What Is a Prevailing Wage & How Is It Calculated?

As if paying your employees wasn’t complicated enough, in 2016 the federal government set rules requiring that construction workers on specific public projects and in specific job categories be paid the same rate. This rate varies by state. This blog will help you understand the concept of prevailing wage and the ramifications at the state level for your business.

What is The Prevailing Wage?

The prevailing wage is the average hourly rate for employees working on public construction projects. This prevailing wage is designed by worker classification and type of work. The market itself also dictates the prevailing wage. Contractors must pay laborers the prevailing wage, including hourly pay and benefits, listed under the Davis-Bacon law. This also affects subcontractors and apprentices or trainees.

The prevailing wage stemmed from a federal lab called the Davis-Bacon Act. The law requires if the public works construction contract is more than $2,000, then the prevailing wage must be paid to workers. When federal funds are used on a state project, the states must also abide by this law.

The U.S. Department of Labor surveys the wages paid across these occupations by region, so the prevailing wage is set by the local economy. These surveys are conducted frequently in order to capture changes to the local market.

How Does This Affect State Law?

Some states have their own prevailing wage rules. They are often referred to as “Little Davis-Bacon laws.” In these cases, the laws still only cover publicly-funded construction projects. Roads, public buildings, and bridges are typical types of projects covered under these rules. Some states use the federal guidelines for setting their prevailing wages. Others do not. For example, the dollar threshold for contracts requiring prevailing wages varies wildly by state:

• Alaska $25,000
• California $1,000
• Hawaii $2,000
• Maine $50,000
• Nevada $100,000
• Pennsylvania $25,000

Currently, 24-states lack prevailing wage laws, including:

• Arizona
• Colorado
• Florida
• Georgia
• Indiana
• Kentucky
• Louisiana
• Mississippi
• North Carolina
• Oklahoma
• South Dakota
• Utah
• Virginia
• Wisconsin

To make things a bit more complex, state laws are revised frequently, sometimes with each new legislature’s election. If you make an error around the state or federal rules, big penalties can ensue. For example, in Ohio, you can be fined the wages owed to the employee plus the potential penalty of 100% of all the wages owed. One lawyer comments, “There are also occasions when flagrant violations of such laws can land an owner in prison.” How can you protect yourself?

For many companies, the answer lies in a partnership with an Employer of Record service like FoxHire. We can handle the nuances of payroll and benefits, helping you eliminate the risks associated with regulatory compliance. Call on us. We can help your business focus on what’s important by eliminating the busy work.