The Davis-Bacon fringe benefit credit lets a contractor on a federally funded construction project count what it spends on qualifying employee benefits toward the fringe portion of the prevailing wage, instead of paying that entire fringe amount in cash. To calculate the credit, you take the annual cost of each qualifying benefit, divide by the total hours the employee actually worked across all jobs during the year, and report the resulting hourly figure on the certified payroll. Any gap between that credit and the fringe rate on the wage determination has to be paid in cash on the same paycheck.
What the Credit Is Doing
Every Davis-Bacon wage determination lists two numbers for each classification: a basic hourly rate and a fringe benefit rate. Added together, they are the total prevailing wage the contractor owes. You can pay the whole obligation in cash, cover the fringe portion through qualifying benefit contributions, or mix the two in any combination that reaches the total. Cash paid above the basic hourly rate can also offset the fringe portion, which is a feature of Davis-Bacon that does not exist under the Service Contract Act.1U.S. Department of Labor. Fact Sheet 66E – DBRA Compliance Fringe Benefit Requirements
When qualifying benefit contributions fall short of the fringe rate, the difference is paid in cash directly to the worker on that pay period’s check. There is no option to defer the shortfall or make it up later.
Which Benefits Qualify
The statute at 40 U.S.C. ยง 3141(2)(B) lists the eligible categories: medical or hospital care, pensions, disability and sickness insurance, life insurance, accident insurance, vacation and holiday pay, and apprenticeship or training programs.2Office of the Law Revision Counsel. 40 USC 3141 – Definitions A catch-all for “other bona fide fringe benefits” also brings in dental, vision, and supplemental unemployment funds, provided the benefit is a real financial commitment from the employer to the worker.3eCFR. 29 CFR Part 5 – Labor Standards Provisions Applicable to Contracts Covering Federally Financed and Assisted Construction
The exclusions are where contractors lose credit they thought they had. No credit is allowed for anything the employer is already required to provide by law. That rules out employer-side Social Security (FICA), FUTA, state unemployment insurance, and workers’ compensation.4eCFR. 29 CFR Part 5 Subpart B – Interpretation of the Fringe Benefits Provisions of the Davis-Bacon Act Business expenses dressed up as benefits also fail: travel, per diem, lodging, company vehicles, company cell phones, uniforms, tools, and safety equipment are all costs of doing business, not fringe benefits.1U.S. Department of Labor. Fact Sheet 66E – DBRA Compliance Fringe Benefit Requirements Holidays already built into the basic hourly rate on the wage determination cannot be claimed a second time as a fringe benefit.
The Annualization Formula
The hourly credit is not what you spent on a benefit divided by the hours worked on the federal job. The Department of Labor requires annualization: divide the total annual cost of each fringe benefit by the total hours the employee actually worked on all projects during that period, federal and private.5eCFR. 29 CFR 5.25 – Rate of Contribution or Cost for Fringe Benefits The rule stops contractors from loading a benefit’s full cost onto Davis-Bacon hours alone.
Take health insurance at $6,000 a year. If the employee worked 1,800 total hours, the hourly credit is $3.33. Push the same employee to 2,200 hours and the credit drops to $2.73. The denominator is always actual hours worked; there is no standard 2,080-hour assumption.
Each benefit is annualized separately. Health insurance, pension contributions, life insurance, and vacation pay each produce their own hourly figure, and the sum is the total hourly fringe credit you can claim on that worker. If that total is less than the fringe rate on the wage determination, the shortfall is cash.
Administrative Costs Inside the Number
Costs incurred by an insurance carrier, trust fund administrator, or other third party that are directly related to delivering the benefit are creditable: claim evaluation, approval processing, referral management. The contractor’s own administrative costs are not, even when a third party handles them for the contractor. Filling out claim forms, tracking invoices, updating personnel records, and maintaining compliance files are ordinary business expenses.6eCFR. 29 CFR 5.33 – Administrative Expenses of a Contractor or Subcontractor Rolling these into the credit is one of the compliance failures investigators watch for.
Funded Plans
Most contractors satisfy the fringe obligation through funded plans, where money moves to an insurance carrier, trust fund, or third-party administrator. Under 29 CFR 5.26, four structural requirements have to hold: contributions must be irrevocable, the trustee cannot be affiliated with the contractor, the trustee must follow all applicable fiduciary duties, and the fund cannot allow the contractor to recapture contributions or divert them to company use.7eCFR. 29 CFR 5.26 – Contribution Irrevocably Made to a Trustee or to a Third Person
Contributions must be made on a regular schedule, no less often than quarterly. Annual lump-sum contributions do not qualify unless the contractor pays the full amount in advance of the year they cover.8U.S. Department of Labor. Davis-Bacon Compliance Principles Auditors look here first. A contractor claiming weekly fringe credits while depositing into the plan once a year has a problem.
Unfunded Plans Need Prior Approval
An unfunded plan pays benefits directly from the contractor’s general assets, such as vacation time paid out of an operating account rather than through a vacation trust. Because no independent party holds the money, five requirements apply under 29 CFR 5.28:
- The plan is reasonably expected to deliver the promised benefits.
- Workers have a legally enforceable right to the benefits.
- The plan is structured so the contractor can actually pay what it promises.
- Workers receive a written description of the plan and their benefits.
- The contractor has submitted a written request to the Secretary of Labor and received formal approval before claiming any credit.
The approval requirement is the one most contractors miss. Without it, no credit exists and the full fringe amount is owed in cash. Requests go to the Wage and Hour Division’s Division of Government Contracts Enforcement in Washington, D.C., or by email to unfunded@dol.gov.9eCFR. 29 CFR 5.28 – Unfunded Plans The Secretary can also require assets to be set aside in a separate account sufficient to cover future obligations if there is concern the plan is a sham.
Apprenticeship and Training Contributions
Contributions to apprenticeship programs count only when the program is registered with the Department of Labor’s Office of Apprenticeship or a recognized State Apprenticeship Agency. Unregistered training does not qualify, regardless of what it costs.8U.S. Department of Labor. Davis-Bacon Compliance Principles Even with a registered program, the credit is limited to costs reasonably related to the apprenticeship itself: instruction, books, tools, and materials. Contributions required by a collective bargaining agreement or an approved apprenticeship plan are presumed reasonable unless evidence suggests otherwise.
Multi-trade contractors need to watch the classification rule. Training costs incurred for one trade cannot offset fringe obligations for a different trade. Spending $50,000 on electrician apprentices does not produce a credit against the carpenter fringe rate. The hourly credit is calculated by dividing classification-specific training cost by total hours worked by all journeyworkers and apprentices in that same classification.
Overtime and the Regular Rate
Fringe benefit contributions can be excluded from the “regular rate” used to calculate overtime premiums, whether the contractor pays into a plan or pays a cash equivalent in lieu of fringe benefits.10eCFR. 29 CFR 5.32 – Overtime Payments Two limits apply. The regular rate can never drop below the basic hourly rate from the wage determination. And if the cash wage paid is higher than the basic rate, that actual cash rate becomes the regular rate for overtime. Pay $25.00 cash when the basic rate is $23.00, and overtime is calculated on $25.00. Employee contributions to fringe benefit plans are not excluded from the regular rate, so overtime is calculated on gross pay before benefit deductions.
Reporting the Credit on WH-347
Certified payroll form WH-347 is where the calculation becomes a formal record. Column 6B shows the total fringe benefit credit claimed for each worker during the pay period, and column 6C shows any cash paid in lieu of fringe benefits. Combinations of both are common, and both columns get entries when that is what happened.11U.S. Department of Labor. Instructions For Completing Davis-Bacon and Related Acts Weekly Certified Payroll Form WH-347
On page two, the Statement of Compliance requires more detail than most contractors expect. If a fringe credit is claimed, box 5 must be checked and the “Hourly Credit for Fringe Benefits” subsection completed: each worker by name, each benefit plan by name, type, and number, whether each plan is funded or unfunded, and the hourly credit amount claimed per worker per plan. The person signing is personally certifying that the entries are accurate and that the money was actually paid into the plans as reported. For any unfunded plan, the Secretary of Labor’s written approval has to be in hand before any credit lands on the form.
What Makes the Credit Disappear
Payroll records and supporting documentation must be kept for at least three years after all work on the prime contract is completed. That includes hourly wage rates paid, fringe benefit contribution rates, daily and weekly hours worked, and deductions. For fringe benefits specifically, records must show the plan is enforceable, financially responsible, and communicated in writing to workers, along with documentation of actual costs.12eCFR. 29 CFR 5.5 – Contract Provisions and Related Matters
During an investigation, the Wage and Hour Division asks for proof that contributions were actually deposited on time. Trust fund statements, insurance carrier receipts, and canceled checks are the standard evidence. If a contractor cannot show funds were actually paid, the Department of Labor disregards the credit entirely and treats the full fringe amount as unpaid wages.
The heaviest consequence is debarment: the contractor, its responsible officers, and any affiliated firms become ineligible for federal contracts and subcontracts for three years, with debarred parties listed on SAM.gov.13eCFR. 29 CFR 5.12 – Debarment Proceedings Back-wage liability and debarment can also extend to the prime contractor for subcontractor violations, which is why experienced general contractors audit their subcontractors’ certified payrolls instead of accepting them at face value.