Prevailing Wage Plan Case Study: Over $1.3 Million in Annual Savings with Direct Advisors Trust
Type of Contractors: Heavy Highway / Road Builder
Location: New York / Pennsylvania
# of Employees: 200
This case study is based on a well-respected multi-generational merit shop company with a long standing dedicated workforce. Approximately 200 employees work directly on job sites. Over 90% of their projects are subject to Davis-Bacon / prevailing wage regulations with Pennsylvania, New York and the Federal government.
When they came to us their prevailing wage fringe benefit plan structure was as follows:
- Deductions from the fringe benefit portion of the prevailing wage were being made for:
- Profit Sharing Retirement Plan – 10% of total compensation
- Health Insurance (optional)
The remaining amount of fringe dollars were paid to the employee as additional wages.
The approximate numbers looked like this:
- Total Fringes: $6.6 million
- Total Health Insurance: $800,000
- Total Profit Sharing: $1.4 million
- Remainder paid as wages: $4.4 million
- Payroll / Labor burden: 30% – $1.32 million
(This is the cost of employer FICA, workers comp and other payroll related taxes and costs)
- The company is needlessly paying $4.4 million of fringe benefits as cash wages which is costing the company an additional $1.32 million in payroll related taxes and premiums. This is $6,600 per employee!
- Because this company is seasonal, employees go on COBRA during the layoff. As a result, many of the employees do not continue health insurance coverage due to a combination of expensive premiums and the financial strain of living on state unemployment benefits.
- The company values the hard work and commitment of their team and does not want to disrupt the harmony within the workforce by making drastic changes to what they have been doing.
The challenge was to make changes to how the $6.6 million of fringe benefits was structured so as to avoid the excess $1.32 million in payroll related taxes and premiums while not causing unrest within the workforce.
Utilizing the DirectAdvisors Trust to capture $6.6 million of the fringe benefit dollars, the trust provided the mechanism to:
- Pay health insurance premiums for the full 12 months so employees would no longer have to come out of pocket for COBRA premiums.
- Provide funding to the profit sharing retirement plan equal to at least 10% of compensation.
- Pay supplemental unemployment benefits to employees during the seasonal layoff for up to $2,000 per week in addition to their state unemployment benefits. (Not subject to FICA or PA state income tax)
The primary change for the employees was receiving supplemental unemployment benefits during the seasonal layoff rather than receiving their remaining fringe benefit dollars as wages each week.
The change provided substantial tax benefits to the employees (supplemental unemployment benefits are not subject to FICA or PA state income tax), and increased their income 5 times during the seasonal layoff!
We took the time to explain to the employees in face-to-face meetings how this change would work, what they could expect and how it would benefit them. We also explained how the change would help the company grow.
As a result, the employees now have a more comfortable layoff and the company is able to bid more competitively.
A true win-win!
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.