(650) 332-8623Prevailing Wage (Davis-Bacon) Explained: A Contractor’s Guide
What is the prevailing wage, and how does it impact your business? Learn about rates, rules, and compliance in our guide.
Whether you’re a contractor bidding on public projects or a worker looking for fair pay, understanding prevailing wages is essential.
These wages ensure that laborers on government-funded projects receive compensation that aligns with local pay standards. However, not all prevailing wages are the same, and terms like Davis-Bacon wages often add confusion.
Let’s break it down, starting with what prevailing wages are.
What Are Prevailing Wages?
Prevailing wages are the minimum hourly rates, including both base pay and fringe benefits, that must be paid to workers on public works projects. These rates are determined through surveys of wages typically paid for specific jobs within a particular area.
The goal? To make sure public funds don’t lead to a race to the bottom in labor costs. Instead, prevailing wages ensure fair compensation and promote quality workmanship.
For example, if a local plumber typically earns $35 an hour, the government might set the prevailing wage for plumbers on public projects in that region at or near this rate. This prevents contractors from underpaying workers just to submit the lowest bid on a project.
Key aspects of prevailing wages:
- Determined by Government: Federal, state, or local agencies set these rates.
- Applies to Public Works Projects: Construction, repair, and maintenance jobs funded by public money.
- Includes Fringe Benefits: Often covers things like health insurance, retirement plans, and vacation pay.
By setting these wage floors, prevailing wage laws create a level playing field for contractors and ensure workers receive fair pay.
Understanding Prevailing Wages in the U.S.
Federal vs. State
What’s the Difference Between Prevailing Wages and Davis-Bacon Wages?
Here’s where things can get confusing: Davis-Bacon wages are a specific type of prevailing wage. They fall under the Davis-Bacon Act of 1931, which applies to federally funded construction projects over $2,000.
In other words, Davis-Bacon wages are federal prevailing wages, but not all prevailing wages are Davis-Bacon wages.
Key Differences
1. Scope
- Prevailing Wages: Broader term that applies to federal, state, or locally funded public works projects.
- Davis-Bacon Wages: Specific to federally funded construction projects.
2. Determination of Wage Rates
- Prevailing Wages: States or localities may have their own wage determination processes based on local labor standards.
- Davis-Bacon Wages: Determined by the U.S. Department of Labor, using surveys of wages paid in the area of the federal project.
3. Enforcement
- Prevailing Wages: State or local labor agencies enforce compliance for non-federal projects.
- Davis-Bacon Wages: Federal agencies, such as the U.S. Department of Labor, oversee enforcement for federally funded projects.
1891, Kansas
When Did the Prevailing Wage Laws Start?
Prevailing wage laws have been a cornerstone of labor protections in the United States for over a century. They were introduced to ensure that workers on public works projects receive fair wages, reflective of the local standards for their trade or occupation.
These laws aim to level the playing field for contractors, ensuring that bidding competition focuses on quality and efficiency rather than undercutting wages.
Origins of Prevailing Wage Laws in the U.S.
The roots of prevailing wage laws can be traced back to the late 19th century, with Kansas passing the first state-level prevailing wage law in 1891. Other states soon followed, recognizing the need to protect local labor markets from out-of-state contractors offering low wages to win public contracts.
Key Milestones: From Early State Laws to the Davis-Bacon Act of 1931
One of the most significant developments in the history of prevailing wage laws was the enactment of the Davis-Bacon Act in 1931.
Named after its sponsors, Senator James Davis and Representative Robert Bacon, the Act was a response to the economic pressures of the Great Depression. It mandated that contractors working on federally funded projects pay their workers at least the locally prevailing wages for similar jobs. This law set a national standard and laid the foundation for subsequent federal and state prevailing wage regulations.
Since then, prevailing wage laws have expanded to cover various federally funded programs and have been adopted by many states to include local infrastructure projects.
Surveys and Data
How Prevailing Wages Are Determined
Prevailing wage rates are established to reflect the wages commonly paid to workers performing similar jobs in a specific geographic area. Both federal and state governments have systems in place to determine these rates, ensuring fair compensation on public projects.
State vs. Federal Prevailing Wage Determination
Prevailing wage determinations can differ depending on whether a project is federally or state-funded:
- Federal Determination (Davis-Bacon Act): The U.S. Department of Labor (DOL) oversees prevailing wage rates for federally funded projects. These rates apply to specific job classifications within designated geographic areas.
- State Determination: States with their own prevailing wage laws (often called “little Davis-Bacon Acts”) have separate methods for determining local prevailing wages. The process and rates can vary significantly from federal standards, sometimes offering higher or more localized rates.
Process Overview
The process for determining prevailing wages generally follows these steps:
- Data Collection: Surveys are conducted to gather wage data from contractors and unions for specific job classifications in a geographic area. This data includes hourly wages, fringe benefits, and work hours.
- Job Classification: Workers are categorized into specific roles (e.g., carpenter, electrician) based on their trade and skill level.
- Statistical Analysis: The collected data is analyzed to identify the most commonly paid wage for each classification. This rate becomes the prevailing wage for that role in the region.
Timeline for Determination
The timeline for prevailing wage determinations can vary:
- Federal Wage Determinations: These are typically updated annually, but specific rates may be revised more frequently based on new data or significant economic changes.
- State Wage Determinations: States may update their rates quarterly, semi-annually, or annually, depending on local regulations. Some states, like California, have more frequent updates to reflect changing labor market conditions.
Factors influencing the timeline include the availability of updated wage data, the scope of the survey, and regional economic shifts.
Learn more about other state-specific labor laws, including details about prevailing wage rates, in the following guides:
State vs. Federal Prevailing Wage Laws
The Davis-Bacon Act
Federal Prevailing Wage Law
Enacted in 1931, the Davis-Bacon Act mandates that contractors and subcontractors working on federally funded or assisted construction projects over $2,000 pay their laborers and mechanics no less than the locally prevailing wages for corresponding work. The U.S. Department of Labor determines these wage rates based on local standards for similar projects.
"Little Davis-Bacon Acts"
State Prevailing Wage Laws
Many states have their own prevailing wage laws, often referred to as “Little Davis-Bacon Acts.” These laws can differ significantly from federal requirements:
a. California
California’s prevailing wage law applies to all public works projects over $1,000. The state requires contractors to register and pay an annual fee to bid on public projects. Additionally, California’s law covers a broader range of projects and includes stricter enforcement mechanisms compared to federal standards.
b. New York
New York’s prevailing wage law applies to all public works projects, regardless of the contract amount. The state has its own method for determining prevailing wage rates, which often results in higher wages than federal determinations.
New York also includes specific provisions for building service employees, which are not covered under the federal Davis-Bacon Act.
c. Illinois
Illinois’ Prevailing Wage Act applies to all public works projects, with no minimum threshold for project cost. The state determines prevailing wage rates based on local standards and requires contractors to submit certified payroll records to ensure compliance. Penalties for non-compliance can include fines and potential debarment from future public contracts.
What's the Difference?
Key Differences Between State and Federal Prevailing Wage Laws
1. Threshold Amounts
While the Davis-Bacon Act applies to projects over $2,000, some states have different thresholds. For instance, California’s law applies to projects over $1,000, and New York has no minimum threshold.
2. Scope of Coverage
State laws may cover a broader range of projects and worker classifications than the federal law. For example, Maryland’s prevailing wage law includes state-funded businesses, not just construction projects.
3. Wage Determination Methods
States often have their own methods for determining prevailing wages, which can result in different rates compared to federal determinations. This can lead to higher or more localized wage rates at the state level.
4. Enforcement and Penalties
State laws may have stricter enforcement mechanisms and more severe penalties for non-compliance. For instance, Illinois imposes fines and potential debarment for contractors who violate prevailing wage laws.
What Are Davis-Bacon Wages?
The Davis-Bacon Act (DBA) establishes wage standards for laborers and mechanics on federal and federally assisted construction projects. Here’s an overview of its coverage, exemptions, wage rates, fringe benefits, and overtime rules:
Who Is Covered and Who Is Exempt?
1. Covered Workers
The DBA applies to laborers and mechanics employed by contractors and subcontractors on federal or District of Columbia construction contracts exceeding $2,000. This includes construction, alteration, or repair of public buildings or public works.
2. Exemptions
Certain contracts are exempt from DBA requirements, such as those:
- Valued at $2,000 or less.
- For work not considered construction, alteration, or repair.
- Where the principal purpose is to furnish services rather than construction.
What Are Davis-Bacon Wage Rates?
Davis-Bacon wage rates are the prevailing wages determined by the Department of Labor (DOL) for specific classifications of laborers and mechanics in a particular geographic area. These rates are included in wage determinations that contracting agencies incorporate into covered contracts.
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Fringe Benefits and Overtime Rules
1. Fringe Benefits
Under the DBA, the term “wages” includes both the basic hourly rate and fringe benefits. Contractors can fulfill their wage obligations by:
- Paying the total prevailing wage entirely as cash wages.
- Providing a combination of cash wages and bona fide fringe benefits.
2. Overtime Rules
The Contract Work Hours and Safety Standards Act (CWHSSA) mandates that laborers and mechanics on covered contracts receive overtime pay at a rate of one and one-half times their basic rate of pay for hours worked beyond 40 in a workweek. It’s important to note that fringe benefits are not included in the calculation of the overtime premium.
How to Calculate Davis-Bacon Wages
Calculating wages under the Davis-Bacon Act ensures that workers on federally funded construction projects receive fair compensation. This process involves determining both the basic hourly wage and applicable fringe benefits for specific job classifications.
Step-by-Step Guide to Calculating Davis-Bacon Wages
1. Identify the Applicable Wage Determination
- Locate the Wage Determination: Access the U.S. Department of Labor’s Wage Determinations to find the relevant wage determination for your project’s location and type of construction.
- Determine the Job Classification: Identify the specific job classification(s) for the work being performed (e.g., carpenter, electrician).
2. Understand the Wage Components
- Basic Hourly Rate: This is the standard hourly wage for the job classification.
- Fringe Benefits: These are additional benefits provided to the worker, which may include health insurance, retirement plans, or vacation pay. If the employer does not provide these benefits, they must be paid as part of the hourly wage.
3. Calculate the Total Prevailing Wage
- If Fringe Benefits Are Provided: Add the basic hourly rate to the value of the fringe benefits.
- If Fringe Benefits Are Not Provided: Combine the basic hourly rate with the fringe benefit amount to determine the total hourly wage to be paid directly to the worker.
Example Calculation
Assume a wage determination lists the following for an HVAC Technician:
- Basic Hourly Rate: $30.00
- Fringe Benefits: $7.00
- Total Prevailing Wage: $37.00
- If Fringe Benefits Are Provided: The employer pays $30.00 per hour in wages and provides $7.00 per hour in fringe benefits.
- If Fringe Benefits Are Not Provided: The employer pays the worker the full $37.00 per hour in wages.
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Important Considerations
- Overtime: Overtime must be paid at one and a half times the basic hourly rate. Fringe benefits are paid at the regular rate for overtime hours.
- Apprentices and Trainees: These workers may be paid less than the prevailing wage if they are registered in an approved program. Ensure compliance with specific guidelines for these classifications.
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Compliance Strategies for Contractors
Ensuring compliance with prevailing wage laws, including the Davis-Bacon Act, is critical for contractors working on public projects. Non-compliance can result in severe penalties, including fines, project delays, and even disqualification from future bids. Here’s how contractors can stay on top of their obligations while managing costs effectively.
Importance of Record-Keeping and Regular Audits
Accurate record-keeping is the cornerstone of prevailing wage compliance. Contractors must maintain detailed records, including:
- Certified Payroll Reports: These reports document wages paid to each worker, including hours worked and fringe benefits provided.
- Time and Attendance Records: Accurate logs of when and where employees worked, ensuring they’re paid appropriately.
- Project-Specific Documentation: Keep contracts, change orders, and wage determinations organized and readily accessible.
Regular internal audits help ensure all documentation is accurate and up to date. They can identify discrepancies early, preventing costly penalties during official audits by the Department of Labor (DOL).
Tips for Managing Costs While Staying Compliant
- Optimize Labor Costs: Use apprentices and trainees from approved programs where allowed, as they can be paid a lower prevailing wage rate.
- Understand Fringe Benefits: Providing fringe benefits like health insurance can offset cash wage obligations, potentially reducing overall labor costs.
- Plan Projects Efficiently: Schedule work to avoid unnecessary overtime, which requires paying 1.5 times the basic hourly rate.
How To Comply With Prevailing Wage Laws With Workyard
Modern software solutions like Workyard can make compliance significantly easier. Workyard’s GPS time tracking and geofencing features provide accurate time and attendance data, helping contractors meet Davis-Bacon reporting requirements.
Key Workyard Benefits:
- Automatic Clock-In and Clock-Out: Workers are clocked in and out automatically upon entering and leaving geofenced job sites.
- Accurate Payroll Integration: Easily link time records with payroll systems to ensure workers are paid correctly, including prevailing wages.
- Compliance Monitoring: Real-time data tracking helps contractors quickly identify potential compliance issues.
Unlike other tools, Workyard eliminates manual time entry errors, providing confidence that your records will stand up to audits.
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Prevailing wage refers to the hourly rate of pay, including fringe benefits, that workers on public works projects must be paid, as determined by government agencies. These rates are based on the wages commonly paid to workers in similar roles within a specific geographic area. The purpose of prevailing wage laws, such as the Davis-Bacon Act, is to ensure fair compensation, prevent undercutting of local wage standards, and promote high-quality workmanship on federally and state-funded projects. By requiring contractors to pay standardized wages, these laws help maintain a level playing field in the bidding process and protect workers from exploitation.
Prevailing wage determination involves collecting wage data from surveys conducted by the U.S. Department of Labor or state agencies. This data reflects the wages and fringe benefits paid to workers in various job classifications, such as electricians, carpenters, and HVAC technicians, within a specific region. For Davis-Bacon projects, wage determinations are published on the SAM.gov website, providing the required wage rates for federal projects. States with prevailing wage laws follow a similar process, often tailoring their rates more closely to local conditions. These rates ensure workers are paid fairly based on their job type and location.
The prevailing wage determination time varies depending on the agency conducting the survey and the scope of the project. For federal projects under the Davis-Bacon Act, wage determinations are updated annually, though specific rates may be revised more frequently based on economic shifts. State prevailing wage determinations may be updated quarterly, semi-annually, or annually, depending on local laws. The process involves extensive data collection and analysis to ensure accuracy, so it can take weeks or months to finalize rates. Contractors should always check for the latest rates before bidding on public projects.
Certain workers and projects may be exempt from Davis-Bacon prevailing wage requirements. For example, projects that fall below the $2,000 federal funding threshold are not subject to Davis-Bacon wages. Additionally, administrative staff, executives, and workers not directly involved in construction activities (e.g., clerical or support staff) are typically exempt. Apprentices and trainees in registered programs may also be paid less than the prevailing wage for their classification, provided they work under the proper supervision and their rates comply with program guidelines.
To calculate Davis-Bacon wages, start with the basic hourly rate listed in the applicable wage determination for the worker’s job classification. Next, add the value of any required fringe benefits. If the employer provides these benefits (e.g., health insurance, retirement), the amount can be deducted from the fringe rate. If not, the employer must pay the total fringe amount as additional wages. For example, if an HVAC technician’s wage determination lists $30/hour with $7/hour in fringe benefits, the total hourly compensation would be $37/hour. If benefits are not provided, the full amount must be paid in cash.
