Avoid the Fringe Flush: Don’t Waste Your Prevailing Wage Dollars
Turn Compliance into Competitive Advantage
If your construction firm performs work on public projects—federal, state, or municipal—you’re no stranger to prevailing wage laws. These rules mandate minimum hourly wages plus fringe benefits for your employees. But here’s the catch:
Many contractors pay fringe benefits in cash instead of directing them into benefit programs.
It’s a decision that may feel simple or convenient—but it’s likely costing you thousands in taxes and lost opportunities.
Some people call this the “Fringe Flush”—throwing away fringe dollars when they could be working for both your business and your employees.
🚧 The Problem: Paying Fringe Benefits as Cash
When you pay fringe dollars as wages, you create several unintended consequences:
🚨 1. Higher Payroll Taxes
Those fringe dollars become part of taxable income, meaning you pay:
FICA
FUTA
SUTA
Workers’ compensation
General liability insurance tied to payroll
These costs can add up quickly—especially on large projects.
🚨 2. Missed Retirement Plan Opportunities
Fringe dollars can be contributed to a qualified retirement plan like a 401(k) or prevailing wage-specific plan. If you opt for cash instead:
You lose out on employer deductions
Your employees miss the chance to grow tax-deferred retirement assets
You risk higher turnover among skilled tradespeople who are looking for long-term benefits
🚨 3. Weakened Labor Offer
In a tight labor market, offering fringe as cash may not be enough to attract and retain top talent. Skilled workers value meaningful retirement and insurance benefits—especially when working prevailing wage jobs.
✅ The Solution: Direct Fringe Dollars to Benefit Plans
Reallocating fringe dollars into a retirement plan offers powerful advantages:
Tax Efficiency: No payroll tax burden on fringe contributions
Compliance: Meet prevailing wage laws with a strategic edge
Retention & Recruitment: Offer a more compelling benefits package
Reduced Admin Burden: Specialized plans can manage tracking across multiple jobs
💡 Did you know? If a project requires $10/hour in fringe and you direct that into a retirement plan, you not only save on payroll taxes, but also help your employees build long-term financial stability—with zero additional out-of-pocket cost to your business.
🧰 Options for Fringe Allocation
Depending on your goals and workforce structure, you might consider:
Prevailing wage retirement plans (integrated with or separate from your core 401(k))
Health and welfare plans
Supplemental unemployment or life insurance benefits
Each business is different—and compliance still matters—so working with an experienced advisor ensures your plan meets both legal and strategic goals.
🧱 Bottom Line: Stop Flushing Value
Your fringe dollars are already required by law—why not put them to work?
By turning cash into strategy, you reduce costs, retain employees, and build long-term value into every project you take on. It’s one of the most overlooked tools in a contractor’s tax planning toolbox—and one that could give you a competitive edge on every bid.
📩 Want to learn how your company can legally and strategically redirect fringe dollars?
Contact StatonWalsh today for a custom fringe benefit analysis and prevailing wage optimization review.