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Vacation & Sick Pay Trust
A Vacation & Sick Pay Trust is one of the most straightforward ways to satisfy prevailing wage fringe obligations — while reducing your payroll tax burden and giving workers a benefit they actually use.
California prevailing wage law requires contractors on covered public works projects to pay workers both a base wage and a fringe benefit rate. That fringe obligation can be satisfied in cash — or through contributions to bona fide benefit plans, including a Vacation & Sick Pay Trust.
When structured correctly, a trust lets you meet your fringe requirement while keeping more money in the project — because trust contributions avoid the payroll taxes that straight cash wages do not.
Why It Works
Benefits for Employers & Workers
Satisfies Fringe Obligations
Contributions to a Vacation & Sick Pay Trust count as bona fide fringe benefits under California prevailing wage law and Davis-Bacon — reducing your cash wage obligation dollar-for-dollar.
Reduces Payroll Tax Burden
Fringe dollars directed into the trust are not subject to FICA, FUTA, workers' compensation, or general liability calculations — lowering your total labor cost on every covered project.
Attracts and Retains Workers
Paid vacation and sick leave are among the most valued benefits in the trades. Offering them through a compliant trust helps you compete for skilled workers and keep them on your team.
Accessible When Workers Need It
Unlike retirement plans, vacation and sick pay benefits are available when workers take approved time off — providing real, immediate value that employees notice and appreciate.
The Process
How It Works
01
Employer Contributions
You contribute a set dollar amount per hour worked into the trust on behalf of each covered employee. Contribution rates are determined by the applicable prevailing wage determination.
02
Funds Held in Trust
Contributions are held in a dedicated trust account — separate from operating funds — and administered in compliance with ERISA and California law.
03
Benefits Paid to Workers
When an eligible employee takes approved vacation or sick leave, benefits are paid from the trust. Workers receive their time off pay without it coming directly out of your operating budget.
04
Fringe Credit Applied
Contributions are reported on certified payroll as bona fide fringe benefits — satisfying your prevailing wage fringe obligation and reducing the cash wage you're required to pay on covered projects.
Complete Your Fringe Strategy
Works Best Alongside Other Plans
Most contractors use a combination of benefit plans to satisfy their total fringe obligation. A Vacation & Sick Pay Trust pairs naturally with these other PSG-administered programs.
The SUB Plan
Income protection during layoffs and slow periods — covers the fringe dollars a vacation trust doesn't.
Learn MoreGroup Health Insurance
Medical, dental, and vision coverage for your workforce — another bona fide fringe benefit under prevailing wage law.
Learn MorePrevailing Wage Consulting
Not sure how to structure your fringe package? We help you map the right combination for your project mix.
Learn MoreCommon Questions
Frequently Asked Questions
Is a Vacation & Sick Pay Trust required on prevailing wage projects?
No — it's one option for satisfying the fringe benefit portion of the prevailing wage rate. You can also pay fringe as additional cash wages or use other bona fide benefit plans. However, using a trust is typically more cost-effective because those contributions avoid payroll taxes.
Can I use a Vacation Trust alongside a SUB Plan or health insurance?
Yes. Most contractors use a combination of benefit plans to satisfy their total fringe obligation. A Vacation & Sick Pay Trust pairs well with health insurance, a SUB Plan, and retirement contributions — each covering a portion of the required fringe rate.
What happens to unused vacation balances?
California law generally requires that accrued vacation be paid out upon termination. The trust is structured to handle these obligations in compliance with state law.
How is this different from just paying vacation as wages?
When you pay vacation as straight wages, those dollars are subject to payroll taxes and labor burden. Contributions to a bona fide trust are not — which means the same dollar goes further for both you and your workers.
Ready to Put Your Fringe Dollars to Work?
PSG has administered Vacation & Sick Pay Trusts for California contractors for over 25 years. Let's talk about whether a trust makes sense for your workforce and project mix.