HEAVY CONSTRUCTORS
ASSOCIATION OF THE
GREATER KANSAS CITY AREA, WAB No. 94-13 (WAB Oct. 11, 1994)
[1] WAGE APPEALS BOARD
UNITED STATES DEPARTMENT OF LABOR
WASHINGTON, D. C.
In the Matter of:
HEAVY CONSTRUCTORS WAB Case No. 94-13
ASSOCIATION OF THE
GREATER KANSAS CITY AREA
BEFORE: David A. O'Brien, Chair
Ruth E. Peters, Member
Karl J. Sandstrom, Member
DATED: October 11, 1994
DECISION OF THE WAGE APPEALS BOARD
This matter is before the Wage Appeals Board on the petition of the Heavy Constructors
Association of the Greater Kansas City Area ("Petitioner" or "HCA"), seeking review of May 20,
1994 ruling by the Administrator, Wage and Hour Division. The Administrator ruled that HCA's
payments to a vacation fund -- at the rate of $1.05 for each hour worked under the agreement --
should be included in the "basic hourly rate" under Davis-Bacon and Related Act wage
determinations. For the following reasons, the Administrator's ruling is reversed.
I. BACKGROUND
A. General
Petitioner is an association of heavy and highway construction contractors whose members
perform contracts subject to prevailing wage and overtime requirements of the Davis-Bacon Act
(40 U.S.C. [sec] 276a et seq.; the "Act"); its Related Acts (see 29 C.F.R. 5.1); and the Contract
Work Hours and Safety Standards Act (40 U.S.C. [sec] 327 et seq.; "CWHSSA"). HCA is
signatory to a [1][2] collective bargaining agreement ("CBA") effective 1992 to 1995 with the
Western Missouri and Kansas Laborers District Council (the "Laborers").
Among the terms of the CBA is Article XI, entitled "Welfare, Pension, Vacation,
Supplemental Dues and Training." (Administrative Record ("AR" Tab D, Exhibit Two, pp.
16-19). Paragraph 5 of Article XI specifies the Laborers' and HCA's agreement with respect to
vacation pay:
The Employers [in HCA] agree to pay, [*]in addition to wages[*], One
Dollar Five Cents ($1.05) per hour for each hour paid to employees covered by
this Agreement into the jointly administered Construction Industry Laborers'
Vacation Fund for each employee's Vacation Savings Payments into the Vacation
Fund and shall be mailed to the Administrator at the Construction Industry
Laborers' Welfare and Pension Fund offices, Jefferson City, Missouri.
A. The Employer shall deduct all withholdings from the full
amount of wages, including the vacation payment each pay
check. However, the full vacation payment shall be paid into the
Vacation Fund each month since the withholding will be deducted
from the wages.
B. An Employee may draw his Vacation Savings out once a year
between the dates December 10 and March 10 of the following
year.
C. Vacation Savings shall accumulate annually from November 1
through October 31.
D. The employee shall notify the Construction Industry Laborers'
Welfare and Pension Fund Office two (2) weeks in advance of the
date he wishes to draw his Vacation Savings money due him.
(Id. at pp. 18-19). Petitioner states (and the Administrator does not contest the assertion) that
HCA and the Laborers have negotiated a similar vacation benefit fund for approximately 24
years and that -- until recently -- Wage and Hour has issued wage determinations listing the
vacation savings payments as fringe benefits, thereby excluding the $1.05 hourly payments from
the basic hourly rate of pay. However, in two recent Greater Kansas City area wage
determinations [2][3] applicable to heavy and highway construction (Nos. KS940012 and
MO940001)/FN1/, the Administrator has changed the long-standing practice and included the
$1.05 hourly vacation pay in the basic hourly wage rate. (See AR Tab D, Exhibit One)./FN2/
B. Statutory provisions regarding fringe benefits and exclusions from
the basic hourly rate
In 1964 -- after extensive hearings concerning the administration of the Act -- Congress added
section 1(b), which -- in pertinent part -- provides:
As used in sections 276a to 276a-5 of this title, the term "wages", "scale of wages", "wage
rates", "minimum wages", and [*]"prevailing wages" shall include[*] --
* * *
(2) the amount of --
(A) [*]the rate of contribution irrevocably made by a contractor or
a subcontractor[*] to a trustee or to a third person pursuant to a
fund, plan, or program; . . .
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 fringe benefits, . . .
* * *
Section 1(b) of the Act further requires that the employer's cost of bona fide fringe benefits shall
be excluded from laborers' and mechanics' basic hourly rate in computing the overtime pay to
which they are due.[3]
[4] Thus, vacation pay was explicitly included within the Congressionally enumerated fringe
benefits allowable under the Act. Further, if such a vacation fringe benefit is provided by an
employer's contribution, that amount must be excluded from computation of the basic hourly rate
of pay upon which overtime premiums under the CWHSSA are to be based.
C. The Administrator's ruling
In her May 20, 1994 ruling (AR Tab A), the Administrator concluded that the HCA vacation
fund payment must be included in the basic hourly rate portion of prevailing wage
determinations, because the $1.05 vacation benefit was an employee contribution and not an
employer contribution, as required by the Act. The Administrator reasoned that [*](emphases
supplied)[*]:
[i]n those cases where contributions for vacation pay are made by the contractor
or subcontractor to a "fund, plan or program" (29 CFR 5.27), that contribution is
reflected as a fringe benefit on the wage determination. [*]However, where such
a contribution is made by the employee as a deduction from the employee's basic
rate of pay, as in this instance in accordance with Article XI, paragraph 5A, then it
is not shown as a fringe benefit on the wage determination but is included in the
basic rate reflected in the wage determination.[*] (See 29 CFR, Part 5, section
5.32(a)). This is consistent with the definition of the basic hourly rate of pay
found at 29 CFR, Part 5, section 5.24, in that, prior to the 1964 amendments to the
Davis-Bacon Act, such deductions were included in the basic rate. In order to
treat payments for vacation pay as employer contributions for fringe benefits, [*]it
must be clear from the collective bargaining agreement that such payments are not
a deduction from the employees' wages.[*]
II. DISCUSSION
This Board, as an appellate body, will defer to the interpretations and rulings of the
Administrator under the circumstances we delineated in Titan IV Mobile Service Tower, WAB
Case No. 89-14 (May 10, 1991), slip op. at p.7:
The Administrator, to whom Davis-Bacon rulemaking functions are entrusted (29
C.F.R. 1.1), is likely in the best position to interpret those rules in the first
instance (see Udall v. Tallman, 380 U.S. 1, 16-17 (1965)), and absent an
interpretation that is unreasonable in some sense or that exhibits an unexplained
departure from past determinations, the Board is reluctant to set the
Administrator's interpretation aside.[4]
[5] We conclude that the ruling of the Administrator in the instant case is both unreasonable and
an unexplained departure from past determinations and therefore must be reversed.
The rule of decision in this case -- as identified by the Administrator -- is that "it must be
clear from the collective bargaining agreement that such payments are not a deduction from the
employees' wages." AR Tab A. We hold that in this case, it is clear from the CBA that the
vacation fund payment is not a deduction from the employees' wages.
As noted in our recitation of the relevant CBA clause, the parties clearly specified that the
vacation fund payment of $1.05 hourly is "in addition to wages...." (AR Tab D, Exhibit Two, p.
16). The vacation fund is, moreover, set forth in Article XI, which governs employer payments
for "Welfare, Pension, Vacation, Supplemental Dues and Training," and not in Article XV,
regarding employer wage payments. In addition to these clear indices of intent in the CBA
regarding employer vacation benefit contributions, we note that the parties clearly treated another
type of payment -- not a bona fide fringe benefit -- in an entirely different manner. Under Article
XI of the CBA, the parties agreed to employee contributions for Supplemental Dues:
In addition to the wages set out in the schedule of this Agreement, [*]each
Employer agrees to add Fifty Cents ($0.50) per hour to the wages[*] of each
employee for each pay roll hour. During the term of this Agreement and
continuing thereafter and in accordance with the terms of an individual and
voluntary written authorization for checkoff of membership dues in form
permitted by the provisions of Section 302(c) of the Labor Management Relations
Act, [*]the Employer shall deduct from the wages of all employees covered by
this Agreement the above amounts per hour for each pay roll hour, as
supplemental dues[*].
AR Tab D, Exhibit Two, p. 18; [*]emphases added[*]. In this section of the CBA, the parties
have made it clear that the supplemental dues checkoff is a "deduct[ion] from the wages" of
employees; the treatment of the vacation fund under the CBA is entirely different, further
underscoring the vacation benefit as an employer contribution "in addition to wages."
There is no question that the vacation plan here under consideration is anything other than
bona fide. Vacation benefit plans are, as noted, one of the types of bona fide fringe benefits
specifically enumerated in the Act. The Administrator herself has conceded that the
HCA/Laborer vacation plan is a bona [5][6] fide fringe benefit and that there is no evidence of
fraud or collusion by the parties to artificially reduce the basic hourly rate./FN3/
Moreover, the specifics of the plan all support the conclusion that the vacation benefit is bona
fide. Here, the vacation benefit is clearly calculated to provide approximately 2 weeks of full
pay to an employee. This on its face is a reasonable vacation benefit. Another "vacation benefit
fund" which sequestered an unreasonable amount of paid vacation would be suspect. See our
discussions of the "effective annual rate of contribution" in Tom Mistick & Sons, Inc., WAB
Case Nos. 88-25 and -26 (May 30, 1991) and Rembrant, Inc., WAB Case No. 89-16 (Apr. 30,
1991).
The Board concludes that the creation of an actual beneficial trust for the employees in the
HCA/Laborers plan is of great significance. The payments made by employers on an employee's
behalf are not assignable or otherwise alienable by the employee. The trust's restrictions
governing withdrawals make it abundantly clear that the vacation plan is a bona fide benefit.
The timing of an employee's right of withdrawal is limited to the construction "off season" of
December to March. The plan requires that the funds must be withdrawn within a year of
deposit. Additionally, withdrawals are limited to vacation pay purposes only (i.e. the vacation
fund cannot be used for personal expenses such as medical bills or school tuition).
There are, moreover, well-established guidelines for determination of whether any such fund
is a beneficial trust. Six factors are stated in Laborers Union Local 1298 of Nassau and Suffolk
Counties Vacation Fund v. Frank L. Lyon & Sons, Inc., 323 N.Y.S.2d 229, 77 L.R.R.M 3107
(1971):
(1) the nature of the employment is such that the individual employees would not
become entitled to vacation benefits from any one employer; in a very real sense,
therefore, the benefits result from something (the collective force of union
bargaining) in addition to the individual's efforts; (2) the employers' payments
must be made to the fund; the employee cannot sue for them directly; . . ., nor can
the union sue . . .; (3) the contribution being required by the collective bargaining
agreement on the basis of manhours worked, the employee has no right
individually to waive its being made; (4) the trust is not dry or passive, for the
principal (the employers' contributions) is to be invested, income received,
expenses paid and income and portions of principal paid out . . ., and since
benefits in December of any year stem from [6][7] what accumulated during the
benefit year (ending on the preceding June 30) there will always be a principal
balance in the individual's account until he dies or leaves the industry; (5) the
employee cannot demand any payment from the fund until 5 to 17 months after
his employer has paid his contribution in . . .; (6) such precedent as exists accords
with treating the benefit as a trust payment.
Citations omitted. With minor variations in the specifics of the HCA/Laborers plan and that in
Laborers Union Local 1298, the foregoing factors prove the creation of a legitimate beneficial
trust. Consequently, there is a solid basis for concluding that the employees in the instant case
have received a trust interest rather than traditional wages.
The "nuts and bolts" of how the vacation plan payment are made in this case also show that
these are direct payments from employers and not deductions from employees' wages. The
Board acknowledges that an employee's pay statements reflect the vacation fund payments. The
$1.05 is not, however "paid" to or "received" by the employee. Rather, the employer retains the
full $1.05 per hour payment and -- on a monthly basis -- directly remits the vacation payment to
the jointly administered vacation benefit fund. At this juncture, we must again note that the
vacation benefit plan in this case has been funded in the same manner -- "in addition to wages" --
for approximately 24 years without raising a question from Wage and Hour. Nor, apparently,
would a question have ever been raised by Wage and Hour had the parties not memorialized the
computational mechanism for the vacation benefit in their CBA.
The Administrator attempts to distinguish between employer and employee contributions
based upon the treatment of these employer payments under the tax code. However, with respect
to vacation benefit plans similar to the multi-employer one at issue here, it would appear that
there is no payment mechanism which would avoid taxation as income in the year paid. The
Administrator's reliance on tax implications serves only to include payments made to all
multi-employer vacation benefit plans within the basic hourly rate.
Vacation pay is taxable income to an employee in the year earned if there is no substantial
risk of forfeiture. 26 U.S.C. [sec] 83. In this case, the employees (under the terms of the trust)
have a vested right in the vacation benefit at the time of the employer's contribution and there is
therefore no substantial risk of forfeiture. The employee must take the amount of the benefit into
income and the employer must withhold taxes. Even though the employee has not received any
payment and will only receive payment at the time and in the manner provided for in the trust
agreement, the employee has realized income for tax purposes. The employer in turn must
withhold taxes on these sums. Regardless [7][8] of the mechanics and timing of the payment to
the trust, the same tax treatment would hold./FN4/
It should be noted that the trust could be governed by different vesting rules. For example,
the trust could provide that an employee needed to be member of the union for at least 26 weeks
before being entitled to vacation pay. In that case, only the employees who will have been
employed for that period of time would have to realize income and have taxes withheld. This
would be the case even though the vacation payment of $1.05 per hour is still paid by the
employer to the trust. It is inconceivable that the Administrator's position would be that the
vacation payment is an employer contribution for non-vested employees but an employee
contribution for vested employees.
We further disagree with the Administrator's argument that her treatment of the HCA/Laborer
vacation benefit payments as employee contributions is supported by the regulation at 29 C.F.R.
5.24. This provision explicitly includes in the basic hourly rate only payments made directly to
employees. As pointed out previously, the vacation payment at issue here is not "made directly"
to the employees. Secondly, the regulation specifically excludes fringe benefits from the basic
hourly rate of pay and at oral argument, counsel for the Administrator conceded that the vacation
fund in this case is not only a fringe benefit, but a bona fide fringe benefit.
Nor does 29 C.F.R. 5.32(a) support the conclusion that the vacation fund payment is a
"deduction" from employee "wages." That regulation [*](emphasis added)[*] states:
The act excludes amounts paid by a contractor or subcontractor for fringe benefits
in the computation of overtime. . . . It is clear from the legislative history that in
no event can the regular or [8][9] basic rate upon which premium pay for overtime
is calculated ... 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 employees 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 contained in the wage determination.
The Administrator erroneously contends that the $1.05 hourly payment -- although clearly
paid by the employer to the vacation fund --
should not be excluded from the employees' regular hourly rates because such
payments do not meet the threshold requirement of being contributions made by
the employer directly into a fund.... The vacation pay is treated the same as
regular wages in that the employer withholds income tax from the total cash
payment including the vacation pay.
(Administrator's Statement in Opposition to the Petition for Review ("Opposition") at p. 6;
emphasis added). This analysis ignores the patent fact (discussed in detail above) that the
employer does actually remit the monies directly to the fund, albeit after reflecting the income
for tax withholding purposes on an employee's pay statement./FN5/
The Administrator also argues that she "views [the HCA/Laborers plan] as being tantamount
to a forced savings plan, whereby employees have agreed to have a portion of their paycheck
deducted and deposited on their behalf into a savings account." Opposition at p. 7, n.5. This
view is unsupported. The vacation plan in this case is, after all, a bona fide fringe benefit, paid
by the employer, into a beneficial trust to which the employees have vested rights. In no way can
the vacation plan be analogized to a "forced savings plan." This plan lacks the indicia of a
savings plan including assignability and ownership of the earnings on the principal.
Finally, the Administrator has argued that there is a valid policy consideration for her
interpretation that these payments are employee deductions [9][10] and therefore includable in
the basic hourly rate of pay for laborers and mechanics. As stated in her Opposition (at p. 8):
Wage and Hour needs clear guidelines for determining basic hourly rates of pay
for purposes of ensuring that appropriate overtime premiums have been paid. It is
reasonable for Wage and Hour to follow a basic policy that where money paid
into a fund comes out of the employee's paycheck, it is an employee contribution,
and hence, not excludable from the employee's regular rate of pay. Otherwise,
Wage and Hour will be faced with a great deal of uncertainty and the potential for
unwarranted reductions in employees' basic rates of pay.
However, this policy guideline is based on the false assumption that the payment "comes out of"
the employee's paycheck. This guideline, moreover, reaches a result contrary to the clear
language of the Act and not explicitly required under the regulations. The guidelines suggested
in this opinion should be sufficiently clear for determining basic hourly rates of pay and avoiding
the potential for unwarranted reductions in employees' basic rates of pay.
BY ORDER OF THE BOARD:
David A. O'Brien, Chair
Ruth E. Peters, Member
Karl J. Sandstrom, Member
Gerald F. Krizan, Esq.
Executive Secretary[10]
FOOTNOTES
/FN1/ AR Tab B, Exhibits 1 and 2.
/FN2/ At oral argument, Petitioner noted that one current wage determination in the area
continues to list the vacation benefit payment as a fringe benefit, rather than as a part of the basic
hourly rate. This, stated counsel for the Administrator, is an error in light of the Administrator's
ruling in this case.
/FN3/ The Laborers have intervened in this proceeding and filed a statement in support of
HCA's arguments that the vacation plan payments should be considered a bona fide fringe benefit
and therefore excluded from the basic hourly rate of pay.
/FN4/ Even if it were possible under Internal Revenue Service regulations for HCA employers
to establish an administratively burdensome separate vacation benefit funding system -- without
ever recording the transaction in employee paychecks -- and continue to make the payments
directly into the vacation fund, the payments would still not qualify for exclusion from the basic
hourly rate pursuant to the reasoning in Wage and Hour's ruling, since the payments would still
be taxable "wages" under the federal tax code.
Indeed, when questioned at oral argument, counsel for the Administrator stated that even
under the foregoing hypothetical plan (where the employer paid the vacation monies directly to a
fund without computing and recording the payment through an employee's paycheck), Wage and
Hour would still consider the tax treatment as "wages" to be paramount and would therefore
continue to include the payment in the basic hourly rate. This is an anomalous result that the
Board should not allow to stand. Upon further questioning, counsel for the Administrator could
not postulate any vacation benefit funding mechanism which would pass Wage and Hour's
muster, but was "sure" that a vacation fund payment plan -- validly excludable from the basic
hourly rate under the Administrator's test -- existed somewhere in the construction industry.
/FN5/ The employer withholds the applicable taxes and reflects the income on the employee's
pay statement to satisfy the employer's obligation under the Internal Revenue Code.
