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What Is Davis-Bacon Act? This is the first question to answer if an understanding of the prevailing wage is to be understood. Basically, this is the act of the federal law that has given birth to the prevailing wage. In the act, an order is given to contractors and subcontractors to remunerate laborers hourly prevailing wage which is applicable for construction projects that are funded by the federal government. The Department of Labor of the United States of America determines the prevailing wage which is normally based on the amount of wages that workers employed for the same project in the same location.
The act is created for workers’ protection. It is particularly meant to secure workers from instances where project contractors and sub-contractors would offer project costs that are lower than should and therefore compromise the standard pay for employees working for the project. Many states in the US are having their own laws and stipulations on prevailing wage for construction projects funded by the federal government. There are cases in which these laws apply to construction projects in the local or municipal level.
There are two parts that make the prevailing wage. One part is a basic hourly rate for construction project workers. The second is in the form of fringe benefits. With this, the contractor can provide workers with a per-hour rate that can utilized to purchase a genuine benefit plan like life insurance, health insurance, vacation pay, holiday pay, training programs and others. From the basic point of view, employees can choose between the two options where they are going to place the prevailing wage for their employees.
On the part of some contractors, prevailing wage applied through regular employee wage is the best way to adhere to the requirements of the law. But on the other side, it can be more expensive. This is because of the fact that wages paid to employees are in many states subject to payroll taxes like federal taxes, state unemployment taxes, social security taxes, general liability insurance, workers’ compensation insurance and others. This means that contractors or subcontractors will really have to take more money out from their funds to comply with the prevailing wage law.
However, if the contractor comes up with the decision to give the prevailing wage to employees in the form of a benefit plan, no taxes for it may have to be paid. As a matter of fact, the money can be considered exempt from all or any kind of payroll taxes. Therefore, prevailing wage applied to construction project workers through the procurement of workers benefit plan can even allow employees like contractors and subcontractors to save a huge amount of money. More than that, using the prevailing wage for employee benefit plan offers the employer the opportunity to scheme a better-working and more beneficial benefit plan for all of its workers. The fringe dollars can be used up by the company to frame better programs that would entitle employees to attractive benefits.