: $12.55 + $1.58 = $14.13/hour.
Employee’s regular hourly rate: $10.00/hour.

Weekly payroll:
Regular Rate: 16 hours x $10.00 = $160.00
Prevailing Rate: 24 hours x $14.13 = $339.12
Total Wages Due: $499.12


Example 2. EMPLOYER PAYS 50% MEDICAL INSURANCE PREMIUM:
Monthly premium for employee: $380.00
Employer’s Cost: $190.00
Annual cost: ($190 x 12 Months) = $2,280.00
Fringe Benefit Credit: (Divide by 2080): $1.10/hour

Cook II prevailing wage rate: $12.55 base plus $3.77 fringe
Fringe Benefit Credit: – 1.10
Add to base wages due: $2.67

Adjusted prevailing wage rate due: $12.55 + $2.67 = $15.22/hour.
Employee’s regular hourly rate: $10.00/hour.

Weekly payroll:
Regular Rate: 16 hours x $10.00 = $160.00
Prevailing Rate: 24 hours x $15.22 = $365.28
Total Wages Due: $525.28