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HARDESTY & HANOVER, LLC Notes to Statement of Direct Labor, Fringe Benefits and General Overhead For the Year Ended December 31, 2019 NOTE 5: DESCRIPTION OF LABOR-RELATED COSTS (Continued) Premium overtime – Costs are incurred in meeting certain deadlines. If an employee is eligible for overtime, they receive payment equal to time and a half (premium portion). Uncompensated Overtime – The Company has salaried employees who exceed 40 hours per week. Their total direct and indirect labor costs are recorded and the excess amount above 40 hours is treated as a reduction in overhead referred to as uncompensated overtime. Highly compensated employees/officers/owners - The Company performed an analysis of executive compensation in accordance with Chapter 7 of the AASHTO Audit Guide. The analysis included an examination of the activities performed by Company executives, and the forms of compensation paid to executives. A total of $250,330 was eliminated from overhead related to unallowable activities and unallowable compensation. The analysis also included an evaluation of compensation reasonableness as described in AASHTO Audit Guide section 7.5, using information from the National Compensation Matrix. The reasonable compensation amounts developed using survey data did not exceed the applicable Benchmark Compensation amounts set forth in 48 CFR Part 31.205-6(p). Pension plans - The Company operates a 401(K)retirement plan that meets the requirements of FAR 31.205-6(j). During the year, the Company made a cash contribution of 3 percent of participating employees’ salaries totaling $926,947 Contract/purchased labor - The Company uses contract labor for engineering related services, and bills this labor as if it were for regular employees. The Company provides office space, administrative support, and controls the contract laborers. Therefore, contract laborers are considered employees, and their labor costs have been included in the direct and indirect labor, as applicable. Labor costs incurred to compete in the design build environment - The Company had direct labor costs on projects that were not awarded and an adjustment of $226,256 was made to direct labor. Employment contracts - There are two senior employees who have employment contracts. According to the terms of the contracts, each employee shall participate in bonus plans; a Company plan in which employees at similar levels receive a bonus and a second plan under which each senior employee shares in the Company’s profits based upon their profit sharing bonus units. These amounts must be retained with the company until withdrawal, termination, death or disability. Deferred Compensation Arrangements - In 2019, the Company continued to offer a deferred compensation plan to select employees that have elected deferred compensation and bonuses. The deferred compensation plans are unfunded; therefore, benefits are paid from the general assets of the Company. The total participant deferrals were $123,791 which represents the net present value of the amounts currently owed to them. The current portion of this liability totals $100,294 and the long term portion totals $23,497. $241,296 was disallowance related to deferred compensation (See FAR adjustment f) -11-