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Contract Act
Title 29, Code of Federal Regulations, Part 4 Labor Standards for Federal Service Contracts 29 CFR 4.177 - Discharging fringe benefit obligations by equivalent means. (a) In general. (1) Section
2(a)(2) of the Act, which provides for (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 (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 (3) Where fringe benefits
are stated as a percentage of the monetary (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 (d) Furnishing a combination
of equivalent fringe benefits and cash payments. Fringe benefit obligations
may be discharged by furnishing any (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 |