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If your company works prevailing wage jobs, you can optimize your payroll savings by contributing the fringe portion of the mandated wage to your employees’ retirement accounts. By putting the fringe into retirement accounts rather than paying them as wages, both the employer and the employee can avoid FICA, Medicare, L&I/Workers’ Compensation, and other payroll taxes on these amounts. This payroll savings allows you to increase your profit margins and even bid more competitively on prevailing wage projects.
Prevailing wage fringe contributions to a bona fide Davis Bacon retirement plan (like this one!) are an employer contribution. As such, they are deductible on the company’s corporate tax return, can be used to offset other employer contributions to employee accounts, and can be leveraged to increase the employer contributions that can be made the accounts of owners and other high-earners.