Davis-Bacon Compliance Principles

DAVIS-BACON AND RELATED ACTS (DBRA) COMPLIANCE PRINCIPLES OVERVIEW

• This section provides basic information regarding major aspects of compliance with the Davis-Bacon labor standards. It addresses frequently asked questions such as:
  • When can apprentices work on a Davis-Bacon project at less than the wages listed in the Davis-Bacon wage determination?
  • What happens if there is a dispute over how a worker should be classified?
  • How are fringe benefits treated under the DBRA?
  • Does the Davis-Bacon prevailing wage include fringe benefits?
  • When may a contractor claim a credit for its contributions to, or reasonably anticipated costs of, a fringe benefit plan?
  • How does a contractor compute fringe benefit costs as an hourly rate that can count towards fulfilling its prevailing wage obligation?

APPRENTICES

Definition

• Apprentice means (i) a person employed and individually registered in a bona fide apprenticeship program registered with the U.S. Department of Labor, Employment and Training Administration (ETA), Office of Apprenticeship (OA), or with a State Apprenticeship Agency (SAA) recognized by the OA, or (ii) a person in the first 90 days of probationary employment as an apprentice in such an apprenticeship program, who is not individually registered in the program, but who has been certified by the OA or a SAA (where appropriate) to be eligible for probationary employment as an apprentice. 29 CFR 5.2.

Payment of prevailing wage to apprentices

• Apprentices are laborers and mechanics but are not listed on Davis-Bacon wage determinations.
• Apprentices may be used on Davis-Bacon and Related Acts (DBRA) covered projects and may be paid less than the rate specified on the wage determination for the classification of work that the apprentice performs if:
  • The apprentice is individually registered in an approved apprenticeship program.
    • The apprenticeship program has been approved by the ETA/OA or by a SAA recognized by the ETA/OA.
    • These registration requirements do not apply to apprentices and trainees working on highway construction projects funded by the Federal-Aid Highway Act and enrolled in programs certified by the U.S. Department of Transportation.
  • Apprentices must each be paid the percentage (%) specified in the approved apprenticeship program for their level of progression calculated as a percent of the basic hourly rate required by the applicable wage determination for the applicable classification.
  • Fringe benefits must be paid to apprentices in accordance with the provisions of the apprenticeship program. If the program does not specify fringe benefits, the apprentices must be paid the full amount of the fringe benefits listed on the applicable wage determination (for the classification of work actually performed) unless it is determined by the WHD Administrator that a different practice prevails for the applicable apprentice classification.
  • The contractor is limited in the number of apprentices permitted on the DBRA job site based on the allowable ratio of apprentices to journeyworkers (as defined in 29 CFR 29.2) specified in the relevant program. The allowable ratio must not be greater than the ratio permitted to the contractor as to the entire workforce under the apprentices’ registered program or the ratio applicable to the locality of the project. See 29 CFR 5.5(a)(4)(i)(D).
    • Compliance with the applicable ratio is determined on a daily, not weekly basis.
    • The use of a “fraction thereof” in computing apprenticeship ratios is not permitted unless specified in the approved apprenticeship program. For example, if a journeyworker spends 4 hours supervising one apprentice who works a full 8 hour day, and 4 hours supervising another apprentice who works a full 8 hour day, neither apprentice has been supervised by the journeyworker for the full 8 hour day. Each apprentice in this scenario was only supervised by “½” of a journeyworker, and the contractor would not be in compliance with the applicable daily ratio (unless the apprenticeship program specifically permits such partial supervision).
    • When the contractor has exceeded the allowable ratio of apprentices in a classification, only the individuals who were working before the applicable ratio was exceeded may be paid less than the wage determination rate(s) for the work performed. Individuals performing work on the job site in excess of the ratio permitted must be paid the full wage determination rate for the classification of work actually performed.
  • Reciprocity of ratios and wage rates. Apprenticeship programs are generally not portable. Thus, where a contractor is performing construction on a project in a locality other than the locality in which its own program is registered, the contractor must follow the ratios and wage rates (expressed in percentages of the journeyworker’s hourly rate) specified in a registered apprenticeship program covering the locality in which the construction is being performed. If there is no registered apprenticeship program covering the locality of the project, then the ratio and/or wage rate specified in the contractor’s registered program must be observed.

AREA PRACTICE – PROPER CLASSIFICATION OF WORKERS

• To determine proper classifications for workers on a Davis-Bacon covered project, it may be necessary to examine local area practice.
  • There are no nationwide standard classification definitions under the DBRA. (This differs from the SCA, as SCA classifications are defined in the SCA Directory of Occupations .)
  • The Wage Appeals Board ruled in Fry Brothers Corp. , WAB Case No. 76-6 (June 14, 1977) that the proper scope of a classification of work on a Davis-Bacon wage determination is the scope of the classification used by contractors whose wage rates were found to be prevailing in the area and incorporated in the applicable Davis-Bacon wage determination.
  • Questions concerning the proper classification of laborers and mechanics are resolved in accordance with prevailing local area practice. An “area practice survey” may be conducted by the WHD or by the contracting agency to determine the proper classification(s) of work.
• For advice regarding proper classification of workers and for guidance on the need to conduct an area practice survey to determine proper classification of laborers and mechanics on DBRA covered projects, consultation with the WHD Government Contracts Regional Enforcement Coordinator (REC) is appropriate. A listing of RECs is available here: https://www.dol.gov/agencies/whd/government-contracts/contacts.

Basic principles for conducting surveys to determine prevailing local area practice

• In accord with Fry Brothers Corp., information to be considered in the area practice survey is from contractors and other interested parties in the sector (union or non-union) whose wage rates were found to be prevailing in the area and incorporated in the applicable wage determination for each classification listed in the wage determination.
  • If, in the applicable wage determination, the rates listed for all the classifications that may perform the work in question are survey (SU) rates, the dispute will be resolved by examining the practice(s) of non-union contractors, as appropriate, in classifying workers who have been performing the duties in question in the area.
  • If, in the applicable wage determination, the rates listed for all the classifications that may perform the work in question are collectively bargained rates, the dispute will be resolved by examining the practice(s) of union contractors in classifying workers who have been performing the duties in question in the area.
  • If one or more of the classifications that may have performed the work in the area have union rates listed but other classifications that may have performed the work have non-union rates listed, the dispute will be resolved based on the combined information from:
    • union contractors for the classification(s) for which union rate(s) are listed,
    • non-union contractors for the classification(s) for which non-union rate(s) are listed.
• Proper classification of the laborers or mechanics performing the work in question will be resolved by examining the classification practice(s) of contractors who performed the work in question:
  • On similar construction projects (building construction, residential construction, highway construction, heavy construction),
  • In progress in the same area (normally the same county),
  • During the year preceding the wage determination lock-in date for the contract in question (as discussed below; see 29 CFR 1.6(c)).
    • In the case of contracts entered into pursuant to competitive bidding procedures (sealed bid procurement, as contrasted with contracting by negotiation), the year prior to bid opening;
    • In the case of contracts entered into pursuant to contracting by negotiation (such as contracts arrived at through requests for proposals (RFPs) or similar contracting methods), the year prior to contract award;
    • In the case of projects assisted under the National Housing Act, the year prior to beginning of construction or the date the mortgage was initially endorsed, whichever occurred first; or
    • In the case of projects to receive housing assistance payments under section 8 of the U.S. Housing Act of 1937, the year prior to beginning of construction or the date the agreement to enter a housing assistance payments contract was executed, whichever was first.
• The extent of the information required for making area practice determinations will depend on the facts in each case. For example:
  • If, in gathering preliminary data, all the parties agree as to the proper classification, the area practice is thus established (i.e., a “limited” area practice survey).
  • However, if all parties do not agree (i.e., jurisdictional dispute between two unions, or if local area contractors do not agree with the union, or where non-union rate(s) in the wage determination may apply and the practice among non- union contractors in the area varies), it will be necessary to determine by a “full” area practice survey which classification actually performed the work in question.
• More detailed information on procedures involved in conducting an area practice survey to resolve enforcement issues regarding the proper classification of workers employed on DBRA-covered contracts is available in Chapter 15 of the WHD Field Operations Handbook (FOH) (Chapter 15 of the FOH is available at https://www.dol.gov/agencies/whd/field-operations-handbook/Chapter-15.

DEDUCTIONS

• Rules at 29 CFR 3.5 permit the following deductions from wages without DOL approval:
  • Any deduction made in compliance with the requirements of federal, state or local law, such as social security or federal or state income tax withholding.
  • Deductions for bona fide prepayment of wages.
  • Certain deductions for court ordered payments.
  • Deductions for contributions to fringe benefit plans, provided that the deduction is not prohibited by law; that it is either voluntarily consented to by the worker in writing in advance of the time the work is to be done (not as a condition of employment) or provided for in a collective bargaining agreement; that no profit or other benefit is obtained by the contractor (or its affiliates); and that the deduction serves the convenience and interest of the worker.
  • Deductions to repay loans or to purchase shares in a credit union, when requested by the worker.
  • Deductions voluntarily authorized for contributions to governmental or quasi-governmental agencies, such as the American Red Cross, or to charitable organizations as defined by 26 USC 501(c)(3).
  • Deductions to pay regular union initiation fees and membership dues, excluding fines or special assessments, provided that a collective bargaining agreement provides for such deductions.
  • Deductions for the “reasonable cost” of board, lodging, or other facilities meeting the requirements of section 3(m) of the FLSA and 29 CFR part 531.
  • Deductions for the cost of safety equipment of nominal value purchased (voluntarily or as provided for in a bona fide collective bargaining agreement) by the worker (as their own personal property) if such equipment is not required by law to be furnished by the contractor, if such deduction is not prohibited by the FLSA or other law, and if the cost on which the deduction is based does not exceed the actual cost to the contractor (where the worker purchases the equipment from the contractor).
• Pursuant to 29 CFR 3.6, any contractor may apply to the DOL for permission to make any deductions not listed in 29 CFR 3.5. Deduction approval requests may be sent to dbadeductions@dol.gov.DOL may approve payroll deductions whenever all of the following conditions are met:
  • The contractor (and its affiliates) do not make a profit or benefit directly or indirectly from the deduction;
  • The deduction is not otherwise prohibited by law;
  • Either the deduction is provided under the terms of a bona fide collective bargaining agreement, or the worker voluntarily consented to the deduction in writing in advance of the time the DBRA work is to be performed (and the worker’s employment did not/does not depend on such consent); and
  • The deduction serves the convenience and interest of the worker.

FRINGE BENEFITS

Definition

• Under the Davis-Bacon Act (DBA), the terms “wages,” “scale of wages,” “wage rates,” and “prevailing wages” include:
  • The basic hourly rate of pay,
  • Any contribution irrevocably made by a contractor to a trustee or third party pursuant to a bona fide fringe benefit fund, plan or program, and
  • The rate of costs to the contractor which may be reasonably anticipated in providing bona fide fringe benefits pursuant to an enforceable commitment to carry out a financially responsible plan or program, which was communicated to the workers in writing.
    
    29 USC 3141(2); 29 CFR 5.2 and 5.23.

Method of Payment

• The Davis-Bacon “prevailing wage” is made up of two interchangeable components – a basic hourly rate and fringe benefits found prevailing in an area and published in a Davis-Bacon wage determination. Along with the basic hourly rate listed on the wage determination, a fringe benefit amount is listed for any classification for which fringe benefits have been found prevailing. The sum of both the basic hourly rate and any fringe benefits listed comprise the Davis-Bacon “prevailing wage” requirement for a given classification. If no fringe benefits are found prevailing and listed for a given classification, the basic hourly rate itself is the “prevailing wage” requirement for that classification.
• The regulations at 29 CFR 3.10, issued under the Copeland Act and applicable to wage payments on projects subject to Davis-Bacon prevailing wage requirements, specify the allowable “methods of payment” as follows:
  • The payment of wages shall be by cash, negotiable instruments payable on demand, or the additional forms of compensation for which deductions are permissible under this part. No other methods of payment shall be recognized on work subject to the Copeland Act.
  • Generally, the “cash” portion of the prevailing wage, as discussed below, is the worker’s paycheck (which may be paid by electronic transmission of the wages to a worker’s account, if the worker authorizes such direct deposit).
• A contractor’s prevailing wage obligation may be met by any combination of cash wages and creditable “bona fide” fringe benefits provided for a covered worker:
  • The total, including any fringe benefits listed for the classification, may be paid entirely as cash wages;
  • Payments made or costs incurred by the contractor for “bona fide” fringe benefits may be creditable towards fulfilling the requirement; or
  • A combination of cash wages paid and “bona fide” fringe benefits may be used together to meet the total required prevailing wage. Example:

    A Davis-Bacon wage determination requires:

    Basic hourly rate	$34.00
    Fringe benefit	$2 1.00
    Total prevailing rate	$55.00

    Here are some examples of how a contractor can comply:

    • $55.00 in cash wages;
    • $34.00 plus $21.00 in pension contributions or other “bona fide” fringe benefits; or
    • $32.00 plus $23.00 in pension contributions or any combination of “bona fide” fringe benefits. (In this case, to compute the minimum overtime rate under CWHSSA, half the basic rate listed, i.e., $17.00 must be added to the full $55.00 straight time DBA prevailing wage. Thus, the CWHSSA overtime pay rate would be $72.00 per hour.)
• Note: Under the DBRA, monetary wages paid in excess of the basic hourly rate may be used as an offset or credit to satisfy fringe benefit obligations, and vice versa.
• Each classification on a Davis-Bacon wage determination stands alone and each laborer and mechanic is due the full prevailing wage (including fringe benefits, if listed) for each hour of work in a classification.

Application to all hours worked

• Under Davis-Bacon, fringe benefits must be paid for all hours worked, including overtime hours. However, the fringe benefit amounts listed in the applicable wage determination may be excluded from the half-time premium due as overtime compensation.

  For example:

  A worker worked 44 hours as an electrician. The wage determination rate was $27.00 (basic hourly rate) plus $18.00 in fringe benefits.

  The electrician would be due:

  44 hours x $45.00	=	$1,980.00 (straight time pay)
  4 hours x .5 x $27.00	=	54.00 (overtime pay)
  		$2,034.00

Bona fide fringe benefit plans

Statutory and regulatory provisions

• The DBA at 40 USC 3141(2)(B) and regulations at 29 CFR 5.29 list types of fringe benefits considered to be bona fide. Examples of fringe benefits that may be considered bona fide include, but are not limited to:
  • Life insurance
  • Health insurance
  • Pension
  • Vacation
  • Holidays
  • Sick leave
  • Supplemental Unemployment Benefits
• The DBA also refers to “other bona fide fringe benefits,” an open-ended provision intended to allow new types of fringe benefits to be recognized by the Secretary as they become prevailing in a local area. When a plan is not one of the conventional type described in the statute, it will be necessary for the Secretary to examine the facts and circumstances to determine whether the fringe benefits provided under the plan are “bona fide.”

Funded fringe benefit plans

• The contractor’s fringe benefit contributions made irrevocably to a trustee or third party pursuant to a bona fide fringe benefit fund, plan or program can be credited towards meeting the prevailing wage requirement without prior DOL approval. For example:
  • Contractor pays monthly premiums for health insurance to a third-party provider.
  • Contractor makes quarterly contributions to retirement plan trust.
• The amount of contributions for fringe benefits must be paid irrevocably to the trustee or third party. 29 CFR 5.26 – 5.27.

Unfunded fringe benefit plans

• A fringe benefit plan or program which the contractor funds from the company’s general assets (rather than by payments to a trustee or third party) is referred to as an unfunded plan. A contractor’s reasonably anticipated costs in providing bona fide fringe benefits under such a plan may be creditable towards meeting the Davis-Bacon prevailing wage obligations if certain requirements are met.
• As set forth in 29 CFR 5.28, no type of fringe benefit is eligible for consideration as an unfunded plan unless it meets the following criteria:
  • It can be reasonably anticipated to provide benefits described in the Davis- Bacon Act;
  • It represents a commitment that can be legally enforced;
  • It is carried out under a financially responsible plan or program;
  • The plan or program has been communicated in writing to the laborers and mechanics affected; and
  • The contractor requests and receives approval of the plan or program from WHD.
• To ensure that unfunded plans are carried out under a financially responsible plan or program, DOL will generally require the contractor to set aside or separately account for sufficient funds to meet future obligations of the plan, no less often than quarterly, as described at 29 CFR 5.28(d). The amount of funds set aside and/or separately accounted for must be computed in such a way as to be reasonably close to the amount that will be needed to provide the plan’s specified benefits, and must be used to pay for such benefits.
• Contractors may request approval of an unfunded plan or program by submitting a written request to WHD by email to unfunded@dol.gov or by mail to the United States Department of Labor, Wage and Hour Division, Director, Division of Government Contracts Enforcement, 200 Constitution Ave., NW, Room S-3502, Washington, DC 20210. Requests must include sufficient documentation to enable WHD to evaluate the plan and determine how it meets the required criteria.

Pension plans

• A pension plan that meets the requirements of the Employee Retirement Income Security Act (ERISA) may be considered “bona fide” for DBRA purposes. In accordance with 29 CFR 5.26, the fringe benefit plan trustees must assume the usual fiduciary responsibilities imposed on trustees by applicable law. A contractor may be a pension plan trustee.
• Some pension plans contain “vesting” requirements. Where a contractor contributes to the plan, workers may be required to complete a certain length of service before they have a nonforfeitable right to benefits based on the contractor’s contributions to the plan. Thus, a worker who leaves employment before completing the specified length of service may forfeit all or part of the accrued benefit.
  • Such forfeitures are permitted, provided the plan is a bona fide plan that meets applicable requirements under ERISA, including minimum vesting requirements.
  • Forfeited Davis-Bacon contributions may not revert to the contractor, but should be distributed among the remaining plan participants.
• Credit for profit sharing or other discretionary contractor contributions that fund pension benefit plans can be given if certain conditions are met:
  • During the period of the Davis-Bacon covered work, contractors make irrevocable contributions to an escrow account, not less often than quarterly, in an amount sufficient to meet any claimed fringe benefit credit (based on expected profit-sharing pension plan contributions) on behalf of each worker participating in the plan.
  • Upon the annual determination of profits, monies placed in escrow are transferred to the pension trust fund and used as an offset against the contractor’s obligation to the laborers and mechanics under the profit-sharing plan.
  • Allowable Davis-Bacon credit is limited to the contributions covering that portion of the total hours worked by the covered workers during the year which is attributable to work covered by Davis-Bacon labor standards.
  • Any shortfall in profits which results in actual payments to the pension plan being less than the rate at which the contractor claimed Davis-Bacon credit throughout the year would have to be made up by the contractor when the account is settled at year end by paying the difference (shortfall) in cash directly to the covered workers or by making additional contributions to the pension fund in an amount to cover the shortfall.
  • A contractor cannot be given credit for more than the actual costs of, or payments made into, the pension plan trust fund.

Costs of apprenticeship programs

• Costs incurred by a contractor for a bona fide apprenticeship program are creditable under DBRA. Only apprenticeship programs registered with the Department of Labor’s Employment and Training Administration, Office of Apprenticeship (“OA”), or with a State Apprenticeship Agency recognized by the OA are considered bona fide programs.
• Contractors may only take credit for amounts reasonably related to the costs of the apprenticeship benefits, such as instruction, books, and tools or materials.
  • Contractors may not take credit for voluntary contributions beyond such costs.
  • Amounts the contractor is required to contribute by a collective bargaining agreement or by a bona fide apprenticeship plan will be presumed to be reasonably related to such costs in the absence of evidence to the contrary.
• Contractors can only claim credit for apprenticeship training costs for a particular classification of workers if those costs were associated with actual apprenticeship training costs for workers in that classification. Credit may be applied to both the apprentices and the journeyworkers in that classification. Conversely, costs incurred for the apprenticeship for one classification of laborer or mechanic may not be used to offset costs incurred for another classification. For example, a contractor cannot claim credit for apprenticeship training costs incurred for electricians to satisfy the applicable prevailing wage requirements for carpenters.
• The permissible hourly fringe benefit credit for apprenticeship benefit costs is determined by dividing the cost of the program for a particular classification of workers by the total number of hours worked by the contractor’s journeyworkers and apprentices in that classification on covered and non-covered projects during the time period to which the apprenticeship cost is attributable. That credit may be applied against the contractor’s prevailing wage obligations for journeyworkers and apprentices in that classification for each hour worked on the covered project.

Vacation, sick leave, and other PTO plans

• Vacation, sick leave, and other PTO plans are generally unfunded plans and must meet all of the requirements listed in 29 CFR 5.28.
• If a worker should stop working for the contractor prior to becoming eligible under a vacation, sick or other PTO leave plan, and amounts have been paid into an account on such worker’s behalf for which the contractor has taken credit towards meeting its prevailing wage obligations, then the worker must be paid those amounts from the account upon termination.
• Similarly, no credit may be claimed for accrued but unused vacation, sick, or other PTO leave if the worker forfeits the accrued leave upon termination of employment. The contractor must either pay the accumulated leave in cash upon the worker’s termination, or must only claim a credit for the leave actually used by each worker.

Payments not creditable as bona fide fringe benefits under the DBRA

• No credit may be taken for a benefit required by federal, state, or local law, such as workers’ compensation, unemployment compensation, or social security taxes.
• Where a contractor sends workers who are regularly employed in their home community away from home to work at a location outside daily commuting distances from their homes, the costs of lodging, board, and transportation for that travel will generally be for the convenience of the contractor. The contractor’s payment of such costs are not considered bona fide fringe benefits within the meaning of the DBRA, are not part of the workers’ wages, and do not constitute board, lodging, or other facilities customarily furnished which are deductible from the predetermined wage pursuant to 29 CFR 3.5(i).
• The use of a truck is not a creditable fringe benefit; a Thanksgiving turkey or Christmas bonus is not a creditable fringe benefit. See Cody-Zeigler, Inc., WAB Case No. 89-19 (April 30, 1991).

Calculating credit for contributions to or reasonably anticipated costs of bona fide fringe benefits towards DBRA prevailing wage obligations

Frequency of contributions or costs

• Contributions to fringe benefit plans must be made regularly, not less often than quarterly. (This requirement is specified in the standard Davis-Bacon contract clauses at 29 CFR 5.5(a)(1)(i).) Annual contributions into a fringe benefit plan fund do not meet this requirement, and are generally only permissible when made in advance of the year covered by the contributions.
• Similarly, contractors are generally required to set aside or separately allocate funds equivalent to the credit claimed for the reasonably anticipated costs of an unfunded plan on at least a quarterly basis.

Annualization

• Except under limited circumstances, contractors are required to annualize their fringe benefit contributions or cost to determine the hourly credit that may be claimed towards their prevailing wage obligation on DBRA covered projects.
  • Annualization is generally necessary for computing the fringe benefit credit when a contractor employs workers on both DBRA covered projects and projects not subject to DBRA coverage and makes contributions to fund fringe benefit plan(s) during the year.
• Applying annualization to compute the allowable Davis-Bacon fringe benefit credit:
  • Absent an exception from the annualization requirement, contractors must annualize all contributions to fringe benefit plans (or the reasonably anticipated costs of an unfunded benefit plan) to determine the hourly equivalent for which they may take credit against their fringe benefit obligation. 29 CFR 5.25(c).
  • The annualization principle reflects that DBRA credit for contributions made to bona fide fringe benefit plans (or the reasonably anticipated costs of an unfunded benefit plan) is allowed based on the effective rate of contributions or reasonably anticipated costs incurred for total hours worked during the year (or a shorter time period) by a laborer or mechanic (both DBRA and non-DBRA hours).
  • To annualize the cost of providing a fringe benefit, a contractor must divide the total cost of the fringe benefit contribution (or the reasonably anticipated costs of an unfunded benefit plan) by the total number of hours worked on both private (non-DBRA) work and DBRA-covered work during the time period to which the cost is attributable to determine the rate of contribution per hour. If the amount of contribution varies per worker, credit must be determined separately for the amount contributed on behalf of each worker.
• Effect of annualization
  • The annualization requirement prevents contractors from using Davis-Bacon work as the disproportionate or exclusive source of funding for benefits that are continuous in nature during both Davis-Bacon covered and non-covered work.
  • The annualization requirement thus has the effect of preventing contractors from subsidizing their non-DBRA work with federal funding or assistance, and it also ensures workers are paid actual prevailing wages on DBRA-covered work by preventing contractors from taking credit against the required prevailing wage for expenses not actually associated with the covered work.

Exceptions from the annualization requirement

• Contractors, plans, and other interested parties may request an exception from the annualization requirement by submitting a request to the WHD Administrator. A request for an exception from the annualization requirement for contributions to bona fide fringe benefit plans (or the reasonably anticipated costs of an unfunded benefit plan) may be granted only if both of the following requirements are met:
  • The benefit provided is not continuous in nature. A benefit is not continuous in nature when it is not available to a participant without penalty throughout the year or other time period to which the cost of the benefit is attributable.
  • The benefit does not compensate both private work and DBRA-covered work. A benefit does not compensate both private and DBRA-covered work if any benefits attributable to periods of private work are wholly paid for by compensation for private work.
  • Requests for annualization exceptions must be submitted in writing to the Division of Government Contracts Enforcement by email to DBAannualization@dol.gov or by mail to Director, Division of Government Contracts Enforcement, Wage and Hour Division, U.S. Department of Labor, 200 Constitution Ave., NW, Room S-3502, Washington, DC 20210.
• Contributions to defined contribution pension plans (DCPPs) are excepted from the annualization requirement, and exception requests therefore are not required in connection with DCPPs, provided that all of the following requirements are met:
  • The benefit provided is not continuous in nature.
  • The benefit does not compensate both private work and DBRA-covered work.
  • The DCPP provides for immediate participation and essentially immediate vesting (i.e., the benefit vests within the first 500 hours worked).

Credit based on the individual worker

• The contractor must make payments or incur costs with respect to each individual laborer or mechanic.Thus, the amount contributed for each worker must be determined separately, and credit taken accordingly towards the prevailing wage requirement for each individual. (It is not permissible to take credit based on the average premium paid or average contribution made per worker.)

Eligibility standards for participation

• Credit may not be taken for fringe benefit contributions made on behalf of workers who are not eligible to participate in the plan (e.g., those excluded due to age or part- time employment).
• Some plans provide that contributions and allocations under the plan will only be made on behalf of participants who are employed on the last day of the plan year. No credit is permitted for such participants for whom no contribution is made or for contributions made for workers whose accounts receive no allocation solely because they are not employed on the last day of the plan year.
• On the other hand, it is not required that all workers participating in a fringe benefit plan be entitled to receive benefits from the plan at all times. For example, a worker who is eligible to participate in an insurance plan may be prohibited from receiving benefits from the plan during a 30-day waiting period. Contributions made on behalf of these workers would be creditable against the contractor’s fringe benefit obligations.

Administrative expenses

• A contractor’s own administrative expenses incurred in connection with the provision of fringe benefits are considered business expenses of the firm and are therefore not creditable towards the contractor’s prevailing wage obligations, including when the contractor pays a third party to perform such tasks in whole or in part.
• The costs of the following tasks are examples of noncreditable administrative costs, whether the contractor pays an employee or a third party to perform these tasks:
  • filling out medical insurance claim forms for submission to an insurance carrier
  • paying and tracking invoices from insurance carriers or plan administrators
  • updating the contractor’s personnel records when workers are hired or leave employment
  • sending lists of new hires and separations to insurance carriers or plan administrators
  • sending out tax documents to the contractor’s workers
  • tracking the amount of a contractor’s fringe benefit contributions or making sure contributions cover the fringe benefit amount claimed
• Unlike the contractor’s own administrative costs, costs incurred by a contractor’s insurance carrier, third-party trust fund, or other third-party administrator that are directly related to the administration and delivery of bona fide fringe benefits to the contractor’s laborers and mechanics can be credited towards the contractor’s obligations under a Davis-Bacon wage determination.
• Examples of costs directly related to the administration and delivery of benefits include evaluating benefit claims, deciding whether they should be paid, approving referrals to specialists, and other reasonable costs of administering a plan.

Computing hourly fringe benefit credit towards fulfilling the prevailing wage requirement

• In determining cash equivalent credit for fringe benefit payments, the period of time to be used is the period covered by the contribution. If contributions are made weekly, cash equivalents should be computed weekly. If contributions are made quarterly, cash equivalents should be computed quarterly, etc.
  • For example, if a contractor contributes to a hospitalization plan on a monthly basis, the contribution made by the contractor on behalf of a worker should be divided by the total hours worked (DB covered and non-covered) each month by the worker to determine the hourly cash equivalent the contractor is entitled to count as credit towards the prevailing wage obligation for that worker.
    Example:
    • An individual works 160 hours a month as an electrician and the applicable wage determination rate is $26.00 (basic hourly rate) plus $12.50 in fringe benefits.
    • Where the contractor provides the electrician with medical insurance in the amount of $800 per month, the contractor would divide the total monthly cost of the benefit by 160 hours to arrive at the allowable fringe benefit credit. $800 / 160 hours = $5.00 per hour.
    • If the worker in this example receives no other “bona fide” fringe benefits, then for each hour worked on a covered contract the individual is due $26.00 (basic hourly rate) plus $7.50 paid as cash wages (the difference between the $12.50 per hour fringe benefit required under the applicable wage determination and the credit allowed for the provision of medical insurance.) Thus,

      Basic hourly rate	$26.00
      Medical insurance benefit	$5.00
      Additional cash wages due	$7.50
      Total paid per hour	$38.50 ($33.50 + $5.00)

• On occasion, a contractor may make fringe benefit contributions in advance of the time period covered by the contribution, or must calculate the reasonably anticipated costs of providing benefits before the time period in which the benefits are provided.
  • Since construction workers often do not work a full year (2,080 hours), where the contractor makes annual payments in advance to cover the coming year and actual hours worked will not be determinable until the close of that year, the contractor may need to estimate the hours worked for the upcoming year covered by the advance contribution or calculation of reasonably anticipated costs.
  • If the contributions are made in the same amount for all workers or it is reasonable to assume that the anticipated costs of providing the fringe benefit will be similar for all workers, the contractor may divide the total annual contribution or reasonably anticipated cost by the total hours worked by the workers participating in the plan during the preceding calendar year (or plan year). For example, the annual cost of a pension program is $15,000. The total actual working hours (both Davis-Bacon hours and hours-worked not subject to federal Davis-Bacon requirements) are 15,000 for all workers participating in the plan. Thus $15,000 / 15,000 hours = $1.00 per hour per worker cash equivalent.
  • If the contributions are made in different amounts for workers or the reasonably anticipated costs of providing the fringe benefit will typically vary among workers, the contractor may divide the annual contribution or reasonably anticipated cost for each worker by the total hours worked by each worker in the previous year. For example, if the annual cost of a pension plan is $3,000 for a worker who worked 1,850 hours in the previous year, the hourly credit would be calculated as $3,000 / 1,850 hours = $1.62 per hour.
  • Similarly, where the contractor pays monthly health insurance premiums in advance on a lump sum basis, the total actual hours worked in the previous month or in the same month in the previous year may be used to determine (i.e., estimate) the hourly equivalent credit per worker during the current month. Any representative period may be used in such cases, provided that the period selected is reasonable.
  • Where the cost incurred included contributions for workers other than covered laborers, mechanics, and apprentices, the hours of such non-covered workers must be included in the computation of the hourly cash equivalent or the contributions for such workers must be eliminated prior to determining the cash equivalent for covered workers.
• In computing cash equivalents, it should be kept in mind that under certain kinds of fringe benefit plans the rate of contribution for workers may vary. For example, under a hospitalization plan the contractor often contributes at different rates for single and family plan members. As discussed above, a contractor cannot take an across-the-board average equivalent for all workers in such a circumstance; rather, the cash equivalent can only be credited based on the rate of contributions for each individual worker.

CERTIFIED PAYROLLS & USE OF ELECTRONIC SIGNATURES

Copeland Act provision and implementing regulations

• The Copeland Act language requires DOL regulations to “include a provision that each contractor and subcontractor each week must furnish a statement on the wages paid each employee during the prior week.” 40 USC 3145.
  • This requirement is implemented by DOL regulations at 29 CFR part 3 and Davis-Bacon contract clauses in 29 CFR part 5:
    • Davis-Bacon contract clause provisions at 29 CFR 5.5(a)(3) address “Records and certified payrolls.” Also, 29 CFR 5.5(a)(5) and (8) incorporate the requirements of 29 CFR part 3 and rulings and interpretations under 29 CFR part 3 in DBRA covered contracts. (See also FAR 48 CFR. 52.222-8, 52.222-10 and 52.222-13.)
    • Provisions at 29 CFR 3.3 address “Certified payrolls” and 3.4 addresses “Submission of certified payroll and the preservation and inspection of weekly payroll records.”
• Regarding certified payrolls, 29 CFR 3.3(b) requires that:
  • Each contractor engaged in DBRA-covered work each week must provide a copy of its weekly payroll for all laborers and mechanics engaged in such work during the preceding weekly payroll period.
  • Each weekly payroll must be accompanied by a statement of compliance certifying the accuracy of the weekly payroll information. This statement must be signed by the contractor or by an authorized officer or employee of the contractor who supervises the payment of wages, and must be on the back of Form WH-347, “Payroll (For Contractors Optional Use)” or on any form with identical wording. Copies of WH-347 may be obtained from the contracting or sponsoring agency or from the WHD website at https://www.dol.gov/agencies/whd/government-contracts/construction/forms.
  • The signature on the statement of compliance must be an original handwritten signature or a legally valid electronic signature.
• 29 CFR 3.4(a) further requires that:
  • Each certified payroll must be delivered by the contractor, within 7 days after the regular payment date of the payroll period, to a representative of the contracting agency at the site of the building or work, or, if there is no representative on the site of the work, the statement must be delivered by mail or by any other means normally assuring delivery, within that 7 day time period, to the contracting agency.
  • After the certified payrolls have been reviewed in accordance with the contracting or sponsoring agency’s procedures, they must be preserved by the agency for a period of 3 years after all the work on the prime contract is completed and must be produced for inspection, copying, and transcription by the DOL upon request.

Certified payrolls and the “Statement of Compliance”

Contents of the certified payrolls

• In the administration and enforcement of Davis-Bacon labor standards, references are generally made to “certified payrolls.” However, it is important to note that in the standard Davis-Bacon contract clauses established by 29 CFR part 5, section 5.5, there are two separate requirements that relate to the submittal of the “certified payrolls.”
  • Subsection 5.5(a)(3)(ii)(A) requires the weekly submittal of “certified payrolls.”
    • The contractor must submit a copy of all certified payrolls weekly, for each week in which any DBRA-covered work is performed, to the federal agency if the agency is a party to the contract.
    • If the federal agency is not a party to the contract, the contractor must submit the certified payrolls to the applicant, sponsor, owner, or other entity, as the case may be, that maintains such records, for transmission to the agency.
    • On DBA contracts, the prime contractor is responsible for the submittal of all certified payrolls (including payrolls for each subcontractor) to the contracting agency. On Related Act projects, the prime contractor is responsible for submitting the certified payrolls to the relevant non-federal entity, as directed by the federal funding agency. The relevant non-federal entity to which certified payrolls must be submitted is generally a state or local government agency (or an applicant or sponsor to such an agency) who will transmit the certified payrolls to the federal funding agency, or, if requested by the federal agency, will maintain the certified payrolls on the federal funding agency’s behalf.
• Apart from and in addition to the requirement stated in subsection 5.5(a)(3)(ii)(A), subsection 5.5(a)(3)(ii)(C) states a separate, albeit closely related, requirement that each certified payroll submitted be accompanied by a “Statement of Compliance.”
• The provisions at 29 CFR 5.5(a)(3)(ii)(C) and (D) require that:
  • Each certified payroll submitted must be accompanied by a “Statement of Compliance,” signed by the contractor, or their agent who pays or supervises the payment of the persons working on the contract, and must certify the following:
    • That the certified payroll for the payroll period contains the information required to be provided under 29 CFR 5.5(a)(3)(ii), the appropriate information and basic records are being maintained under 29 CFR 5.5(a)(3)(i), and such information and records are correct and complete;
    • That each laborer or mechanic (including each helper and apprentice) working on the contract during the payroll period has been paid the full weekly wages earned, without rebate, either directly or indirectly, and that no deductions have been made either directly or indirectly from the full wages earned, other than permissible deductions as set forth in 29 CFR part 3; and
    • That each laborer or mechanic has been paid not less than the applicable wage rates and fringe benefits or cash equivalents for the classification(s) of work actually performed, as specified in the applicable wage determination incorporated into the contract.
  • This fact is particularly important in the context of 29 CFR 5.5(a)(3)(ii)(F), which emphasizes the fact that: “The falsification of any of the above certifications may subject the contractor or subcontractor to civil or criminal prosecution under 18 U.S.C. 1001 and 31 U.S.C. 3729.”
  • The weekly submission of a properly executed certification set forth on the reverse side of Optional Form WH-347 will satisfy the requirement for submission of the “Statement of Compliance” required by 29 CFR 5.5(a)(3)(ii)(C). [Seepage 2 at http://www.dol.gov/sites/dolgov/files/WHD/legacy/files/wh347.pdf].

Signature requirements for the “Statement of compliance”

• The signature on each weekly “Statement of Compliance” must be an original handwritten signature or legally valid electronic signature.
• Valid electronic signatures include any electronic process that indicates acceptance of the certified payroll record and includes an electronic method of verifying the signer’s identity, in accordance with the pertinent provisions of the Copeland Act and the Government Paperwork Elimination Act (Pub. L. 105-277, Stat 2681, codified at 44 USC 3504, note).
• The payroll certification provision in 29 CFR 5.5(a)(3)(ii)(A) requires that the properly signed “Statement of Compliance” be submitted or transmitted to the appropriate agency.
• Photocopies or scanned copies of the “Statement of Compliance,” faxed “Statements of Compliance,” or an electronically scanned “Statement of Compliance” emailed to an agency do not satisfy the requirement that a “Statement of Compliance” be “signed by the contractor or subcontractor, or the contractor or subcontractor’s agent who pays or supervises the payment of the persons working on the contract.”

Electronic submittal of certified payrolls

• A contracting agency or prime contractor may permit or require contractors to submit certified payrolls, each with the accompanying “Statement of Compliance,” through an electronic system, as long as the electronic system requires a legally valid electronic signature; the system allows the contractor, the contracting agency, and the DOL to access the certified payrolls upon request for at least 3 years after the work on the prime contract has been completed; and the contracting agency or prime contractor permits other methods of submission in situations where the contractor is unable or limited in its ability to use or access the electronic system.
  • Individual contracting agencies determine any such electronic submission options, so long as the requirements stated above are met, because contractors submit the information directly to each contracting agency, not to the DOL.
  • The use of electronic signatures to satisfy requirements of the Copeland Act and its regulations must include the legally valid electronic signature of the contractor or their agent who pays or supervises the payment of the persons employed under the contract. (See 29 CFR 3.3(b); 73 FR77510.)
  • Some agencies and contractors use web-based certified payroll compliance systems. Such systems must comply with the electronic system regulatory requirements.
    • Web-based systems for the submission of electronic submission of certified payrolls may include compliance monitoring tools and may improve efficiency in the review of data reported, as well as reducing recordkeeping burdens and storage expenses.