Dipping Your Toe in the Water
We continually talk with construction companies about the advantages of shifting prevailing wage fringe benefits out of payroll and into bona fide benefit programs like the DirectAdvisors Trust. Although this often makes tremendous financial sense for construction companies and their employees, the transition can be difficult when employees are accustomed to having that money paid as wages.
In the eyes of employees (rightly so), their wages are being involuntarily reduced. Although the funds will be used to pay insurance premiums and/or to fund other benefits such as a retirement plan, or supplemental unemployment when they are on layoff, companies need to be mindful of the impact this will have on the employees take home pay.
How can the effect of this be minimized to foster greater employee buy-in to such a program? I’m sure everyone has had the experience of swimming in cold water. You can jump right in over your head or you can ease your way in little-by-little. I always start with just my big toe!
We have the same choices when we are designing bona fide fringe benefit programs. You can decide to put all of their fringe dollars into a benefit program offering a rich array of varied benefits while enjoying the tax advantages of reduced payroll. Alternatively, you can start more slowly. Perhaps put 25% of the prevailing wage fringe benefit rate into a more limited or focused benefit program and continue to pay the remaining 75% in wages for the first year. You can then gradually increase the percentage as time goes on as employees begin to adjust and see the advantages of bona fide benefits.
In future years, as the posted prevailing fringe benefit rate rises, you will already have a mechanism in place to better control that additional cost by paying the increase into the bona fide plan. Your employees will never miss it because they will have acclimated to the new structure.
Our most recent whitepaper – “Working the Fringe, Prevailing Wage Bona Fide Fringe Benefit Plan Strategies for Merit shop Contractors” – goes into greater depth on these ideas. The whitepaper can be downloaded here and watch our short animated video at www.directadvisors.com/prevailingwage.
How We Can Help:
DirectAdvisors, established in 2001 and located in Albany, New York provides bona fide benefit plan consulting and third party administrative services to merit shop (non-union) construction companies that are subject to the Davis-Bacon Act, Service Contract Act and state prevailing wage regulations. Our clients are located throughout the United States and range in size from 10 to 3000 employees.
In 2015, our construction company clients contributed tens of millions of dollars of prevailing wage fringe benefit contributions to The DirectAdvisors Trust (health & welfare benefits) and retirement plans managed by our team.
Our solutions are free from any conflict of interest as we do not sell any financial or insurance products. We work with existing agents, brokers and insurance companies.