What Is A Prevailing Wage? Understanding This Type of Compensation
If your company works on public projects, then you may need to pay the prevailing wage to your workers. But if you’ve never bid on a government contract before, you could be wondering how you determine the rate of pay when doing business with an agency. Here, we’ll break it down for you.
To help you understand the prevailing wage requirement, we’ll explain what projects are impacted, what you’ll need to pay, how the rate is determined, and any exceptions that may apply to the work you’re bidding on. After reading this, you’ll know how to comply with the requirements to avoid penalties for noncompliance.
What is a prevailing wage?
A prevailing wage is the wage paid to the majority (more than 50%) of the laborers or mechanics in the classification on similar projects in the area during the same period. The requirement to pay the prevailing wage is intended to prevent a company from having a strategic advantage when bidding on public contracts by paying a lower rate than its competitors and can be either federally or state mandated.
On a federal level, the Davis-Bacon Act requires that contractors and subcontractors on federally-funded or assisted public works projects over $2,000 pay local prevailing wages to laborers and mechanics.
In addition, some states set different threshold requirements for payment of prevailing wages on public works projects. These are often referred to as mini-Davis-Bacon laws. For example, in Maine, the minimum amount for contract coverage under state law is $50,000; in Connecticut, it’s $1,000,000 for new construction and $100,000 for remodeling; and in Rhode Island, it’s $1,000.
Who is covered by prevailing wage laws?
It’s important to note that the Davis-Bacon Act covers only certain occupations and does not apply to all workers. Specifically, it applies to laborers or mechanics, meaning, those whose duties are manual or physical in nature versus mental or managerial. So, think carpenters, electricians, plumbers, ironworkers, welders, and craftsmen but not architects, engineers, or supervisors.
It also covers apprentices, trainees, helpers and, in certain cases, watchmen or guards.
What projects does prevailing wage apply to?
The Davis-Bacon Act applies to projects involving the construction, alteration, or repair of a public building or public work such as a bridge, highway, or dock carried out directly by authority of or with funds of a federal agency (or state agency, in the case of a state little-Bacon-Davis laws) to serve the interest of the general public. This can include any of the following activities:
- Altering, remodeling, installation on the site of the work of items fabricated off site
- Painting and decorating
- Manufacturing or furnishing of materials, articles, supplies, or equipment on the site of the building or work
- Transportation between the site of the work and a facility dedicated to the construction of the building or work and deemed a part of the site
- Transportation of a portion of the building or work between a site where a significant portion is constructed and the place where the building or work will remain
How do I find the prevailing wage in my area?
Prevailing wages are set by the Department of Labor and are based on available data of wages paid for the specific occupations in surrounding areas to ensure the wage reflects the local economy. These could be in-house reviews of payroll data or surveys of wage data from active projects.
There are 2 types of prevailing wages:
- General: A general wage determination reflects the prevailing rates in a specific geographic area for the type of construction described.
- Project: A project wage determination is for a specific named construction project and is issued at the request of a federal agency or state highway department.
It’s important to understand that the prevailing wage doesn’t just include wages paid; it is the combination of the basic hourly rate and any fringe benefits.
To find the prevailing wage for a public works construction project, you can use the tool available from the applicable Davis-Bacon wage determination rate schedule found online at the U.S. System for Award Management (SAM). Remember, you can always pay workers more; the prevailing wage is the minimum that must be paid.
What’s the difference between minimum wage and prevailing wage?
Minimum wage is the base level of pay employers are required to pay certain covered employees. There is both a federal minimum wage and, in most states, a state wage that can be the same or more than the federal requirement. These minimum wage standards apply across all workers regardless of industry or occupation.
Prevailing wage, on the other hand, is based on market conditions and is often higher than statutory minimums. Think of it as a minimum wage designed to benefit construction workers.
What are the penalties for noncompliance?
Under the Bacon-Davis Act, contractors and subcontractors are required to pay covered workers weekly and submit weekly certified payroll records to the contracting agency. And failure to submit certified records is a common compliance problem. In addition, there are other challenges companies face then it comes to complying with the law, including:
- Misclassification of laborers and mechanics
- Inadequate recordkeeping, such as not counting all hours worked or not recording hours worked by an individual in two or more classifications during a day
- Failure to maintain a copy of a bona fide apprenticeship program and individual registration documents for apprentices
- Failure to post the Davis-Bacon poster and applicable wage determination
Violations of the Davis-Bacon contract clauses may be grounds for contract termination, liability for any resulting costs to the government, and debarment from future contracts for up to three years.
How to Best Comply with Prevailing Wage Rules
If you’re planning to bid on a government contract or are working on a public works project for the first time, then it’s critical to comply with applicable prevailing wage requirements. And, as we just discussed, submitting certified payroll records is one step you’ll need to take to demonstrate that you’re paying the proper rate of pay to your employees. To help you understand what you need to do to meet certified payroll requirements, read our FAQ.
If you’d prefer to consult with an outside expert, Complete Payroll Solutions can assist with filing certified payrolls as well as with fringe benefit plans that can help private employers lower immediate out-of-pocket costs. To learn more about our services for the construction industry, visit our dedicated page.