Gain a competitive edge when bidding on Prevailing Wage or Service Contract jobs. By structuring a tax-efficient 401(k) plan that factors in fringe benefits, we can help your business and your employees save money.
If you are a contractor bidding on public government projects, you are required to pay out 100% of the local Prevailing Wage rate. However, you have the option to pay only the Base Rate directly to your employees and contribute the excess fringe benefit into a bona-fide 401(k) plan.
By contributing the excess fringe benefit into a properly structured Davis Bacon 401(k) Plan, you can help your business by:
- Reducing payroll taxes (FICA, FUTA, SUTA, Medicare)
- Minimizing general liability insurance premiums
- Lowering workers compensation premiums
- Improving company cash flow
- Providing more competitive bids
- Maintaining flexibility to deduct contributions for key employees with little or no contribution required for other employees
A properly structured Davis Bacon 401(k) Plan can help your employees by:
- Reducing their taxable income
- Helping them save for their retirement
- Allowing them to retain the maximum amount of their fringe benefits
Take a look at the examples below to see how a Davis Bacon 401(k) Plan can save you and your employees money!
Example of Employer Savings:
| Davis-Bacon 401(k) Plan | No Davis-Bacon 401(k) Plan | |
| Number of Employees | 50 | 50 |
| Davis-Bacon Hours/Year/ Employee | x 1,000 | x 1,000 |
| Total Employee Davis-Bacon hours/year | 50,000 | 50,000 |
| (x) Excess Fringe Benefit | x $8 | x $8 |
| Total Davis-Bacon Fringe Benefit | $400,000 | $400,000 |
| Employer Paid Payroll Taxes @ 15%[1] | + 0 | + $60,000 |
| Total paid by employer | $400,000 | $460,000 |
In the example above, an employer with a Davis-Bacon 401(k) Plan would save $60,000 a year by not having to pay payroll taxes.
Let’s see what this will look like for your employees.
Example of Employee Savings:
| Davis Bacon 401(k) Plan | No Davis-Bacon 401(k) Plan | |
| Fringe Allowance/hour | $8.00 | $8.00 |
| Actual Health and Wellness Cost | -$3.00 | -$3.00 |
| Additional Benefit | $5.00 | $5.00 |
| FICA/Medicare Tax @ 7.65% | 0 | -$0.38 |
| Federal Tax @ 22% | 0 | -$1.10 |
| State Tax @ 8% | 0 | -$0.40 |
| Additional Fringe Received/ Hour | $5.00 saved for employee benefit | $3.12 take home cash |
| Hours Worked/Year @ 40hrs/ Week | x 2,080 | x 2,080 |
| Total Net Fringe Benefit/Year | $10,400 saved for employee benefit | $6,489.60 |
With a Davis-Bacon 401(k) Plan your employees are not only saving more for their retirement, they are retaining more of their fringe benefit. In the example above, an employee would retain $3,910 more per year with a Davis-Bacon 401(k) plan!
We specialize in helping contractors gain a competitive edge when bidding on Prevailing Wage or Service Contract jobs. If you are interested in learning more about Davis-Bacon 401(k) Plans, do not hesitate to reach out to us.
[1]This example assumes that XYZ Construction Company pays, on average, 15% in payroll taxes and insurance when adding together FICA, FUTA, SUTA, as well as other payroll based taxes and workers compensation and general liability insurance. This example also assumes that employees pay an average combined tax rate of 30% once federal and state taxes are added together.
Tags: 401(k), Construction, Davis-Bacon, Retirement