CENTER FOR CONTRACT COMPLIANCE

The Mark of Fairness and Equality in Contracting | Defined by Law

Annualization

 

Annualization of “Employer Payments” otherwise know as Fringe Benefit Payments, is probably the most misunderstood section of the state labor codes for Public Works. The Labor Code can be found under Section 1773.1 (d). To better understand how the Division of Labor Standards Enforcement interprets the code look to the Public Works Manual http://www.dir.ca.gov/dlse/PWManualCombined.pdf starting at section 4.2

 

The most important thing to remember is that “Employer Payments” (Fringe Benefit Payments) that are made to trust funds or bonafide third party plans are considered to be credits that the employer can take against the Prevailing Per Diem Wages. All Employer payments are based on hourly figures as defined by the state wage determinations. All credits have to be broken down to an hourly rate even if paid lump sum over any given period of time. For example, if a contractor is making payments to a medical plan on behalf of its employees and the payments are made lump sum monthly, the contractor has to convert those monthly payments to an hourly rate in order to determine the amount of credit it can take against the Per Diem hourly wage rate. That becomes the hourly value of the benefit.

 

(ie) XYZ Construction Company makes monthly payments $450.00 to Kaiser Permanente for its employee Bob Jones medical coverage or $5,400.00 annually and Bob Jones has worked 2080 hours that year he is covered by the plan, the credit XYZ Construction Company can take against the prevailing wages due to Bob Jones is $5400.00/2080 = $2.596. You would use the same “Annualization” formula for any other approved “Employer Payments” that are paid to Trust Funds or bonafide third party plans.

 

The contractor can use the actual hours worked (all projects private and public) or use the 2080 hours which is the equivalent of 52 weeks at 40 hours per week. It would benefit the contractor to use the actual hours worked if they are less than 2,080. This would allow a larger credit.

 

Let’s say for example Bob Jones is also provided with a pension plan and is given paid time off for vacation each year. The total that XYZ Construction Company contributes on behalf of Bob Jones for these entire employer paid benefits is $14,500.00 for the year. Divide that $14,500.00 by 2080 (or actual hours worked) the company can take at least $6.97 / hour as a credit against the Prevailing Per Diem Wage that is owed to Bob Jones on the Public Works Project.

 

An employer can not take more credit than is allowed in the wage determination for benefits which would diminish the base hourly rate to an amount less than set by the wage determination.

 

Like wise, if the total credit that is allowed under the “Annualization” factor is less than the benefit amount on the wage determination, the difference is paid to Bob Jones. (ie) if Bob Jones is a Group-1 Laborer working under the 2009-1 wage determination for Laborer at the Per Diem rate of $41.42 / hour, XYZ Construction Company would take the $6.97 credit against the $41.42 hourly rate and the difference of $34.45 would be paid to Bob Jones as his Base Wage. The base wage can be more but not less than the base wage established by the state wage determination.