L&I Drops Proposed Change to Fringe Calculation

In response to concerns raised by AGC and other industry groups L&I will not be proceeding with a proposed change to how it calculates employer fringe benefit contributions on prevailing wage jobs. The proposal had it taken effect would have increased payroll costs and taxes for many contractors and potentially would have exposed some contractors to retroactive payments.

The technicalities of L&I’s proposal involved the calculation of the value of the employer contributions to bona fide fringe benefits on public works projects in particular defined contribution pension plans. Washington contractors with a defined contribution retirement plan calling for immediate employee vesting have long been able to take dollar for dollar credit for such contributions since the employees’ right to those dollars immediately vests based on their public work hours. This conforms to federal Davis Bacon regulations as well as the state prevailing wage laws and practices of most states. However L&I was proposing that the value of the employer contribution to defined contribution pension plans with immediate vesting be divided by the total employee hours on both private and public works typically 2080 hours in order to arrive at the “true value” of the contribution which will count toward satisfying the prevailing wage rate.

L&I has long practiced this so-called “annualization” policy for employer contributions to health and welfare plans vacations and holidays and AGC has no quarrel with this annualization since the employer contributions are “earned” by employees on all work; in other words the employer monthly premiums are for all hours worked not just public work. However L&I’s proposed application of the annualization policy to contributions to defined benefit plans missed the fact that contributions into these plans are triggered only by work time on public works so that annualization is unwarranted. The upshot is that contractors participating in such plans would have their hourly contribution watered down and would have to make up the difference with higher wages with resulting increased labor burden.

The good news though is that L&I dropped the proposed annualization policy. In its policy letter on the matter L&I said in part:

“Usual benefits are credited on an hourly basis and are expected to accrue at a regular rate. Employers many not count benefits associated with public and private work as if they were only associated with public works projects. L&I will generally apportion or annualize benefit contribution or costs to all hours worked over the course of a year unless an employer provides an alternate schedule and can document hours worked. Certain defined contribution pension plans (DOL exception) do not need to meet this annualization requirement.”

Click here to see the complete five-page L&I policy letter.