On August 23, 2023, final regulations along with FAQs related to the final regulations were published making significant changes to the Davis-Bacon and Related Acts (DBRA). Employers engaging in Davis- Bacon contract work will want to work closely with their professionals to ensure compliance. This article will only address certain provisions of the new regulations.

What is the methodology for determining a prevailing wage?

The Regulations return to a pre-1983 three-step process for determining prevailing wage. According to this process, in the absence of a wage rate paid to a majority 50% of workers in a certain classification, a wage rate will be considered prevailing if it is paid to at least 30% of such workers. If no wage rate is page to at least 30% of workers in a classification, a weighted average will be used.

Fringe Benefit Determinations

How does the annualization requirement affect how fringe benefits may be calculated?

The final rule codifies the long-standing requirement that fringe benefits should be annualized. Annualization is of particular importance when the contractor’s workers perform work on both DBRA-covered projects and projects that are not subject to DBRA requirements (private work or projects).

When are unfunded plans creditable against the fringe benefit obligations under the DBRA?

Unfunded plans need approval from the Secretary of Labor to qualify as a bona fide fringe benefit plans. Under the final rule, a contractor must obtain written approval before claiming credit for the costs of unfunded benefit plans towards its Davis-Bacon prevailing wage obligations. Unfunded plans that do not have approval of the Secretary of Labor are not creditable against the fringe benefit obligations under the DBRA.

Does the final rule permit a contractor or subcontractor to take Davis-Bacon credit for administrative expenses incurred in connection with the administration of a fringe benefit plan?

A contractor or subcontractor may not take DBRA credit for administrative expenses incurred in connection with the administration of a fringe benefit plan However, credit for 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 fringe benefits to the contractor’s laborers and mechanics may be eligible for a Davis-Bacon credit. Said another way creditable, and not noncreditable, expenses can be applied to the fringe obligation.

Examples of Creditable Administrative Expenses of a Contractor or Subcontractor. Credit may be taken for premiums paid to an insurance carrier or the contributions made to a third-party trust fund that administers and delivers bona fide fringe benefits under a plan, where those funds are used to pay for bona fide fringe benefits and for the administration and delivery of such benefits, including evaluating benefit claims, determining if such claims should be paid, approving referrals to specialists, and other reasonable costs of administering the plan. Also, a contractor can take credit for funds paid to a third-party administrator for tasks related to the administration and delivery of bona fide fringe benefits, including under an unfunded plan.

Examples of Non-Creditable Administrative Expenses of a Contractor or Subcontractor. Credit cannot be taken for costs associated with office employees that complete tasks such as filling out medical insurance claim forms, paying and tracking invoices from insurance carriers or plan administrators, updating the contractor’s personnel records, sending lists of new hires and separations to insurance carriers or plan administrators, or sending out tax documents to the contractor’s workers, nor can the cost of paying a third-party to perform these tasks be creditable. In addition, any costs associated with recordkeeping to ensure compliance with the Davis-Bacon fringe benefit requirements, should be considered a contractor’s own administrative expenses and are not considered directly related to the administration and delivery of bona fide fringe benefits.

Recordkeeping

Does the final rule affect recordkeeping requirements?

The final rule updates the existing requirement for recordkeeping to clarify that payrolls and other records must be kept for a minimum of three years after all work on a contract has been completed. The rule also indicates that the records must include each worker’s last known phone number and email address.

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. This information is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.