April 26, 2011

Supplemental Unemployment Benefit Plan SUB Plan

A SUB Plan is a Bona Fide fringe benefit plan approved by the Department of Labor and the Internal Revenue Service.  A Supplemental Unemployment Benefit Plan is a financial tool used by Open Shop Prevailing Wage Contractors to reduce labor costs.  This reduction enables a contractor to use these savings in any number of ways.  Some use it as a way to lower current and future bids.  Others use it to generate more profit.  Regardless, it is a method of paying the fringe portions of the prevailing wage to the field employees.

It is a plan used when an employee is assigned to a project that is subject to the Davis-Bacon Act, Service Contract Act and/or State Prevailing Wage Law.  Fringe dollars are paid into an approved trust on behalf of each participating employee rather than paid on an employee’s paycheck.  These dollars are then released immediately back to the employee upon a qualifying event.  Qualifying events include either Under-Employment or Unemployment of the employee.

 

Employer Benefits of SUB Plan

Wages paid on the paycheck are subject to payroll taxes and workers compensation premium.  An Open Shop Prevailing Wage Contractor has a choice of how he/she pays the fringe components of the prevailing wage.  Either on the paycheck as cash or through bona fide benefit plans such as a SUB plan.  The average range of effective payroll tax and insurance premium savings a contractor gets, reflected in an hourly amount is between $2.00 and $7.00 per hour.  This can be a significant savings per man hour when computed over the length of a job, the number of field employees and type of crafts a contractor hires.

 

  • Payroll taxes including FICA, Medicare and SDI are eliminated from the amount of fringe taken off the paycheck.

 

  • Workers Compensation Insurance and potentially General Liability Insurance are also reduced based on the amount of fringe taken off payroll.

 

  • Provides for more competitive bidding and more profit as a result of less tax and less insurance premium paid by the contractor.

 

 

Employee Benefits of SUB Plan

 

The field employee also eliminates his/her share of payroll taxes.

 

  • Field Employees get cash when they need it most – during periods of Under-Employment, Unemployment, Holidays, Sick Days, etc.

 

  • SUB Plan benefit payments are made in addition to State Unemployment Insurance benefits.

 

  • All dollars are invested into fiduciary approved money market accounts.

 

Our innovative SUB plan is a leader in the industry because it was created with a declining fee schedule.  Because of this, your field workers will receive more income through the use of our SUB plan versus our nearest competitors.  This declining fee schedule along with the flexibility of use is what makes our SUB plan unique.

 

Important Provisions

 

  • Under-Employment is defined as when an employee works less than 173 hours in any calendar month.

 

  • All earnings and forfeitures are pooled for the benefit of all employees.

 

  • All required withholdings and reporting are made for the employees.

 

  • Benefit payouts are made directly from the plan trustee to the employees.

 

For more information on SUB Plans, call 760-208-2506

2 thoughts on “Supplemental Unemployment Benefit Plan SUB Plan

  • Why would an employer fund a sub unemployment supp unemployment plan if the employees were still working?. The owner of the company said this was part of the prevailing wage and fringe benefit that he should have been paying but never did. When he was confronted, he put money into a sub unemployment supplemental benefit plan and issued a 1099-misc while taking an enormous amount of federal taxes and administrative fees off the top.

    • Funding a SUB plan, or any other bona fide fringe benefit plan, comes from the fringe portion of the employee’s prevailing wage as it’s earned. No wages are earned when not working and and is why a SUB plan is funded during employment. The employer can hold from payroll some or all of the fringe dollars and fund the SUB plan or mix of bona fide plans with those dollars depending on the dynamics of your work flow and other aspects of your work. Though it’s mandatory that employees receive their fringe dollars either on their paychecks as earned or have those dollars put into a plan or combination of plans for their benefit.

      Regarding your third point, I’m not quite sure I understand your experience but here is what actually occurs for the contractor. All fringe dollars that are not paid on the employees’ paychecks (off payroll) and put instead into a our bona fide SUB plan, avoid payroll taxes for both the employer and the employee. In addition, the employer avoids workers compensation premiums on those fringe dollars. Why? Because workers compensation premiums are calculated by the payroll number of the company. Getting fringes off the paychecks reduce your overall payroll number. And, depending on the State, income taxes might be avoided for the employees as well. These tax and insurance savings that the contractor realizes have to be enough to pay for the single employer fee of $400 annually in our SUB plan to make sense. I find if a contractor has maybe 3 to 5 field employees and do maybe 25% prevailing wage work overall, it’s better to just pay the fringes on payroll. If that same contractor did 100% prevailing wage or had more employees, then using fringe benefit plans is a cost saver to the contractor. Our SUB plan has a deposit fee that employees pay but this is offset by the payroll taxes they avoid and therefore it’s a wash for them.

      The goal is to level the playing field against your competitors regarding your labor burden. Contractors who choose to pay fringes on payroll are choosing to pay higher labor costs than their union competitors using exactly the same crafts and same man hours for a project resulting in fewer bids won or lesser profits made.

      I hope this helps provide some clarity and if I can answer any other questions, let me know.

      Steve

Leave a Reply

Your email address will not be published. Required fields are marked *