%20(1).png)
The key to success in public works contracting starts with getting the most out of your fringe benefits and taking credit for what you’re already paying for.
For contractors, controlling costs is the #1 factor that determines whether you win or lose a bid. As your company grows and margins shrink, managing expenses becomes even more critical.
For public works contractors, prevailing wage compliance adds another layer of complexity that can squeeze your margins and eat into profits.
In this article, we’ll explore a proven strategy to boost profits for public works contractors by avoiding one of the most common pitfalls: paying for benefits TWICE… yep, that can sting.
Since 1931, the Davis-Bacon Act (and related state acts) has required contractors on government-funded projects to pay their field employees a specific rate called the prevailing wage. This includes a basic hourly rate and a fringe benefits rate.
For example:
On federal jobs, you must pay the HIGHER of the state or federal prevailing wage rate.
Here’s where many contractors lose money: they pay the fringe benefits rate out of pocket but don’t account for their benefits package in their certified payroll. This oversight means you’re paying for benefits twice.
For example:
If the prevailing wage rate is $80/hour ($50/hour base pay + $30/hour fringe), some contractors mistakenly pay $80/hour in wages while still covering the full cost of benefits separately.
This practice increases your costs unnecessarily and reduces your profitability on public works jobs.
It’s important to understand that every state handles prevailing wage differently. For example, Washington does not have a specific fringe benefit rate, while California has detailed rates for every type of benefit.
When Washington states that you need to pay $80 per hour for operators, this means your entire benefits package — including wages and benefits — must equal $80 per hour. It does not mean you are required to pay $80 directly on their paycheck.
This distinction is crucial for accurately calculating your costs and avoiding overpayment.
By understanding your state’s requirements, you can ensure compliance while optimizing your expenses.
You might be saying...
"I get it. We've been paying out prevailing wage for years. I understand how it works. Just tell me how we can save money."
So let's dig into the savings!
This step focuses on maximizing your fringe benefit credits on your WH-347 form to reduce costs.
Many contractors overlook key benefits, such as PTO, paid holidays, and or retirement contributions, when calculating their fringe benefit rate.
Here’s how to accurately calculate fringe benefit rates for compliance and cost savings:
For the sake of simplicity, we’re going to use a Laborers and Operators prevailing wage rate.
Laborer Prevailing Wage:
Operator Prevailing Wage:
Let’s say your company covers 70% of health insurance for Laborers and 100% for Operators:
Laborers:
$7,000 per year of employer-paid premiums for individual coverage.
$14,000 per year of employer-paid premiums for family coverage.
2,080 is the number of hours worked in a full year.
The Calculation:
$7,000/year (70% of $10,000 individual premium) ÷ 2,080 hours/year = $3.36/hour
$14,000/year (70% of $20,000 family premium) ÷ 2,080 hours/year = $6.73/hour
Operators:
$10,000 per year of employer-paid premiums for individual coverage.
$20,000 per year for employer-paid premiums for family coverage.
2,080 is the number of hours worked in a full year.
The Calculation:
$10,000/year ÷ 2,080 hours/year = $4.80/hour
$20,000/year ÷ 2,080 hours/year = $9.61/hour
In Summary:
For Laborers (on the individual coverage) you would now be paying them:
For Operators (on the family coverage) you would now be paying them:
You want to make 100% sure that you’re not paying for your insurance package TWICE. It is without question the biggest cost to employers on the fringe benefit side.
By claiming these benefits on your Certified Payroll (WH-347 form), you avoid paying for them twice AND you show that you’re paying out prevailing wage compliantly.
NOTE: You cannot claim your sick leave which is a legal requirement as a fringe benefit UNLESS it is structured in a very particular way (read more here on How to Ensure Your Sick Leave Qualifies as a Fringe Benefit)
Ok, back to the fun math… don’t worry. It’s pretty straightforward.
Let’s assume this is your Length of Employment Policy:
Now Calculate PTO based on the employee’s private pay rate and their length of employment.
Remember, you must use the employee's “regular rate”, which is their private pay rate.
Here’s an example:
Operator with 2+ years gets 80 hours of PTO:
Now take the $3,360 in cost and calculate the hourly cost:
Stay with me…
Do your employees get paid holidays? Let’s add them.
Let’s say they get 5 Paid Holidays after 1 year with your company:
Now Add: $1.62/hour + $0.81/hour = $2.43/hour
Total PTO/Holiday Fringe Benefit = $2.43/hour
Based on the calculation, it means you’re paying $2.43 per hour in PTO / Vacation for your Operators.
This brings our new rate to $67.96 per hour on the paycheck and $12.04 in total benefits, which gets you to the prevailing wage rate of $80 per hour for Operators.
RECAP:
How we’ve arrived at the $12.04 in benefits for Operators…
We started here:
Calculation:
= $12.04 in benefits
$80/hour (prevailing wage rate) - $12.04 (in benefits)
= $67.96/hour on the paycheck
401(k), Pension, Profit Sharing, Employee Stock Option Plan etc.
Calculating the proper rate for your 401(k) match is a little trickier than the other options because it's a percent % rather than an absolute dollar amount.
At this point, in our example and calculations:
Example: Operators get $67.96/hour on the paycheck and $12.04 in benefit.
To calculate retirement benefits as a percentage % of cash wages, let’s assume you have a 4% match.
For an Operator earning $67.96/hour:
New Operator rate: $65.35/hour (cash) + $14.65/hour (fringe benefits)
= $80/hour total prevailing wage.
BRINGING IT FULL CIRCLE…
The NEW Operator rate:
That $14.65 per hour is what you DON’T want to pay twice!!
We’re all for rewarding your hard-working employees who are the foundation to the company.
But how can you get more profitable and reinvest back into your workforce if you can’t make money bidding on public works…?
Something to think about – feed the company so the company can feed its people.
If you’ve made it this far in the article… you’re on your way to saving the company some BIG MONEY.
Think you might be paying for benefits twice or wasting money?
We’ll help you find out… at zero cost to you.
Employer-paid contributions to state-recognized training programs can also be claimed as fringe benefits, providing significant savings and helping your company comply with prevailing wage requirements.
Let’s say your company contributes $1,800 annually per apprentice to an approved apprenticeship program.
Divide $1,800 by 2,080 hours (the standard full-time work year): $1,800 ÷ 2,080 = $0.87 per hour.
You can now claim an additional $0.86/hour as a fringe benefit on your WH-347 form.
Combining this with our earlier calculations for an Operator on family coverage:
If the Operator prevailing wage rate is $80 per hour, and the fringe benefit allocation is $15.52 (e.g., $14.65 (fringe benefits) + $0.87 (apprenticeship), the breakdown would be:
Employer-paid contributions that qualify as “usual benefits”.
The Department of Labor (DOL) asks that you reach out directly to them before calculating these as fringe.
An example of another bona fide program would be a supplemental unemployment benefit trust (SUB).
If you have a seasonal workforce that is laid off annually this can provide them with another few thousand dollars a month during their layoff period and you can claim the contributions into the trust as a fringe benefit.
Maximizing your fringe benefit credits ensures you remain prevailing wage compliant while reducing payroll tax liability.
This allows you to:
Not sure if you’re paying for benefits twice?
We’ll offer you a free WH-347 & fringe benefits review to:
Schedule your free review here
Avoiding double payments for benefits is just the beginning. In this next article, we’ll discuss how to reduce payroll tax liability by restructuring your benefits plan.
By making small, strategic changes, you can double your profits in public works contracting and build a stronger, more competitive company.
When prevailing wage rates increase (typically in February and August), allocate half of the increase toward claiming fringe benefits. This allows you to improve your compliance without reducing employee paychecks.
