Navigating Prevailing Wage Laws: What Every Contractor Needs Know
Emily Maina
Last update on:
November 3, 2024 8:37 AM
Published on:
If you run a business that engages in public works projects, it’s important to gain an understanding of what prevailing wages are as well as the laws around it.
The prevailing wage rate and threshold for prevailing wages may vary from state to state. Understanding the requirements for your state can help you stay on the right side of the law, avoiding issues associated with non-compliance, such as disqualification from participating in future public works projects, penalties, or terminated contracts.
In this article, we will cover all you need to know about prevailing wages. We will explore the definition of prevailing wage, its importance in the workplace, commonly encountered violations, and steps to prevent non-compliance.
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Prevailing wages are the minimum hourly wage, plus benefits, that must be paid to laborers, workers, and mechanics employed on public works projects. These projects could include building new structures, completing routine maintenance and repair work, or renovating public infrastructure.
Prevailing wage rate is based on the average wages paid to workers performing similar work that are located in the same geographic area as the company’s project. Occupations of employees that are entitled to prevailing wages include food service staff, security guards, painters, plumbers, electricians, and carpenters.
Employers can request the wage rate they are expected to comply with from the National Prevailing Wage Center (NPWC) or they can access the OFLC Wage Search website for this information.
Contractors that pay prevailing wages should maintain accurate records of project specifics such as job classifications, employee work hours, and an up-to-date payment log. These records serve as evidence that contractors are in compliance with labor laws and regulations.
To simplify time tracking and record management for matters related to prevailing wages, employers can use software such as Timeero. This app has a time clock that allows workers to clock in and out when they start and finish their shifts, recording the hours they have worked each day.
The timesheets have information about any mileage they covered, breaks taken, or overtime hours. With integrations with various payroll software options, employers can send each worker their wages and maintain records that act as proof of fair compensation. Using Timeero saves time and ensures accuracy, helping construction companies stay compliant.
The history of prevailing wage laws
In 1891, Kansas passed the country’s first prevailing wage laws. As more states adopted prevailing wage laws, the federal government eventually followed suit and passed similar laws for federally-funded construction projects.
The United States Congress passed the Davis-Bacon Act in 1931. This act applies to subcontractors and contractors working on federally assisted or funded projects with a total cost of more than $2,000.
According to the Davis-Bacon Act, contractors are required to pay mechanics and laborers a prevailing wage based on the work they are performing as well as the project’s location. Projects to be completed may include construction, repairs, and alteration of public buildings or public works.
As we mentioned above, the prevailing wage threshold for federally funded projects is $2,000. If a federal project is estimated to cost more than $2,000, laborers should be paid the prevailing wage rate.
However, states have varying thresholds for state-funded projects such as upgrading schools, building hospitals, or constructing bridges and roads. For example, prevailing wages in California apply to public works projects valued at more than $1,000.
The following table shows a list of states and their project thresholds for prevailing wages:
Prevailing wages do more than just make sure federally contracted workers are paid the same as their industry counterparts. Prevailing wages are important for several reasons:
1. Ensure fair compensation
Prevailing wages help ensure that workers on public projects receive wages that are sufficient to meet their basic needs and maintain a decent standard of living.
Prevailing wage laws in some states often require employers to provide certain benefits, such as health insurance, retirement plans, and paid time off, in addition to wages. This requirement provides project workers with the same benefits offered to other employees in the same field.
2. Prevent wage depression and unfair labor practices
Prevailing wage laws prevent different forms of labor exploitation from occurring in the construction industry. By setting a minimum wage, these laws help to create a level playing field among contractors, avoiding a "race to the bottom" in terms of labor costs.
Thanks to prevailing wage laws, contractors working on state- or federally funded projects can not pay laborers the lowest possible amount to reduce costs and increase profitability. By law, contractors are required to pay their workers the prevailing wage for any work being done, preventing unfair labor practices.
3. Protect workers' rights
Research shows there is a clear racial and ethnic income gap in the United States. According to data from the Pew Research Center, between 2019 and 2021, there was a large gap in the amount of wealth seen in White and Asian households compared to Hispanic, Black, and multiracial households.
Prevailing wages help close racial income gaps by ensuring that everyone is paid the same. These laws also protect the rights of all individuals, particularly those who are marginalized and likely to be victims of underpayment.
4. Promote quality work
Skilled workers are generally attracted to public projects that pay prevailing wages. Instead of hiring workers who are comfortable accepting low wages, contractors are able to hire skilled laborers who are qualified to do the job and more likely to produce work of high quality.
Workers that are well paid are more motivated and productive. As a result, your company will experience lower turnover rates, contributing to the overall success of public projects.
How are prevailing wages determined?
Determining a local prevailing wage is typically done in two different ways.
Use the wage provided by a government agency
Government agencies usually determine prevailing wage rates based on research findings. They look at what employers are paying similar type of workers in the same locale. The average rate they find from the data collected serves as the benchmark for prevailing wage projects.
The government's Wage Determination tool can also help you determine which rate to use. When you enter the wage determination number, you will receive the relevant rate as per the U.S. Department of Labor.
Conduct a survey
The second option to determine prevailing wage rate is to use surveys. Surveys are conducted among employers in the relevant industry and geographic area and come in handy when a more specific rate is required.
These surveys gather information on wages, hours worked, and benefits offered to employees. Follow these steps to carry out a wage determination survey:
1. Collect Data: Begin collecting data on the wages local employers pay workers for the same position you are hiring for. The geographic scope of the survey should be within the area you will be operating in.
2. Analyze Data: Analyze the data you have collected to calculate average hourly wages for each job classification. In addition to wages, you can also consider the value of benefits offered to employees, such as health insurance and paid time off. Weighted averages may be used to account for differences in the number of employees in each job classification.
3. Calculate the prevailing wage: The calculated average hourly wage for each job classification becomes the prevailing wage for that position. The value of fringe benefits may be added to the hourly wage to determine the total prevailing wage.
Please note: The specific methods and procedures for determining prevailing wages may vary slightly depending on the jurisdiction and type of public works project. However, the general approach outlined above is most commonly used.
How to ensure compliance with prevailing wage laws
There are certain measures you can take to comply with prevailing wage regulations.
Determine accurate rates
Accurately determining the prevailing wage for your industry and location involves researching and understanding the specific wage rates set by governmental agencies or labor unions. Staying up to date with current prevailing wage rates, will ensure that your employees are paid fairly and in accordance with legal requirements.
Additionally, it is important to be aware of any variations in prevailing wages based on factors such as experience level or job classification.
Maintain proper records
Maintaining accurate and detailed records of employee hours, wages, and classifications is another essential aspect of prevailing wage compliance. These records should clearly demonstrate that employees are being paid at or above the prevailing wage rate for their specific job duties.
By keeping thorough records, you can provide evidence of compliance in case of audits or investigations. A timekeeping system, such as a time-tracking app accurately tracks employee hours, simplifying your record-keeping process.
Learn about labor laws
It’s important to take the time to understand federal, state, and local labor laws regarding prevailing wages, especially since these laws may vary in terms of specific requirements, exemptions, and enforcement mechanisms.
To remain compliant with applicable regulations and avoid penalties and legal issues, try to stay informed of the latest changes to labor laws. It is advisable to consult with legal counsel or labor experts to gain a comprehensive understanding of prevailing wage laws and their implications for your business.
Obtain certifications
Exploring certification programs for prevailing wage compliance can be a valuable step toward demonstrating your commitment to fair labor practices. These programs often involve training, audits, and assessments to verify your compliance with prevailing wage laws.
By obtaining certification, you can enhance your reputation as a responsible employer and potentially secure more government contracts and public works projects.
Common prevailing wage violations
Some of the most prevalent violations regarding prevailing wages include:
Underpaying workers: Failing to pay the prevailing wage rate, including fringe benefits to laborers, puts you in violation of labor laws. In the rare case, underpayment can result from overlooking specific provisions or miscalculating compensation figures.
Insufficient record keeping: When you fail to maintain adequate records of employee work hours, job classifications, and amounts paid to workers, you open yourself up to lawsuits that can lead to significant financial loss.
Misclassifying workers: Job classifications determine the prevailing wage each worker should receive. If you misclassify workers, they may not receive appropriate compensation and you could face penalties associated with non-compliance.
Improper deductions: It is unlawful for an employer to make unauthorized deductions on workers’ paychecks, especially when the deductions made cause an employee’s total income to fall below the prevailing wage.
What are the penalties of being non-compliant with prevailing wage laws?
Some of the penalties for failing to pay workers the right prevailing wages can include:
Financial penalties
Back wages: Employers must pay the difference between the prevailing wage and the wages actually paid to workers.
Liquidated damages: In addition to back wages, employers may be liable for liquidated damages, typically double the amount of unpaid wages.
Fines: Employers may face fines, which can vary depending on the jurisdiction and the severity of the violation.
Contract termination: In some cases, non-compliance can lead to the termination of government contracts.
Legal consequences
Lawsuits: Workers who are underpaid may file lawsuits against their employers.
Criminal penalties: In certain cases, willful violation of prevailing wage laws may be considered a criminal offense, leading to fines and possible imprisonment.
Reputational damage
Negative publicity: Non-compliance can damage an employer's reputation and make it difficult to obtain future contracts.
Loss of business: Clients and customers may be less likely to do business with a company that has a history of labor law violations.
Use Timeero to comply with prevailing wage laws
A time-tracking tool like Timeero can help business owners comply with prevailing wage law while efficiently managing their workforce.
The software offers features such as GPS time and location tracking, geofencing, break tracking, transparent reporting, and payroll integrations that helps employers adhere to detailed labor standards. Since the app collects data automatically, businesses can avoid making errors that result in costly legal issues.
Simplify prevailing wage compliance with Timeero today. Sign up for an account to get started. Take advantage of Timeero’s 14-day free trial to test drive the app and see how it can be a game changer for your business.
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Emily Maina is a tech-savvy writer with a passion for creating content. With years of experience in the industry, she is well-versed in the latest trends and developments in the tech industry. When she’s not working, Emily enjoys exploring the great outdoors or watching her favorite shows.
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