If you’ve previously avoided federally-funded construction projects because of prevailing wage issues, now is a great time to reconsider. Prevailing wage expert Jason Sperfslage from Beneco joins us today to discuss maximizing the benefits of this specific type of construction job.
Topics we cover include:
- What the Davis-Bacon Act is and how it affects federally-funded projects, in addition to state prevailing wage laws
- How the big infrastructure spending package that just passed will affect the amount of activity in the construction industry
- The administrative issues that keep some contractors from taking prevailing wage jobs and how to overcome them
- How to bid jobs with prevailing wage requirements
- How to reduce your labor costs and attract employees with fringe benefits
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Rob Williams, Profit Strategist | IronGateESS.com
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | McWins.com
[00:00:00] Rob Williams: Welcome to the Contractor Success Forum. Today, we are talking about prevailing wage rate issues: how they can affect you as a contractor, and the big things you can take advantage of. Because here on the Contractor Success Forum, we discussed financial strategies for running a more profitable, successful construction business.
And today we have with us, Jason Sperfslage with BeneCo. He’s a national sales director with Beneco. Welcome, Jason.
And our other hosts: we have Stephen Brown with McDaniel-Whitley bonding and insurance agency, and Wade Carpenter with Carpenter and Company, CPAs. And I am Rob Williams, your profit strategist with IronGate Entrepreneurial Support Systems.
Welcome Jason. I’m glad we’re here to talk about prevailing wage rate issues. There’s so much on here. And thank you Stephen for bringing him.
[00:01:00] Stephen Brown: Oh, yeah. Well, he’s kinda on vacation. So thanks Jason for doing this.
[00:01:05] Jason Sperfslage: You’re welcome and thanks for having me. Excited to to join the group and, and get to have a conversation with you guys this morning.
[00:01:12] Stephen Brown: Right. Well, tell us a little bit about what are prevailing wages. Who comes up with them? Why do we have them?
[00:01:21] Jason Sperfslage: For sure. So, prevailing wages date back to the Davis-Bacon Act. It’s the federal law where the prevailing wages started. And the Davis-Bacon Act applies to all federally funded construction projects nationwide. Anything over $2,000 falls under the Davis-Bacon Act, where there are guidelines on how employers have to pay their employees when doing those projects.
Currently, there are 35 or 36 states that have local prevailing wage laws as well, where this also applies to state and locally funded projects. So state by state, there can be some minor differences there, but the concept is kind of the same and they’re all based off the same federal law.
So that’s kind of the high level background. And as far as how the wages are determined, they can vary a little bit state by state, but they’re generally done by surveys, as far as what the prevailing wages are in that area. And then that’s what’s required to be paid on these projects.
[00:02:19] Stephen Brown: Okay. I always see the prevailing wage rates tables and all the specifications that my customers are bidding. And it can add up to a lot of money.
[00:02:28] Rob Williams: Yeah.
[00:02:29] Jason Sperfslage: Yeah, it definitely can. You look at the prevailing wage rates and most people will probably say that’s not what they would consider to be prevailing for the area. They do tend to be on the higher side of things, for sure.
[00:02:40] Stephen Brown: Yeah, well, so what are the pros and cons of prevailing wages?
[00:02:45] Jason Sperfslage: One of the big pros that you’re seeing right now is, you know, it’s been in the news a lot lately is the big infrastructure spending package that passed. There’s going to be a lot of spend coming in the construction industry from that bill. So from that perspective, it’s a great opportunity for job security, to continue to win bids. To keep your guys working things like that.
So that’s definitely one of the pros. And once you have a good process in place for how you bid on these projects, how you complete the paperwork and do them, if you master it, you can become kind of a leader in your area and be winning these jobs over your competition. So it can be a really good way to grow your business.
And for cons, it’s feeling comfortable with the administrative side. There’s resources out there. There’s things you can learn. Talk to, you know, people like us today that can give you some guidance. And once you’re comfortable with the administration side and the compliance, you can kind of relax and not worry about doing something wrong.
They’re pretty easy to do. But that’s definitely the cons is there are, there’s a little bit of extra red tape to go through to win these types of bids.
[00:03:44] Stephen Brown: Is there just a huge amount of paperwork, administrative headache to these prevailing wage rates to make sure that you’re certifying that you’re paying those wage rates?
[00:03:55] Jason Sperfslage: You do have to complete certified payroll, I think is what you’re referencing. It’s not as daunting of a task as what it oftentimes appears to be if you haven’t done it before. Once you get a process in place and can replicate it and do it on a weekly basis, it’s not as bad as what you would think. But there is a little additional paperwork that goes with it.
[00:04:14] Rob Williams: Yeah, That’s interesting. I went through that on some, I did a couple of government jobs, and the first ones I was running framing crews and turnkey framing at that time. And really those first ones were kind of daunting, but then, I mean we were on the same job for over a year. So I forgot about it. It was delegated, somebody handled all that for me.
But in the beginning it was a little bit of a learning curve. And I had a few jobs that I had to do that on. I think I had three going in like– gosh, I’m getting old now. That was 2008, 2009. And so that was about a year or two, and we just got used to doing that process.
But that’s the great thing about having a sweet spot. We love to talk in our coaching and in Profit First and Pumpkin Plan about having a sweet spot where you have an expertise that makes you different and you can stand out and do those things in your sweet spot and you provide more value. So that’s great.
If you can learn that and gain those advantages. Now with us, I think our jobs were in Arkansas and Tennessee mostly, and we didn’t really have a problem with paying more people in those jobs, like some other ones. And I think that’s what a lot of the conversation is though. When you’re in some different states, I think we were already paying. I don’t know that we had to pay any more. We just had to fill out certify that we did. We may have had a few people on the lower end that we may have had to pay more.
[00:05:33] Stephen Brown: Okay. So you, you bid in these jobs, Rob, to prevailing wage rates. You also have to bid in the cost over and above the actual wages that you have to pay. What are you seeing Wade
[00:05:46] Wade Carpenter: Well, that’s what I was going to say. I’ve seen some contractors burned really bad because they think their cost structure is the same and they really bid it thinking about the way they would bid an ordinary job and then they get hit with these huge rates and they’ve under bid.
[00:06:02] Stephen Brown: Right. Just for example, insurance is based on payroll. Taxes, what else Wade?
[00:06:09] Wade Carpenter: Well, there’s a lot of other fringe benefits you can count in there, like vacation and some certain other fringes that you probably would need to think about to push that rate up a little bit. But I think that’s where Jason comes in. Some of the other stuff, I know you guys talked about the paperwork for certified payroll and for a lot of my contractors, it is really scary when they’ve never done it.
[00:06:32] Rob Williams: Yeah, I think we started off, we were doing it with a pen and pieces of paper. I bet it’s probably more of a software. Everything is these days. So, it’s probably less of a headache.
[00:06:44] Jason Sperfslage: Yeah. Yeah. There’s some really good software programs out there and they can be tied with payroll oftentimes for doing your certified payroll. That can make that process easier. Definitely there’s a lot of options out there. And I think as Stephen was kind of alluding to is the, we generally refer to it as the labor burden cost, the cost of paying your employees, your payroll taxes, FICA, and then your federal and state unemployment taxes, and then your workers’ comp and general liability are the big ones.
But that’s where those really come into play, is that when you’re paying these higher rates out, that increases all of your labor burden costs as well. So getting into ways to reduce your payroll and how to utilize those fringe dollars.
[00:07:22] Rob Williams: Yeah. And before we go there, what was really interesting that I haven’t thought about is what Stephen was talking about. What happens to the employees when you pay them double for a while, and then they get back to their other thing.
And they’ve already– tell me about that a little bit. I hadn’t–
[00:07:37] Stephen Brown: You’re, you’re used to getting those high prevailing wage rate work, especially my contractors, some working in different states that have higher prevailing wages. That’s a real perk to the contractor and the employee.
[00:07:49] Rob Williams: Then when they come home though, you had these stories I hadn’t thought about. They start buying and getting fixed costs and notes for cars and boats and stuff that when those jobs are over, they can’t pay anymore.
[00:08:02] Stephen Brown: Yeah. It’s a tough situation for employees. The most important thing to know is that benefit is always there. Nobody’s trying to take that benefit away from them. But what Jason’s company does is they can take those benefits, those fringes, and they can offer the employee through you.
You decide what options you want to choose a qualified plan to defer that income into one of these plans. And when you defer that income, of course, you’re also getting that tax burden, extra insurance costs and so forth. So it lowers your cost to bid the work is what Jason’s saying.
[00:08:44] Rob Williams: Got it. Yeah. That’s, that’s interesting. So I didn’t realize that, that some of the employee benefits that they can get, you can heighten those. And then that goes into the prevailing wage part. I didn’t realize that that counted. Can you talk a little bit about that, Jason?
[00:09:01] Jason Sperfslage: We can go back to that first part. Because that’s something that we definitely see a lot, as far as the varying wages that employees are paid. And we kind of refer to that as the rollercoaster effect. The employees are going up and down and there could be some drastic differences in what they’re paid from one job to the next.
So that can cause some problems with, predictability of what the employees are going to be making. And then they get accustomed to a higher rate, and then going to a lower rate.
Another thing within that is, we hear this a lot. You can run into some problems with what guys do you have on what jobs, and having some crew’s looking at each other. Wait a minute, how come they’re going over there to that higher paying job this week, and I’m going to this one where I don’t get paid as much? So that’s another kind of workplace dynamic that you maybe don’t think of going into it, but that people have to consider as well, or it crops up and can cause some issues.
So utilizing some of that extra pay on these jobs into employee benefits can help even that out for both issues.
[00:10:01] Rob Williams: That’s some of the pains that I had not thought about. We talk about it all the time, about when we’re going through ups and downs in the economy and how the owners have to be able to do that. Well, what about the employees? And that’s in managing their cash flows and stuff. So they’re not all bankrupt. And I guess you’ll lose the employees, if you don’t somehow figure out how to deal with that.
[00:10:23] Jason Sperfslage: Yeah, for sure. I’ll explain in a little detail here, but the options that you have. So on these prevailing wage jobs, you’re going to receive a wage determination sheet, and it’s going to tell you what you need to pay your employees: a base wage, and then the fringe benefit dollar amount Now the way that the prevailing wage laws work is you have a few options for how you pay those fringe dollars to your employees.
You can pay them as cash wages, just add it to their paycheck, or you can pay them in any combination of approved bonafide fringe benefits. So that’s where there’s some regulations on these benefits, or they have to follow certain guidelines. They have to be with a third party. That third party needs to assume fiduciary responsibility and there needs to be a trustee on the plan.
So those are a few guidelines that these benefits programs have to follow. But if you have them set up properly or with someone that has designed plans for prevailing wage, you can divert those fringe dollars into a benefits program and then remove those dollars from payroll. So significant savings on your payroll taxes and your workers comp by taking that money off of your payroll.
[00:11:28] Rob Williams: Oh, yeah, that’s pretty amazing.
[00:11:29] Stephen Brown: For example, Jason, is there a generic, you could tell our listeners? If you have a job with X amount of payroll and X amount of fringes, this is ballpark the kind of savings you could see? Is that too generic?
[00:11:43] Jason Sperfslage: I can give you some rough numbers that we see quite often. Most companies in the construction industry see their labor burden rate at about 30%. So that’s your payroll taxes, worker’s comp, general liability, is that 30% of your payroll. So every prevailing wage dollar that goes into an approved benefit plan will save you about 30 cents. You’ll save 30 cents on the dollar.
These rates can vary by state, but if the fringe rate’s $10 an hour, your savings is going to be about three bucks an hour for every hour on that project for every employee.
Fringe rates can vary from $5 an hour to $20 an hour. So that’s where it’s going to make a difference. But if it’s 10 bucks an hour, you’re going to be able to reduce your bid by $3 per hour on your labor costs.
Anybody that’s listening, you do the bidding. I know you come up with your labor rate and the hours. Take three bucks an hour off if your fringe rate is $10 and think what that’ll do to your bid.
[00:12:36] Rob Williams: Oh, yeah, boy, that’s great. So I didn’t know that I knew we had talked about trying to protect the employees, which sounds ironic, by the too much money, but protect them from that. So we kind of had the casino effect when the casinos opened back in our days, and they made a lot of money, then they blow it.
But it’s similar to that. Protecting them from those gyrations. But the contractors, I didn’t realize that, that they can save all that money too, through these benefit programs. And we are not giving financial advice on any particular product, especially if it’s a securities related product here on our show.
So we just thought, we’d say that. But there are a lot of different things that we can contact somebody like Jason and Stephen and these guys to find out what those specific deals are. So give them a call to find out that stuff, but yeah, keep going, Jason. Just kind of wanted to clear that, we’re not giving financial advice.
[00:13:30] Jason Sperfslage: Absolutely. Keep everybody happy there. But going back to the savings, it’s not uncommon to talk to companies that can save a hundred thousand dollars in their labor costs by doing something like this, by putting that money into benefits.
And then looking big picture for the employees standpoint is one, they’re going to be set up with a very solid benefits program that all employees need. They’re asking for it more. It’s a very competitive labor market right now. Offering a good benefits program is going to help you attract and retain a quality workforce. So having a plan in place and using this money to fund it is going to help them.
And you’re going to win more of these jobs. And what you’ll see, and what we oftentimes see, is that the employees are still making more money on these rate jobs than they are in private work. Even if you only pay them the base wage.
So you start doing more of this work over the course of the year, the employees are still going to make more money, both in benefits and on their take home pay. They’re not going to have quite the swings of the highs and lows. You kind of bring them both closer to the center, so it kind of evens it out.
But the average over the year, can still be higher than what it would have been because a contractor is going to start only winning a few of these jobs, but over time do more and more of this type of work. So that’s an added benefit for the employee.
Outside of just the labor savings, we can also get into employee benefits savings. Using some of this money to pay for your health insurance premiums. The way that we look at this is that when you win one of these jobs, the contractor was awarded this money from the state of Tennessee to pay for benefits for their employees. And they give you the options to pay it as cash, if that’s easier, or it is maybe easier, but it’s more expensive.
But you were awarded this money to pay for benefits for your employees. So if you offer health insurance, you can use that money to cover the employer’s cost of your health insurance program for that employee. So you can cut down on the cost of your health insurance program significantly, or almost entirely, depending on how much work you do.
[00:15:31] Rob Williams: That’s amazing. I know how expensive that is now, too. Everybody’s trying to figure out how to get subcontractors and things, everything to try to get out of paying all these benefits. This is amazing savings. I think if you’re doing these prevailing wage jobs, if you’re going to do more than one, or even if you’re going to do the one, maybe, I don’t know. This sounds like a great sweet spot for our listeners and our future clients to get into, to do this. You’ve got to know this stuff because you’re going to be way behind the other guys. That’s a huge savings that I didn’t realize before we started talking.
[00:16:06] Jason Sperfslage: It’s amazing how many contractors I talked to and I ask them if they’re doing any of this work and they’re like, not really, one or two. It’s like, we just can’t win bids. It’s like, I don’t know how these other companies are bidding the rates that they’re bidding. I don’t know how they’re doing it. How can they be making any money? Well, I know what they’re doing that you’re not doing. They have something like this set up and it reduces their labor cost enough where they’re able to come in and bid that much lower.
[00:16:30] Rob Williams: Not to mention how well you’re going to take care of your employees because, not that the employees don’t know what’s good for them, but sometimes they just don’t have the knowledge to be able do that.
[00:16:42] Wade Carpenter: Talking to Jason before we started, he said something like, I’ve got a lot of contractors that will do one and then they won’t do one for a little while. And I think you said something about, you can put it on these prevailing wage jobs when you have them and then it can sit idle. Is that correct, Jason?
[00:16:58] Jason Sperfslage: Yes, that is correct. Yep. It can vary a little bit depending on what benefits program you have, but yes. Health insurance is one exception. You have to pay for that every month, but we can spread some of the fringe dollars out to do that. For other benefits programs, you can fund them when you’re doing prevailing wage and you don’t have to fund them when you’re not, or kind of front load them, if you will. Like for instance, we can do that with vacation sick time programs that can also be paid for with these prevailing wages.
[00:17:23] Rob Williams: I’d never even heard of that. Again, you need an expert to do this and there’s a lot of other things that may be specific to you that we can’t really give advice on this. So that’s why you got to get in touch with these guys and find out. Get somebody that really knows this area, this niche, this sweet spot for you.
[00:17:43] Stephen Brown: Jason, how long has Beneco been handling these plans?
[00:17:47] Jason Sperfslage: For almost 35 years and pretty much exclusively prevailing wage contractors are our clients. So almost 35 years that we’ve been in business. And that’s our specialty. So everybody in our company, A to Z, they know prevailing wage and work to assist prevailing wage contractors with these programs.
[00:18:03] Rob Williams: Sounds like a sweet spot!
[00:18:05] Stephen Brown: Well, it is. And you also have as part of your services, the help with the compliance, making sure all the I’s are dotted and T’s are crossed.
[00:18:15] Jason Sperfslage: Yes, that is probably where our expertise comes in the most. And that’s always a concern as compliance people, and rightfully so, are afraid that they’re going to make a mistake and pay for it in huge penalties. You know, it’ll be an honest mistake, they’re not trying to cheat anyone, but make an honest mistake and then really pay for it.
And that’s where you need to have an expert in the industry to guide you through that, and just make sure that you don’t make those mistakes. And sleep well at night knowing everything’s being taken care of and you’re on the up and up.
[00:18:43] Wade Carpenter: I was going to ask the same thing about the compliance. Do you help with certified payroll reports as well?
[00:18:48] Jason Sperfslage: We don’t do certified payroll reporting ourselves. We can give you a little bit of guidance, some general questions, and we have some partners that we work with that do certified payroll that we could also direct you to, if your question or concern is beyond what we’re able to provide for you.
[00:19:03] Rob Williams: This is great. I know we’re getting kind of long on time again on here. We say that how, many times is it, on these shows do we say that? We get so many great guests on here. When we have a guest on here, we always go over, but this is great. So you may need to spend another hour talking to Jason and Stephen and Wade and all of us about this.
This is a show about giving you information. We’re not here to sell you anything. But find out. If you don’t feel comfortable with what you’re doing and any doubts, find somebody that knows what we’re doing. And there may be somebody on this show that you could contact.
And you can look at our show notes, which brings up our new resource here, which– somebody may be listening to this in a year and it won’t be new anymore, but we have a LinkedIn group now that you guys can go to. It’s Contractor Success Forum. So go look for that group.
[00:19:52] Stephen Brown: And it’s Contractor without an S
[00:19:55] Rob Williams: Oh, thank you, Contractor Success Forum. Thank you very much. So, do that and you can ask us questions and I’m sure Jason will probably be in there too, as well as Wade and Stephen and I. So go there, ask questions on this.
If you’ve got a question on any of our other episodes, go on there, or just a question in general that you want to pose out there, some thoughts. Go on there and bring it up. We’re very excited that we have a platform now to discuss any of the topics that come up on this.
[00:20:24] Stephen Brown: Right. Our objective is just to help each other on that message board. So any questions that you have that you want to know a little bit more about, or you have a certain problem you want to ask us and our other listeners for some help, that’s what we’re here for.
[00:20:39] Wade Carpenter: Before we wrap up, Jason, do you got any other parting thoughts or anything that we didn’t really hit that you’d like to talk about before we go.
[00:20:48] Jason Sperfslage: I could talk for an hour on this or more, but I think at a high level we covered a good amount and I would just say, well, one, thanks for having me. The timing is great. We’re seeing such a buzz about companies getting into the prevailing wage market with the infrastructure bill passing and all of the projects that that’s going to be bringing in the next couple of years.
So the competition for these jobs is increasing. Companies are going to want to get into it. So the timing was great. And this has been fun. Thanks for asking me to join.
[00:21:14] Rob Williams: All right. Great. And you heard it here on the Contractor Success Forum. This is where you come for wonderful, great information that you need to know to be successful in your business and on your jobs. So, thank you. We have Jason Sperfslage with Beneco and we have Wade Carpenter with Carpenter and Company CPAs, and Stephen Brown with McDaniel-Whitley bonding and insurance company. And thank you for being on our show and come back and listen to us. Thanks a lot. Have a great day.