Managing fringe benefits is an ongoing challenge for construction companies that do prevailing wage work. Because of the misconceptions surrounding fringe benefits, including compliance concerns, many companies handle the challenge by simply paying fringes in cash. While this is administratively simple, paying fringe benefits in cash can cost your company a lot of money in unnecessary taxes and other fees.
In fact, depending on the size of your workforce and the amount of prevailing wage work you do, you could save thousands of dollars by simply handling fringe benefits differently.
Not sure it’s worth making the change? Here are a couple of reasons why you should consider moving away from paying fringe benefits in cash.
Maximize fringe credits
Prevailing wages are a combination of an hourly wage rate plus an hourly fringe benefit rate. The fringe portion of prevailing wages can be handled in a number of ways, including cash or by offering qualifying benefits. While you can’t take credit for any benefits required by law, many companies already provide some benefits that could be allocated toward meeting their fringe requirements. So, if you pay for fringe benefits in cash in addition to providing qualifying benefits, you’re actually overpaying. Depending on the size of your workforce and percent of prevailing work, this could really add up!
Your payroll costs include federal and state taxes, along with general liability and workers’ compensation. When you pay fringe benefits in cash, your payroll costs are higher than they would otherwise be because those fringe dollars are simply added to each week’s payroll as wages. This means you’re paying taxes and other payroll costs on an amount that’s higher than it would be if you handled fringe benefits differently, like through a trust.
Alternatives to cash
A qualifying bona fide trust can be a great way to meet your fringe benefit requirements. Unlike cash payments, contributions to this type of financial instrument is exempt from annualization, workers’ compensation, federal and state unemployment taxes. This gives your company a completely compliant way to make fringe payments and save on taxes and other costs.
In the past, many construction companies have steered clear of trusts as a method of handling fringe benefits. The main reason for this is accessibility. When you pay fringes in cash, your workforce becomes accustomed to seeing those dollars each week. Most trusts disallow this kind of access, which can be problematic for companies looking to change how they pay fringe benefits.
There are alternatives, such as our unique trust which allows employees to have easy access to their fringe dollars while still offering employers substantial costs savings. This can be especially critical during times of economic uncertainty or for companies looking to free up capital and reduce operating costs.
No matter what you decide, it pays to consider your options from time to time. Here are some resources to help you explore the topic of fringe benefits so you can find the right path for your business.
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.