(a) In general. (1) Section 2(a)(2) of the Act, which provides for
fringe benefits that are separate from and in addition to the monetary
compensation required under section 2(a)(1), permits an
employer to discharge his obligation to furnish the fringe benefits
specified in an applicable fringe benefit determination by furnishing
any equivalent combinations of ``bona fide'' fringe benefits or by
making equivalent or differential payments in cash. However, credit for
such payments is limited to the employer's fringe benefit obligations
under section 2(a)(2), since the Act does not authorize any part of the
monetary wage required by section 2(a)(1) and specified in the wage
determination and the contract, to be offset by the fringe benefit
payments or equivalents which are furnished or paid pursuant to section
2(a)(2).
(2) When a contractor substitutes fringe benefits not specified in
the fringe benefit determination contained in the contract for fringe
benefits which are so specified, the substituted fringe benefits, like
those for which the contract provisions are prescribed, must be ``bona
fide'' fringe benefits, as that term is defined in Sec. 4.171.
(3) When a contractor discharges his fringe benefit obligation by
furnishing, in lieu of those benefits specified in the applicable fringe
benefit determination, other ``bona fide'' fringe benefits, cash
payments, or a combination thereof, the substituted fringe benefits and/
or cash payments must be ``equivalent'' to the benefits specified in the
determination. As used in this subpart, the terms equivalent fringe
benefit and cash equivalent mean equal in terms of monetary cost to the
contractor. Thus, as set forth in Sec. 4.172, if an applicable fringe
benefit determination calls for a particular fringe benefit in a stated
amount and the contractor furnished this benefit through contributions
in a lesser amount, the contractor must furnish the employee with the
difference between the amount stated in the determination and the actual
cost of the benefit which the contractor provides. This principle may be
illustrated by the example given in Sec. 4.175(a)(2).
(b) Furnishing equivalent fringe benefits. (1) A contractor's
obligation to furnish fringe benefits which are stated in a specified
cash amount may be discharged by furnishing any combination of ``bona
fide'' fringe benefits costing an equal amount. Thus, if an applicable
determination specifies that 20 cents per hour is to be paid into a
pension fund, this fringe benefit obligation will be deemed to be met
if, instead, hospitalization benefits costing not less than 20 cents per
hour are provided. The same obligation will be met if hospitalization
benefits costing 10 cents an hour and life insurance benefits costing 10
cents an hour are provided. As set forth in Sec. 4.171(c), no benefit
required to be furnished the employee by any other law, such as workers'
compensation, may be credited toward satisfying the fringe benefit
requirements of the Act.
(2) A contractor who wishes to furnish equivalent fringe benefits in
lieu of those benefits which are not stated in a specified cash amount,
such as ``one week paid vacation'', must first determine the equivalent
cash value of such benefits in accordance with the rules set forth in
paragraph (c) of this section.
(c) Furnishing cash equivalents. (1) Fringe benefit obligations may
be discharged by paying to the employee on his regular payday, in
addition to the monetary wage required, a cash amount per hour in lieu
of the specified fringe benefits, provided such amount is equivalent to
the cost of the fringe benefits required. If, for example, an employee's
monetary rate under an applicable determination is $4.50 an hour, and
the fringe benefits to be furnished are hospitalization benefits costing
20 cents an hour and retirement benefits costing 20 cents an hour, the
fringe benefit obligation is discharged if instead of furnishing the
required fringe benefits, the employer pays the employee, in cash, 40
cents per hour as the cash equivalent of the fringe benefits in addition
to the $4.50 per hour wage rate required under the applicable wage
determination.
(2) The hourly cash equivalent of those fringe benefits which are
not stated in the applicable determination in terms of hourly cash
amounts may be obtained by mathematical computation through the use of
pertinent factors such as the monetary wages paid the employee and the
hours of work attributable to the period, if any, by which fringe
benefits are measured in the determination. If the employee's regular
rate of pay is greater than the
minimum monetary wage specified in the wage determination and the
contract, the former must be used for this computation, and if the
fringe benefit determination does not specify any daily or weekly hours
of work by which benefits are to be measured, a standard 8-hour day and
40-hour week will be considered applicable. The application of these
rules in typical situations is illustrated in paragraphs (c)(3) through
(7) of this section.
(3) Where fringe benefits are stated as a percentage of the monetary
rate, the hourly cash equivalent is determined by multiplying the stated
percentage by the employees' regular or basic (i.e., wage determination)
rate of pay, whichever is greater. For example, if the determination
calls for a 5 percent pension fund payment and the employee is paid a
monetary rate of $4.50 an hour, or if the employee earns $4.50 an hour
on a piece-work basis in a particular workweek, the cash equivalent of
that payment would be 22\1/2\ cents an hour.
(4) If the determination lists a particular fringe benefit in such
terms as $8 a week, the hourly cash equivalent is determined by dividing
the amount stated in the determination by the number of working hours to
which the amount is attributable. For example, if a determination lists
a fringe benefit as ``pension--$8 a week'', and does not specify weekly
hours, the hourly cash equivalent is 20 cents per hour, i.e., $8 divided
by 40, the standard number of non-overtime working hours in a week.
(5) In determining the hourly cash equivalent of those fringe
benefits which are not stated in the determination in terms of a cash
amount, but are stated, for example, as ``nine paid holidays per year''
or ``1 week paid vacation after one year of service'', the employee's
hourly monetary rate of pay is multiplied by the number of hours making
up the paid holidays or vacation. Unless the hours contemplated in the
fringe benefit are specified in the determination, a standard 8-hour day
and 40-hour week is considered applicable. The total annual cost so
determined is divided by 2,080, the standard number of non-overtime
hours in a year of work, to arrive at the hourly cash equivalent. This
principle may be illustrated by the following examples:
(i) If a particular determination lists as a fringe benefit ``nine
holidays per year'' and the employee's hourly rate of pay is $4.50, the
$4.50 is multiplied by 72 (9 days of 8 hours each) and the result, $324,
is then divided by 2,080 to arrive at the hourly cash equivalent,
$0.1557 an hour. See Sec. 4.174(c)(4).
(ii) If the determination requires ``one week paid vacation after
one year of service'', and the employee's hourly rate of pay is $4.50,
the $4.50 is multiplied by 40 and the result, $180.00, is then divided
by 2,080 to arrive at the hourly cash equivalent, $0.0865 an hour.
(6) Where an employer elects to pay an hourly cash equivalent in
lieu of a paid vacation, which is computed in accordance with paragraph
(c)(5) of this section, such payments need commence only after the
employee has satisfied the ``after one year of service'' requirement.
However, should the employee terminate employment for any reason before
receiving the full amount of vested vacation benefits due, the employee
must be paid the full amount of any difference remaining as the final
cash payment. For example, an employee becomes eligible for a week's
vacation pay on March 1. The employer elects to pay this employee an
hourly cash equivalent beginning that date; the employee terminates
employment on March 31. Accordingly, as this employee has received only
\1/12\ of the vacation pay to which he/she is entitled, the employee is
due the remaining \11/12\ upon termination. As set forth in
Sec. 4.173(e), the rate applicable to the computation of cash
equivalents for vacation benefits is the hourly wage rate in effect at
the time such equivalent payments are actually made.
(d) Furnishing a combination of equivalent fringe benefits and cash
payments. Fringe benefit obligations may be discharged by furnishing any
combination of cash or fringe benefits as illustrated in the preceding
paragraphs of this section, in monetary amounts the total of which is
equivalent, under the rules therein stated, to the determined fringe
benefits specified in the contract. For example, if an applicable
determination specifies that 20 cents per hour is to be paid into a
pension fund,
this fringe benefit obligation will be deemed to be met if instead,
hospitalization benefits costing 15 cents an hour and a cash equivalent
payment of 5 cents an hour are provided.
(e) Effect of equivalents in computing overtime pay. Section 6 of
the Act excludes from the regular or basic hourly rate of an employee,
for purposes of determining the overtime pay to which the employee is
entitled under any other Federal law, those fringe benefit payments
computed under the Act which are excluded from the regular rate under
the Fair Labor Standards Act by provisions of section 7(e) (formerly
designated as section 7(d)) of that Act (29 U.S.C. 207(e)). Fringe
benefit payments which qualify for such exclusion are described in
subpart C of Regulations, 29 CFR part 778. When such fringe benefits are
required to be furnished to service employees engaged in contract
performance, the right to compute overtime pay in accordance with the
above rule is not lost to a contractor or subcontractor because it
discharges its obligation under this Act to furnish such fringe benefits
through alternative equivalents as provided in this section. If it
furnishes equivalent benefits or makes cash payments, or both, to such
an employee as authorized herein, the amounts thereof, which discharge
the employer's obligation to furnish such specified fringe benefits, may
be excluded pursuant to this Act from the employee's regular or basic
rate of pay in computing any overtime pay due the employee under any
other Federal law. No such exclusion can operate, however, to reduce an
employee's regular or basic rate of pay below the monetary wage rate
specified as the applicable minimum wage rates under sections 2(a)(1),
2(b), or 4(c) of this Act or under other law or an employment contract.
