We are often asked whether a contractor can take credit for providing an in-house Vacation-Holiday plan to their employees against the mandated prevailing wage fringe benefit amount. We have consulted with the California Division of Labor Standards Enforcement (DLSE) and the answer is NO, you cannot take credit against the mandated prevailing wage fringe benefit amount for providing an in-house Vacation-Holiday plan.
In-house vacation-holiday plans have long been debated as to the legality of the credit being taken on prevailing wage projects. Contractors often refer to the California Prevailing Wage Manual Section 4.2.5.3 Employer Payments That Are Reasonably Anticipated to Benefit Workers which indicates the following:
“Employer Payments that are not irrevocably made to a trustee or third person pursuant to a plan, fund, or program may still be valid as a credit against the Division of Labor Standards Enforcement prevailing wage obligation, provided that they meet all of the conditions set forth in Labor Code § 1773.1(b)(2). Such rate of actual costs for such plan or programs can be credited against the prevailing wage only if the plan or program:
(1) Can be reasonably anticipated to provide benefits to workers;
(2) Is pursuant to an enforceable commitment;
(3) Is carried out under a financially responsible plan or program;
and
(4) Has been communicated to the workers affected.”
While this section alone seems to indicate that in house plans are valid, the very next section in the manual, Section 4.2.5.3.1, indicates the following:
“The type of Employer Payments contemplated under § 1773.1(b)(2) may include certain vacation and holiday plans for which the employee accrues the benefit during the time worked on a public works project. Such payments must meet all the conditions set forth above. In addition, the credit may be taken only as to amounts which are “actual payments.” (8 CCR § 16200(a)(3)(I)).”
Essentially, the credit must be a payment made to the worker or to a bona fide third-party administered employee benefit plan. The reason that many in-house vacation-holiday plans are not accepted as bona fide is that the benefit is not actually paid to the employee during the time worked on the public works project. Vacation-Holiday plans are usually paid out only twice a year and this may not always be during the prevailing wage project for which the credit was taken.
For example, a contractor begins working on a project in January of 2013. He makes contributions to his in-house vacation-holiday plan throughout the duration of the project, which ends in May 2013. Since the first distribution will not occur until June 2013, the credit is not considered eligible since the “actual payment” does not happen during the time working on the public works project.
If you have further questions on this issue, please give our offices a call and we would be more than happy to help you understand the difference between bonafide benefits and non-bonafide benefits for prevailing wage purposes.