Last month I was doing a Fringe Benefit review for a contractor that was doing nearly everything right. They were claiming their health insurance, retirement match, PTO, and paid holiday.

The problem is their PTO plan didn’t comply with the new WA DOL requirements meaning they were underpaying prevailing wage by $0.75 – $1 per hour per employee. A total liability exposure of over $100,000.

Last week during another Fringe Benefit review a contractor doing over 20M per year of public works wasn’t claiming the hourly cost of their PTO program, costing them $0.82 per labor hour (a total cost of $92,000 per year!)

What is the common denominator between both of these companies? They hadn’t seen the new requirements for making sure your PTO / Sick leave plan is Washington State compliant as a fringe benefit.

The PTO Basics

Within the world of public works contracting you cannot claim a legally required benefit as a “fringe” – For example, you cannot claim sick leave as a fringe*, you cannot claim workers comp as a fringe, social security, or any other legally required “benefit” to employees.

The key here is that Washington State has been pretty clear that if you go above and beyond the minimum you can include your sick leave / PTO as a fringe benefit. Typically this doesn’t cost the company too much more money (because you already offer sick leave anyway) and the benefit can be vast depending on how much public work your company does.

What are the Requirements?

There are only 3 requirements to claim your PTO as a fringe and make sure that it complies with the WA State Paid sick leave requirements.

1. Your plan must meet the state’s basic paid sick leave requirements, including the minimum accrual rate, normal hourly compensation, carryover, notification, and access requirements.
2. You must include such PTO programs in your written paid sick leave policy, and you must notify employees of your intent to utilize the PTO program in order to satisfy the minimum state-paid sick leave requirements.
3. If you are utilizing a PTO program for construction workers in order to satisfy state minimum paid sick leave requirements, the balance of the PTO must be paid out to any qualifying construction workers who separate employment before reaching 90 calendar days of employment. (This one is almost always the one that fails companies)

Clearly the final requirement is the biggie, that one 100% DOES add a cost to the company. Because of that, it doesn’t always make financial sense to include your sick leave program as a fringe.

Should I Change our PTO program to be Compliant?

The math on this is going to be based on how much the program will save you on the prevailing wage side minus how much it will cost you by paying out employees’ PTO in the first 90 days.

A general rule of thumb is that if you do more than 20% prevailing wage and don’t have CRAZY turnover in the first 90 days it will make sense.

If you want my team to figure out the numbers with you we will do that for free in a Fringe Benefit review.

What If I Provide More Generous PTO?

That state has additional requirements if you provide more generous PTO than the state minimums (which is pretty typical for companies that want to reward their more senior employees).

The 4 requirements only apply if you do not want the portion of more generous PTO to be subject to the state-paid sick leave requirements:

1. The portion of more generous PTO leave provided must be tracked separately from PTO leave entitled to the employee.
2. The portion of PTO leave entitled to an employee must independently satisfy all state minimum paid sick leave requirements.
3. There is no requirement that an employee must use the portion of PTO leave entitled to the employee as a condition to access the portion of more generous PTO leave provided.
4. There is no requirement that an employee must use the portion of PTO leave entitled to the employee as a condition to access the portion of more generous PTO leave provided for non-paid sick leave purposes (for example, vacation).

If you don’t know if your PTO plan is compliant, open up that PTO policy or employee handbook that is sitting on the shelf and cross reference some of these requirements with what your policy says. If you come across questions schedule a call with our team.

This was a basic summary of the DOL regulations – This is not legal advice and if your facts are different then the result may be different.

Prevailing wage is fact-specific. If the facts change, the answer may change.

*If you don’t provide more than the legal minimum