Many California contractors have misconceptions about how fringe benefits should be allocated, causing them to pay fringe benefits in cash rather than taking credit for benefits already provided. Paying fringes in cash costs thousands in unnecessary taxes and other fees. On California prevailing wage determinations, the state sets guidelines for the allocation of fringe benefits for each classification. The fringe categories in a California Wage Determination show how fringe benefit payments should be allocated in order to take credit for those benefits provided to employees.
Often contractors who wish to take the fringe credit are under the assumption that fringe credits must be allocated in the way specified by the wage determination. However, this is not true — contractors can allocate fringe benefits in any proportion that works the best for them.
This was legally upheld by WSB Electric v. Curry. The district court’s decision gave contractors the right to decide how to best allocate fringe benefits, not limiting them to just the benefits categories and corresponding amounts outlined in the wage determination. The only mandatory component is to meet the fringe requirement total, so the aggregate total of fringe benefits must equal the aggregate total of fringe benefits listed on the wage determinations.
According to the California DIR the following are recognized employer payments or fringe benefits that credit can be taken for:
The benefits that an employer cannot use to satisfy fringe requirements include, but are not limited to:
- Use of a cellphone
- Use of a company vehicle
- Gas reimbursement
A bona fide fringe trust is an ideal way to allocate fringe benefits. A benefits package funneled through this type of trust gives each employee a configurable mix of retirement, tax-reduced spending, and available cash as they need it. It also provides favorable tax savings for the business, by exempting fringe benefits from social security and workers’ compensation, as well as federal, state unemployment taxes, and annualization requirements. Employers and employees also receive a large amount of tax advantages and opportunities to allocate money for the future.
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eBacon can help construction businesses set up benefits more favorably for employees and employers by making the most of their fringe benefits. Contact an eBacon representative today to find out.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.