When concerning federal wages and retirement plans, there are programs in place that benefit contractors and sub-contractors when working on jobs for the federal government. Davis-Bacon states that any government contracts won by non-union contractors must comply with wages and fringe benefits that would be provided had the contract been awarded to a union contractor. The wages are set by the U.S. Department of Labor, and they are broken up into the base rate and the fringe benefit. The base rate is the equivalent to compensation given for a private job, while the fringe benefit is additional benefits provided for performing services for the federal government.

The fringe benefit provides options that favor both the employer and employees that allows the contractor to avoid paying additional expenses, such as workers compensation and payroll taxes, associated with the fringe rate. The federal government, under Davis-Bacon, allows these avoidances by directing all or part of the fringe rate to be deposited into a qualified retirement plan.

The greatest benefit toward contributing fringe benefits into a qualifying retirement plan is the savings it creates for the employer. However, when combining this with the Prevailing Wage Plan, employees can utilize the fringe benefit to their advantage by reducing their personal income tax when placing the fringe benefit into a 401(k) plan.

For more information on Davis-Bacon, visit www.trinitypension.com.