
[Code of Federal Regulations]
[Title 29, Volume 1]
[Revised as of July 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR5]

[Page 127-132]
 
                             TITLE 29--LABOR
 
PART 5--LABOR STANDARDS PROVISIONS APPLICABLE TO CONTRACTS COVERING FEDERALLY F
INANCED AND ASSISTED CONSTRUCTION (ALSO LABOR STANDARDS PROVISIONS APPLICABLE T
O 
 
Subpart B--Interpretation of the Fringe Benefits Provisions of the Davis-Bacon 
Act

    Source: 29 FR 13465, Sept. 30, 1964, unless otherwise noted.

Sec. 5.20  Scope and significance of this subpart.

    The 1964 amendments (Pub. L. 88-349) to the Davis-Bacon Act require, 
among other things, that the prevailing wage determined for Federal and 
federally-assisted construction include: (a) The basic hourly rate of 
pay; and (b) the amount contributed by the contractor or subcontractor 
for certain fringe benefits (or the cost to them of such benefits). The 
purpose of this subpart is to explain the provisions of these 
amendments. This subpart makes available in one place official 
interpretations of the fringe benefits provisions of the Davis-Bacon 
Act. These interpretations will guide the Department of Labor in 
carrying out its responsibilities under these provisions. These 
interpretations are intended also for the guidance of contractors, their 
associations, laborers and mechanics and their organizations, and local, 
State and Federal agencies, who may be concerned with these provisions 
of the law. The interpretations contained in this subpart are 
authoritative and may be relied upon as provided for in section 10 of 
the Portal-to-Portal Act of 1947 (29 U.S.C. 359). The omission to 
discuss a particular problem in this subpart or in interpretations 
supplementing it should not be taken to indicate the adoption of any 
position by the Secretary of Labor with respect to such problem or to 
constitute an administrative interpretation, practice, or enforcement 
policy. Questions on matters not fully covered by this subpart may be 
referred to the Secretary for interpretation as provided in Sec. 5.12.

Sec. 5.21  [Reserved]

Sec. 5.22  Effect of the Davis-Bacon fringe benefits provisions.

    The Davis-Bacon Act and the prevailing wage provisions of the 
related statutes listed in Sec. 1.1 of this subtitle confer upon the 
Secretary of Labor the authority to predetermine, as minimum wages, 
those wage rates found to be prevailing for corresponding classes of 
laborers and mechanics employed on projects of a character similar to 
the contract work in the area in which the work is to be performed. See 
paragraphs (a) and (b) of Sec. 1.2 of this subtitle. The fringe benefits 
amendments enlarge the scope of this authority by including certain bona 
fide fringe benefits within the meaning of the terms ``wages'', ``scale 
of wages'', ``wage rates'', ``minimum wages'' and ``prevailing wages'', 
as used in the Davis-Bacon Act.

Sec. 5.23  The statutory provisions.

    The fringe benefits provisions of the 1964 amendments to the Davis-
Bacon Act are, in part, as follows:

    (b) As used in this Act the term ``wages'', ``scale of wages'', 
``wage rates'', ``minimum wages'', and ``prevailing wages'' shall 
include--
    (1) The basic hourly rate of pay; and
    (2) The amount of--
    (A) The rate of contribution irrevocably made by a contractor or 
subcontractor to a trustee or to a third person pursuant to a fund, 
plan, or program; and

[[Page 128]]

    (B) The rate of costs to the contractor or subcontractor which may 
be reasonably anticipated in providing benefits to laborers and 
mechanics pursuant to an enforceable commitment to carry out a 
financially responsible plan or program which was communicated in 
writing to the laborers and mechanics affected,

for medical or hospital care, pensions on retirement or death, 
compensation for injuries or illness resulting from occupational 
activity, or insurance to provide any of the foregoing, for unemployment 
benefits, life insurance, disability and sickness insurance, or accident 
insurance, for vacation and holiday pay, for defraying costs of 
apprenticeship or other similar programs, or for other bona fide fringe 
benefits, but only where the contractor or subcontractor is not required 
by other Federal, State, or local law to provide any of such benefits * 
* *.

Sec. 5.24  The basic hourly rate of pay.

    ``The basic hourly rate of pay'' is that part of a laborer's or 
mechanic's wages which the Secretary of Labor would have found and 
included in wage determinations prior to the 1964 amendments. The 
Secretary of Labor is required to continue to make a separate finding of 
this portion of the wage. In general, this portion of the wage is the 
cash payment made directly to the laborer or mechanic. It does not 
include fringe benefits.

Sec. 5.25  Rate of contribution or cost for fringe benefits.

    (a) Under the amendments, the Secretary is obligated to make a 
separate finding of the rate of contribution or cost of fringe benefits. 
Only the amount of contributions or costs for fringe benefits which meet 
the requirements of the act will be considered by the Secretary. These 
requirements are discussed in this subpart.
    (b) The rate of contribution or cost is ordinarily an hourly rate, 
and will be reflected in the wage determination as such. In some cases, 
however, the contribution or cost for certain fringe benefits may be 
expressed in a formula or method of payment other than an hourly rate. 
In such cases, the Secretary may in his discretion express in the wage 
determination the rate of contribution or cost used in the formula or 
method or may convert it to an hourly rate of pay whenever he finds that 
such action would facilitate the administration of the Act. See 
Sec. 5.5(a)(1)(i) and (iii).

Sec. 5.26  ``* * * contribution irrevocably made * * * to a trustee or 
          to a third person''.

    Under the fringe benefits provisions (section 1(b)(2) of the Act) 
the amount of contributions for fringe benefits must be made to a 
trustee or to a third person irrevocably. The ``third person'' must be 
one who is not affiliated with the contractor or subcontractor. The 
trustee must assume the usual fiduciary responsibilities imposed upon 
trustees by applicable law. The trust or fund must be set up in such a 
way that in no event will the contractor or subcontractor be able to 
recapture any of the contributions paid in or any way divert the funds 
to his own use or benefit. Although contributions made to a trustee or 
third person pursuant to a benefit plan must be irrevocably made, this 
does not prevent return to the contractor or subcontractor of sums which 
he had paid in excess of the contributions actually called for by the 
plan, as where such excess payments result from error or from the 
necessity of making payments to cover the estimated cost of 
contributions at a time when the exact amount of the necessary 
contributions under the plan is not yet ascertained. For example, a 
benefit plan may provide for definite insurance benefits for employees 
in the event of the happening of a specified contingency such as death, 
sickness, accident, etc., and may provide that the cost of such definite 
benefits, either in full or any balance in excess of specified employee 
contributions, will be borne by the contractor or subcontractor. In such 
a case the return by the insurance company to the contractor or 
subcontractor of sums paid by him in excess of the amount required to 
provide the benefits which, under the plan, are to be provided through 
contributions by the contractor or subcontractor, will not be deemed a 
recapture or diversion by the employer of contributions made pursuant to 
the plan. (See Report of the Senate Committee on Labor and Public 
Welfare, S. Rep. No. 963, 88th Cong., 2d Sess., p. 5.)

[[Page 129]]

Sec. 5.27  ``* * * fund, plan, or program''.

    The contributions for fringe benefits must be made pursuant to a 
fund, plan or program (sec. 1(b)(2)(A) of the act). The phrase ``fund, 
plan, or program'' is merely intended to recognize the various types of 
arrangements commonly used to provide fringe benefits through employer 
contributions. The phrase is identical with language contained in 
section 3(1) of the Welfare and Pension Plans Disclosure Act. In 
interpreting this phrase, the Secretary will be guided by the experience 
of the Department in administering the latter statute. (See Report of 
Senate Committee on Labor and Public Welfare, S. Rep. No. 963, 88th 
Cong., 2d Sess., p. 5.)

Sec. 5.28  Unfunded plans.

    (a) The costs to a contractor or subcontractor which may be 
reasonably anticipated in providing benefits of the types described in 
the act pursuant to an enforceable commitment to carry out a financially 
responsible plan or program, are considered fringe benefits within the 
meaning of the act (see 1(b)(2)(B) of the act). The legislative history 
suggests that these provisions were intended to permit the consideration 
of fringe benefits meeting, among others, these requirements and which 
are provided from the general assets of a contractor or subcontractor. 
(Report of the House Committee on Education and Labor, H. Rep. No. 308, 
88th Cong., 1st Sess., p. 4.)
    (b) No type of fringe benefit is eligible for consideration as a so-
called unfunded plan unless:
    (1) It could be reasonably anticipated to provide benefits described 
in the act;
    (2) It represents a commitment that can be legally enforced;
    (3) It is carried out under a financially responsible plan or 
program; and
    (4) The plan or program providing the benefits has been communicated 
in writing to the laborers and mechanics affected. (See S. Rep. No. 963, 
p. 6.)
    (c) It is in this manner that the act provides for the consideration 
of unfunded plans or programs in finding prevailing wages and in 
ascertaining compliance with the Act. At the same time, however, there 
is protection against the use of this provision as a means of avoiding 
the act's requirements. The words ``reasonably anticipated'' are 
intended to require that any unfunded plan or program be able to 
withstand a test which can perhaps be best described as one of actuarial 
soundness. Moreover, as in the case of other fringe benefits payable 
under the act, an unfunded plan or program must be ``bona fide'' and not 
a mere simulation or sham for avoiding compliance with the act. (See S. 
Rep. No. 963, p. 6.) The legislative history suggests that in order to 
insure against the possibility that these provisions might be used to 
avoid compliance with the act, the committee contemplates that the 
Secretary of Labor in carrying out his responsibilities under 
Reorganization Plan No. 14 of 1950, may direct a contractor or 
subcontractor to set aside in an account assets which, under sound 
actuarial principles, will be sufficient to meet the future obligation 
under the plan. The preservation of this account for the purpose 
intended would, of course, also be essential. (S. Rep. No. 963, p. 6.) 
This is implemented by the contractual provisions required by 
Sec. 5.5(a)(1)(iv).

Sec. 5.29  Specific fringe benefits.

    (a) The act lists all types of fringe benefits which the Congress 
considered to be common in the construction industry as a whole. These 
include the following: Medical or hospital care, pensions on retirement 
or death, compensation for injuries or illness resulting from 
occupational activity, or insurance to provide any of the foregoing, 
unemployment benefits, life insurance, disability and sickness 
insurance, or accident insurance, vacation and holiday pay, defrayment 
of costs of apprenticeship or other similar programs, or other bona fide 
fringe benefits, but only where the contractor or subcontractor is not 
required by other Federal, State, or local law to provide any of such 
benefits.
    (b) The legislative history indicates that it was not the intent of 
the Congress to impose specific standards relating to administration of 
fringe benefits. It was assumed that the majority of fringe benefits 
arrangements of this nature will be those which are administered in 
accordance with requirements of section 302(c)(5) of the National

[[Page 130]]

Labor Relations Act, as amended (S. Rep. No. 963, p. 5).
    (c) The term ``other bona fide fringe benefits'' is the so-called 
``open end'' provision. This was included so that new fringe benefits 
may be recognized by the Secretary as they become prevailing. It was 
pointed out that a particular fringe benefit need not be recognized 
beyond a particular area in order for the Secretary to find that it is 
prevailing in that area. (S. Rep. No. 963, p. 6).
    (d) The legislative reports indicate that, to insure against 
considering and giving credit to any and all fringe benefits, some of 
which might be illusory or not genuine, the qualification was included 
that such fringe benefits must be ``bona fide'' (H. Rep. No. 308, p. 4; 
S. Rep. No. 963, p. 6). No difficulty is anticipated in determining 
whether a particular fringe benefit is ``bona fide'' in the ordinary 
case where the benefits are those common in the construction industry 
and which are established under a usual fund, plan, or program. This 
would be typically the case of those fringe benefits listed in paragraph 
(a) of this section which are funded under a trust or insurance program. 
Contractors may take credit for contributions made under such 
conventional plans without requesting the approval of the Secretary of 
Labor under Sec. 5.5(a)(1)(iv).
    (e) Where the plan is not of the conventional type described in the 
preceding paragraph, it will be necessary for the Secretary to examine 
the facts and circumstances to determine whether they are ``bona fide'' 
in accordance with requirements of the act. This is particularly true 
with respect to unfunded plans. Contractors or subcontractors seeking 
credit under the act for costs incurred for such plans must request 
specific permission from the Secretary under Sec. 5.5(a)(1)(iv).
    (f) The act excludes fringe benefits which a contractor or 
subcontractor is obligated to provide under other Federal, State, or 
local law. No credit may be taken under the act for the payments made 
for such benefits. For example, payment for workmen's compensation 
insurance under either a compulsory or elective State statute are not 
considered payments for fringe benefits under the Act. While each 
situation must be separately considered on its own merits, payments made 
for travel, subsistence or to industry promotion funds are not normally 
payments for fringe benefits under the Act. The omission in the Act of 
any express reference to these payments, which are common in the 
construction industry, suggests that these payments should not normally 
be regarded as bona fide fringe benefits under the Act.

Sec. 5.30  Types of wage determinations.

    (a) When fringe benefits are prevailing for various classes of 
laborers and mechanics in the area of proposed construction, such 
benefits are includable in any Davis-Bacon wage determination. 
Illustrations, contained in paragraph (c) of this section, demonstrate 
some of the different types of wage determinations which may be made in 
such cases.
    (b) Wage determinations of the Secretary of Labor under the act do 
not include fringe benefits for various classes of laborers and 
mechanics whenever such benefits do not prevail in the area of proposed 
construction. When this occurs the wage determination will contain only 
the basic hourly rates of pay, that is only the cash wages which are 
prevailing for the various classes of laborers and mechanics. An 
illustration of this situation is contained in paragraph (c) of this 
section.
    (c) Illustrations:

-------------------------------------------------------------------------------
---------------------------------
                                                                     Fringe ben
efits payments
                                         Basic   ------------------------------
---------------------------------
               Classes                  hourly    Health and                   
       Apprenticeship
                                         rates      welfare    Pensions    Vaca
tions      program       Others
-------------------------------------------------------------------------------
---------------------------------
Laborers............................       $3.25  ..........  ..........  .....
.....  ..............  ..........
Carpenters..........................        4.00       $0.15  ..........  .....
.....  ..............  ..........
Painters............................        3.90         .15       $0.10       
$0.20  ..............  ..........
Electricians........................        4.85         .10         .15  .....
.....  ..............  ..........
Plumbers............................        4.95         .15         .20  .....
.....         $0.05    ..........

[[Page 131]]


Ironworkers.........................        4.60  ..........  ..........       
  .10  ..............  ..........
-------------------------------------------------------------------------------
---------------------------------
(It should be noted this format is not necessarily in the exact form in which d
eterminations will issue; it is
  for illustration only.)

Sec. 5.31  Meeting wage determination obligations.

    (a) A contractor or subcontractor performing work subject to a 
Davis-Bacon wage determination may discharge his minimum wage 
obligations for the payment of both straight time wages and fringe 
benefits by paying in cash, making payments or incurring costs for 
``bona fide'' fringe benefits of the types listed in the applicable wage 
determination or otherwise found prevailing by the Secretary of Labor, 
or by a combination thereof.
    (b) A contractor or subcontractor may discharge his obligations for 
the payment of the basic hourly rates and the fringe benefits where both 
are contained in a wage determination applicable to his laborers or 
mechanics in the following ways:
    (1) By paying not less than the basic hourly rate to the laborers or 
mechanics and by making the contributions for the fringe benefits in the 
wage determinations, as specified therein. For example, in the 
illustration contained in paragraph (c) of Sec. 5.30, the obligations 
for ``painters'' will be met by the payment of a straight time hourly 
rate of not less than $3.90 and by contributing not less than at the 
rate of 15 cents an hour for health and welfare benefits, 10 cents an 
hour for pensions, and 20 cents an hour for vacations; or
    (2) By paying not less than the basic hourly rate to the laborers or 
mechanics and by making contributions for ``bona fide'' fringe benefits 
in a total amount not less than the total of the fringe benefits 
required by the wage determination. For example, the obligations for 
``painters'' in the illustration in paragraph (c) of Sec. 5.30 will be 
met by the payment of a straight time hourly rate of not less than $3.90 
and by contributions of not less than a total of 45 cents an hour for 
``bona fide'' fringe benefits; or
    (3) By paying in cash directly to laborers or mechanics for the 
basic hourly rate and by making an additional cash payment in lieu of 
the required benefits. For example, where an employer does not make 
payments or incur costs for fringe benefits, he would meet his 
obligations for ``painters'' in the illustration in paragraph (c) of 
Sec. 5.30, by paying directly to the painters a straight time hourly 
rate of not less than $4.35 ($3.90 basic hourly rate plus 45 cents for 
fringe benefits); or
    (4) As stated in paragraph (a) of this section, the contractor or 
subcontractor may discharge his minimum wage obligations for the payment 
of straight time wages and fringe benefits by a combination of the 
methods illustrated in paragraphs (b)(1) thru (3) of this section. Thus, 
for example, his obligations for ``painters'' may be met by an hourly 
rate, partly in cash and partly in payments or costs for fringe benefits 
which total not less than $4.35 ($3.90 basic hourly rate plus 45 cents 
for fringe benefits). The payments in such case may be $4.10 in cash and 
25 cents in payments or costs in fringe benefits. Or, they may be $3.75 
in cash and 60 cents in payments or costs for fringe benefits.

[30 FR 13136, Oct. 15, 1965]

Sec. 5.32  Overtime payments.

    (a) The act excludes amounts paid by a contractor or subcontractor 
for fringe benefits in the computation of overtime under the Fair Labor 
Standards Act, the Contract Work Hours and Safety Standards Act, and the 
Walsh-Healey Public Contracts Act whenever the overtime provisions of 
any of these statutes apply concurrently with the Davis-Bacon Act or its 
related prevailing wage statutes. It is clear from the legislative 
history that in no event can the regular or basic rate upon

[[Page 132]]

which premium pay for overtime is calculated under the aforementioned 
Federal statutes be less than the amount determined by the Secretary of 
Labor as the basic hourly rate (i.e. cash rate) under section 1(b)(1) of 
the Davis-Bacon Act. (See S. Rep. No. 963, p. 7.) Contributions by 
employees are not excluded from the regular or basic rate upon which 
overtime is computed under these statutes; that is, an employee's 
regular or basic straight-time rate is computed on his earnings before 
any deductions are made for the employee's contributions to fringe 
benefits. The contractor's contributions or costs for fringe benefits 
may be excluded in computing such rate so long as the exclusions do not 
reduce the regular or basic rate below the basic hourly rate contained 
in the wage determination.
    (b) The legislative report notes that the phrase ``contributions 
irrevocably made by a contractor or subcontractor to a trustee or to a 
third person pursuant to a fund, plan, or program'' was added to the 
bill in Committee. This language in essence conforms to the overtime 
provisions of section 7(d)(4) of the Fair Labor Standards Act, as 
amended. The intent of the committee was to prevent any avoidance of 
overtime requirements under existing law. See H. Rep. No. 308, p. 5.
    (c)(1) The act permits a contractor or subcontractor to pay a cash 
equivalent of any fringe benefits found prevailing by the Secretary of 
Labor. Such a cash equivalent would also be excludable in computing the 
regular or basic rate under the Federal overtime laws mentioned in 
paragraph (a). For example, the W construction contractor pays his 
laborers or mechanics $3.50 in cash under a wage determination of the 
Secretary of Labor which requires a basic hourly rate of $3 and a fringe 
benefit contribution of 50 cents. The contractor pays the 50 cents in 
cash because he made no payments and incurred no costs for fringe 
benefits. Overtime compensation in this case would be computed on a 
regular or basic rate of $3.00 an hour. However, in some cases a 
question of fact may be presented in ascertaining whether or not a cash 
payment made to laborers or mechanics is actually in lieu of a fringe 
benefit or is simply part of their straight time cash wage. In the 
latter situation, the cash payment is not excludable in computing 
overtime compensation. Consider the examples set forth in paragraphs 
(c)(2) and (3) of this section.
    (2) The X construction contractor has for some time been paying 
$3.25 an hour to a mechanic as his basic cash wage plus 50 cents an hour 
as a contribution to a welfare and pension plan. The Secretary of Labor 
determines that a basic hourly rate of $3 an hour and a fringe benefit 
contribution of 50 cents are prevailing. The basic hourly rate or 
regular rate for overtime purposes would be $3.25, the rate actually 
paid as a basic cash wage for the employee of X, rather than the $3 rate 
determined as prevailing by the Secretary of Labor.
    (3) Under the same prevailing wage determination, discussed in 
paragraph (c)(2) of this section, the Y construction contractor who has 
been paying $3 an hour as his basic cash wage on which he has been 
computing overtime compensation reduces the cash wage to $2.75 an hour 
but computes his costs of benefits under section 1(b)(2)(B) as $1 an 
hour. In this example the regular or basic hourly rate would continue to 
be $3 an hour. See S. Rep. No. 963, p. 7.
