How to calculate fringe benefit credits on prevailing wage jobs
Divide what you pay into each bona fide benefit plan for a worker by all the hours that worker works in the period the payment covers, public and private. That hourly figure is your credit; pay any gap between it and the required fringe in cash.
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A fringe benefit credit is the hourly amount you can count toward the fringe portion of the prevailing wage because you already pay it into bona fide benefit plans. To calculate it, take the cost of each plan for a worker over a period, such as a year of health premiums or retirement contributions, and divide by the total hours that worker worked in that period on all jobs, both covered and private. 29 CFR 5.25 calls this annualization. Add up the hourly credit for every plan, compare it to the fringe rate on the wage determination, and pay any shortfall as cash on the check.
The most common mistake is dividing a full year of benefit cost by the hours on public jobs only. That inflates the credit, shorts the worker, and DOL lists failing to annualize, or annualizing incorrectly, among the common fringe violations in Fact Sheet 66E.
How the fringe obligation works
The prevailing wage for each classification is a basic hourly rate plus a fringe amount. You can meet the total with cash, bona fide benefits, or any mix, and under Davis-Bacon, cash above the base rate can cover the fringe. DOL's example uses a $27.00 base and $14.00 fringe: $41.00 all in cash works, $27.00 plus $14.00 in benefits works, and $35.00 plus $6.00 in benefits works.
What can and cannot be credited, per DOL Fact Sheet 66E
Usually creditable
Not creditable
Contributions to a bona fide health or medical plan
Benefits required by other law, such as workers' compensation under a state statute
Pension or retirement contributions
The contractor's own administrative costs for running plans
Life, disability, and similar insurance
Travel, lodging, company vehicles or phones
Registered apprenticeship program costs, within limits
Holidays or other items the wage determination already requires
Unfunded plans such as paid leave, only with prior DOL approval
Unfunded plans without prior approval
Funded plans must receive irrevocable contributions to a trustee or third party at least quarterly. Unfunded plans, paid from company funds like many vacation and sick leave plans, need prior DOL approval before you take credit.
How to calculate fringe credits in 5 steps
List each plan and its cost per worker. For each worker, total what the company pays into each plan for the period it covers, usually a plan year. Count only what the company pays; money withheld from the worker's own check is not a contractor contribution.
Total each worker's hours on all work. Include private, commercial, and other non-covered hours, plus covered hours, for the same period. 29 CFR 5.25 requires dividing by total hours on both DBRA and non-DBRA work.
Divide to get the hourly credit per plan. Plan cost divided by total hours. Repeat for each plan, then add them up.
Compare to the wage determination fringe. If the credit is lower than the required fringe for the classification, pay the difference in cash.
Report it. On the WH-347, list each plan and each worker's hourly credit in the page 2 table, multiply by hours for column 6B, and put cash in lieu in column 6C.
Worked example: health and retirement for one carpenter
Say the wage determination for Carpenter is $33.00 base plus $14.80 fringe (illustrative). The contractor pays $9,360 a year toward the carpenter's health insurance and contributes $3,120 a year to a 401(k). The carpenter works 2,080 hours in the plan year: 1,200 on federal jobs and 880 on private jobs.
Example annualized fringe credit
Item
Calculation
Hourly credit
Health plan
$9,360 / 2,080 hours
$4.50
401(k)
$3,120 / 2,080 hours
$1.50
Total credit
$6.00
Required fringe
From wage determination
$14.80
Cash in lieu owed
$14.80 minus $6.00
$8.80 per hour
The wrong way divides only by the 1,200 covered hours: $9,360 / 1,200 = $7.80 for health, and $3,120 / 1,200 = $2.60 for the 401(k), a $10.40 credit. That shorts the carpenter $4.40 an hour on every covered hour. Over 1,200 hours that is $5,280 in back wages for one worker.
When annualization does not apply
29 CFR 5.25 lets contractors request an exception in writing from the Wage and Hour Administrator, granted only if the benefit is not continuous and does not compensate both covered and private work. Defined contribution pension plans meeting those conditions are excepted without a request if they provide immediate participation and essentially immediate vesting, which DOL describes as vesting within the first 500 hours worked. If your 401(k) qualifies, it does not have to be annualized, but keep the plan documents that show participation and vesting terms.
Overtime and fringe
Fringe is owed on all hours, including overtime. Fact Sheet 66E says cash paid in lieu of fringe does not require the extra half-time premium, and a fringe stated as a percentage is calculated on the base rate and not added to it for overtime.
Apprenticeship program contributions
Contributions to a registered apprenticeship program can be credited, with limits. Fact Sheet 66E says the program must be registered with the DOL Office of Apprenticeship or a recognized State Apprenticeship Agency, and the credit is limited to amounts reasonably related to the actual cost of training, such as instruction, books, and tools. Voluntary payments beyond that do not count. The annualization is also different: divide the total cost by the hours worked by all of the company's laborers and mechanics in that apprenticeship classification, on covered and non-covered jobs, and leave out hours in other classifications. Contributions a state requires by law, such as a state training fund, are not creditable.
Keep the paperwork that backs every credit: plan documents, premium invoices, proof of contribution dates, and the hours report you divided by. A credit you cannot document is a credit an investigator will disallow.
Mistakes to avoid
Annualizing over covered hours only.
Using one company-wide average when plan costs differ by worker. 29 CFR 5.25 says to compute the credit separately for each worker when contributions vary.
Taking credit for workers' compensation, company trucks, phones, or per diem.
Claiming paid vacation as a credit without prior DOL approval of the unfunded plan.
Counting the employee's own payroll deduction toward the plan as employer cost.
Not updating the credit when premiums change at renewal.
Smart Business Automator keeps each worker's plan credits on file, applies them per classification on every covered job, and calculates the cash in lieu on certified payroll reports. See certified payroll automation.
Frequently asked questions
Can I pay all fringe benefits in cash?+
Yes. Under Davis-Bacon, the fringe obligation can be met entirely in cash, entirely through bona fide plans, or by a mix. Cash in lieu of fringe does not require an extra half-time overtime premium, per DOL Fact Sheet 66E.
What is annualization?+
It is the rule in 29 CFR 5.25 that spreads benefit plan costs over all hours a worker works in the period the cost covers, covered and private, to find the hourly credit. It keeps covered work from paying for benefits that also cover private work.
Can I take credit for paid time off?+
Paid leave paid from company funds is an unfunded plan. DOL requires prior approval before you can take credit for unfunded plans, and the plan must meet other conditions, such as being communicated to employees in writing.
Do apprentices get the full fringe?+
It depends on the apprenticeship program. DOL says if the registered program does not address fringe benefits, apprentices must receive the full fringe amount for the journeyworker classification.
Deep dive on the expanded NY prevailing wage law taking effect June 18, 2026. Construction industry groups filed suit May 28 arguing the off-site fabrication expansion will devastate public construction in New York. This episode covers what the law requires, who it covers, the contractor lawsuit claims, how compliance works in practice, bid pricing adjustments, and the 7 steps every contractor must take before the effective date.
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Published transcript from Scaling Legends. It may contain transcription errors. View the source transcript.
Disclaimer. This podcast is for informational and educational purposes only and is not legal, financial or professional advice. All right. Glad we got that out of the way. Yeah, definitely. So welcome everyone to today's deep dive. Usually when a ticking clock is keeping a construction contractor awake at night, it's, you know, something physical. Oh, absolutely. Like a concrete pour that's curing too fast. Right. Exactly. Or like a crane rental that expires on Friday. But right now, there is this invisible legislative clock ticking down. And it is loud. It really is. It's sending shockwaves through the entire New York public construction sector. Because on May 28th, 2026. A massive lawsuit was filed by a coalition of construction industry groups. They're basically scrambling to halt this sweeping new law. Yeah,
a massive expansion to the prevailing wage law that takes effect in just a few weeks, June 18, 2026. Which is right around the corner. Right. And the implications are so severe that contractors are legitimately questioning how they're even going to price out their summer backlog. I mean, the panic we're seeing across the industry right now is entirely justified. And actually, speaking of getting ahead of complex changes, I should quickly mention that we're accepting beta testers for new Smart Business Automator features. Sign up at smartbusinessautomator .com. Beta testers get first access to new features and updates before public rollout. Which is super timely, honestly, given the massive compliance headache we're about to talk about. Yeah, exactly. So, okay, our mission today is to unpack this June 18 expansion. To really understand why the industry
is sounding the alarm, we first have to look at what the law used to be. Right, right. Contractors operating in New York, they know prevailing wage inside and out. It's the baseline wage rate, including specific fringe benefits mandated for public works projects. Like schools, roads, municipal buildings, that kind of stuff. Exactly. But historically, that mandate had a very strict physical boundary. The fence line of the job site. Yes, the fence line. If a worker was physically inside that fence, swinging a hammer, pouring foundation, welding steel, they got the prevailing wage. Okay, let's unpack this with an analogy. In the past, the prevailing wage only applied to the stage, right, like the actual construction site. But now, with this June 18 expansion, it applies to the prop shops, too. the offsite facilities
building the materials before they ever reach the site. That is a perfect way to put it. The new law completely obliterates that fence line. It now legally covers workers at offsite fabrication facilities. Wow. So how much of a logistical leap is it to suddenly track offsite workers? It's massive. If a worker is building a custom component for a New York project, but they're in a factory hundreds of miles away, they're suddenly pulled under this prevailing wage umbrella. Just because of where the material is going. Exactly. Jurisdiction is no longer tied to where the worker is standing. It's tied to the final destination of the material. I mean, let's ground this in a real -world scenario, because custom components, that sounds a bit tricky. It is. Like, if I needed standard 2x4s in the past, I bought commodity lumber. No prevailing wage.
Right. Commodities are different. But modern construction has shifted so heavily toward modularity to save time. So I'm not always buying raw lumber. I'm ordering prefabricated, custom -engineered roof truss systems. Say, from a facility in Pennsylvania? Yeah. To be shipped to a school project in Albany. Well, under the old rules, the prevailing wage only kicked in for the crew in Albany hoisting those trusses into place. Right. Under the new rules. The workers inside that Pennsylvania factory, the ones cutting and assembling those specific trusses, are now subject to New York prevailing wage rates. For the hours they spend on that specific order. Yes. You are asking a general contractor to monitor, verify, and take legal liability for the payroll of a third -party factory
that might not even be in the same time zone. Which totally explains the intense language in the May 28 lawsuit. Oh, absolutely. And, you know, we want to look at this impartially. taking sides here. But the plaintiffs, these major construction industry groups, they are not mincing words. Not at all. They are officially arguing this expansion will, and I quote, devastate New York's public construction industry. They're calling the requirements functionally unfeasible. And the legal mechanism they're using to fight this is actually fascinating. Yeah. Yeah. They aren't just complaining to a judge that the new rule is annoying. They're making a constitutional argument. rooted in the Dormant Commerce Clause. Right, exactly. The plaintiffs argue that the law unfairly targets out -of -state fabricators specifically to benefit New York -based shops.
Okay, let's look at the mechanics of that. Say you run a fabrication shop in rural Ohio. Your competitive advantage is your local economic reality, right? Right, your cost of living is lower. Yeah, facility overhead is lower, so your standard local wages are lower than what someone would pay a worker living in, say, Manhattan. But by forcing that Ohio manufacturer to suddenly adopt New York prevailing wage rates for a specific batch of materials, the plaintiffs are arguing the state is creating an undue burden on interstate commerce. It's like they're building an economic wall around New York. That's the argument. It artificially inflates the out -of -state shop's costs, so suddenly a local New York shop looks much more competitive on paper. So let me ask you this. Is this a feature or a bug of the new
law? Like, did lawmakers write this deliberately to act as a form of protectionism, or did they just fail to understand how multi -state supply chains actually work? Well, the courts will have to untangle the legislative intent, and that is notoriously difficult. Yeah, I bet. Lawmakers frequently state their goal is just to protect labor standards, you know, ensuring public money isn't driving down wages anywhere in the supply chain. Sure, which makes sense on the surface. But the plaintiff's counter that the actual mechanism deployed crosses the line into unconstitutional economic protectionism. But for a contractor navigating this today, this theoretical debate doesn't really matter, does it? Not at all. It takes a backseat to a very immediate, very dangerous dilemma. The calendar. Yep. June 18 is arriving,
whether the judge is ready or not. So what does a contractor do right now? Do you wait for a court ruling, like hoping for an injunction to pause the law, or do you just overhaul your entire business model today? Hoping for a last -minute legal injunction is a massive gamble. Right. It could bankrupt a firm. Injunctions require a judge to agree that irreparable harm will occur if the law isn't lost, which is a really high legal bar. So if June 18 hits, the law goes live and you're just waiting to see what happens. The penalties are catastrophic. Massive fines, contract breaches, withheld payments. You could even be debarred from bidding on future public works. Wow. So preparation for June 18 is mandatory. There's no waiting around. None. You have to be ready. And getting ready means facing the stark financial reality of this expansion. Which
brings us to the math. The math is sobering. It really is. We actually pulled data sourced directly from Smart Business Automator's market intelligence report, and the numbers are staggering. Yeah, they project a 40 to 60 percent above market wage differential for fabrication labor under the new rules. Okay, here's where it gets really interesting. Imagine pricing out a car, right? You lock in your budget, and suddenly you find out the engine you're buying from three states away. Just jumped 60 % in cost. Yeah. How do you even absorb that? Well, think about how that 40 to 60 % gap actually manifests inside a factory. Right. Let's go back to that Pennsylvania shop. Okay, let's say their standard wage for a skilled fabricator is $25 or $30 an hour. which is highly
competitive for their local market. Now they take an order for a New York public works project. Suddenly, for the 20 hours a specific worker spends on that New York order, the shop has to pay them an $85 an hour total package. Wow. $85 an hour? Yeah, to meet the prevailing wage, including specific fringe benefits. That creates absolute chaos inside the factory. Complete chaos. I mean, you have two fabricators standing right next to each other on the floor. One is welding a beam for a commercial building in Ohio, making $30 an hour. The other is welding a beam for a New York school, making $85 an hour. The internal pay structure of that facility just collapsed. Which means a lot of these out -of -state fabricators are just going to say no. Exactly. They are simply going to refuse to take New York Public Works
orders. They won't want the headache. And the ones that do take the orders? They're going to pass that massive 60 % labor cost spike directly back to the general contractor. Ouch. So contractors have to adjust their bid pricing immediately. Immediately. But the true nightmare scenario is for contracts that are already in the middle of procurement. Oh, man. Like you submit a highly competitive bid in March based on normal market rates. Right. The agency takes months to review it. The award isn't scheduled until July. And the June 18 law triggers right in the middle. You are suddenly locked into a bid that is financially underwater before you even break ground. Contractors in that specific window are navigating a minefield right now. I can imagine. They're having to consult legal counsel to determine if they can formally
withdraw and resubmit their bids without forfeiting their bid bonds. Which is messy. Extremely. Others are looking at mechanisms to claim a material change in law, trying to force the public entity to adjust the pricing post award. It's a very adversarial reality. And absorbing these costs is really only half the battle. The administrative burden is the other half. Oh, absolutely. It's a complete operational overhaul. So let's run through this. We have a strict to -do list. Basically, a seven -step survival guide for June 18th. Let's do it. Number one, supply chain audits. Right. The era of just ordering custom structural steel and not asking questions is over. You need to map out exactly where off -site fabrication is happening for every single component. Right. Finding the origin facility. Yeah. And distinguishing
if it's a commodity or custom fabrication. Exactly. Which leads to number two, the paperwork mountain. Certified payroll from those fabricators. And certified payroll is not just an invoice. It's a highly specific, legally sworn document. Detailing the exact hours, labor classifications, fringe benefits, all of it. Getting a third -party manufacturer who's never dealt with this to properly submit these weekly is an enormous, frictional drag. Definitely. Number three, subcontract language updates. You need legal armor. A standard purchase order won't protect you if that Ohio shop submits fraudulent payroll. You need legally binding, flow -down clauses explicitly mandating compliance and strict indemnification. Because if the state
audits the project, the general contractor is usually the one on the hook, right? Almost always. You need mechanisms to push that liability back down the chain. Okay, number four, bid repricing. We just talked about that. Updating the math for that 40 to 60 percent differential. Yep, essential. Number five, legal counsel. Getting professional advice on navigating this shift, especially for those mid -procurement bids. Number six. Compliance tracking. Setting up systems to monitor this ongoing. Because doing it manually is a guaranteed failure. And finally, number seven, owner notification. Communicating these incoming cost spikes upward to the local school board or department of transportation. They have to be formally notified about the financial and scheduling impacts. Okay, so looking at all seven of these. Tracking compliance on your own job
site is hard enough. Right. How does a contractor realistically track the certified payroll of a fabricator they've never met in a facility three states away? Well, let's look at a complex scenario because the line between commodity and custom is blurry. Okay, let's hear it. What if you buy a standard mass -produced steel I -beam from Michigan? It's a commodity. Okay. But your design requires them to make one single custom weld. or drill a specific pattern of holes just for your project before shipping. Does that one custom action... trigger prevailing wage for the whole facility? That ambiguity is the danger zone. The Department of Labor guidelines are incredibly dense. Trying to manage that manually with spreadsheets and sticky notes, reminding
a plant manager in Michigan to send payroll for three hours of drilling. Sounds impossible. The risk of human error is 100%. So manual tracking is dead. It has to be. That's why software automation shifts from a luxury to an absolute necessity. Right, which is why tools like Smart Business Automator are so critical now. it becomes mandatory infrastructure. A system like Smart Business Automator tracks those shifting out of state effective dates. automatically. Oh, that's incredibly helpful. Yeah. It generates compliance calendars tailored to these convoluted supply chains and flags missing certified payrolls before they trigger a state audit. So it basically removes the administrative guesswork. Exactly. In a process where a single oversight can cost tens of thousands in fines, it provides the visibility required
to prove to the state that you're actually monitoring your downstream suppliers. And that visibility is going to be crucial long after June 18th. Because while New York is the epicenter today, this isn't just a New York problem, is it? Not at all. It's a preview of a national trend. So we're on a national expansion watch. We are. According to the Broader Market Intelligence report, states like California, New Jersey, and Illinois are monitoring New York's rollout with intense interest. Why those states specifically? They have similar legislative environments. High union density, robust prevailing wage frameworks already in place, and a political appetite to enforce labor standards. So if New York survives the May 28 lawsuit, it makes this work. Those states are highly likely to adopt their own,
nearly identical versions in coming legislative sessions. Wow. So what does this all mean for the listener? I mean, it means if you build the infrastructure to handle this. off -site compliance in New York. Now, you're actually future -proofing your business. That is the golden rule going forward. Tracking labor classifications across your entire supply chain is no longer just a compliance necessity. It's a competitive advantage. A massive one. Contractors operating across state lines with this automated infrastructure will bid confidently. Their competitors will either drown in paperwork or bleed profit because they failed to model that 60 % wage jump. It really separates the forward -looking operator from the ones just winging it. Definitely. And as we wrap up, I want to leave you with a broader philosophical question to mull over. Lay it on
us. If prevailing wage now extends to off -site fabrication, where does the definition of construction actually end and manufacturing begin? Oh, wow. That is a blurry line. Right. As supply chains get more complex and modular, that blurry line is going to be the next great legal battleground. Is a factory building modular hospital rooms? A manufacturer selling a product? Or a construction subcontractor working under a roof instead of the sky? Precisely. Something to really think about. Well, that brings us to the end of our deep dive today. Thank you so much for joining us as we unpack the New York prevailing wage expansion and the shockwaves hitting the industry. It's going to be a wild summer. It really is. If you found this breakdown valuable, please make sure to like, share, comment, and subscribe
from wherever you are listening so you never miss an update on the forces shaping your business. See you next time.
