Published date: 05/25/2023
Making mistakes is a part of any learning process.
When you are a public works contractor, however… well, let’s just say they might not always be so forgiving. Which is why it can be so important to learn from others’ mistakes before you make them yourself.
Most prevailing wage compliance violations can be avoided simply by having a good understanding of the regulations set forth in the Davis-Bacon Act (DBA) and the expectations that come from them. That being said, no one is perfect. Even with a compliance process in place, there is still so much that can be overlooked. Sometimes even small blunders can quickly become something much bigger, and they often can go unnoticed… until it’s too late. That’s when fines and penalties come into play. So with that, let’s take a look at common mistakes contractors make on prevailing wage projects. This will be the first installment in a series of blog posts covering this topic.
Simply Paying the Incorrect Wage Rate
The first and most obvious, yes. But this still happens to be one of the most rampant mistakes and for many different reasons.
Whether this mistake is made honestly or done on purpose to try to save a buck, there is no excuse for paying insufficient wages. Per the DBA, contractors have a legal obligation to adhere to the wage determinations and pay all correct prevailing wage rates.
Failure to do so could result in wage violations and penalties. These types of wage violations can occur in several ways, such as:
- Paying workers less than the prevailing wage rate
- Failing to pay overtime or other benefits
- Misclassifying workers as exempt from prevailing wage requirements (more on this in the next section)
When a contractor violates prevailing wage laws, workers may file anonymous complaints with the USDOL or other regulatory agencies. The contractor may then face an investigation and be required to pay back wages, damages, and penalties. These types of wage violations can also harm a contractor’s reputation, require them to self-report on bid documents, and make it difficult to secure future contracts.
Contractors must correctly classify their workers. This requires contractors to consider two key points about where workers stand regarding their classification:
- Whether or not the type of work qualifies for prevailing wage, and
- The specific craft classification (dependent on the type of work being performed)
Determining if workers are covered by prevailing wage comes down to a couple simple questions. Is the project federally funded (or assisted if we’re talking about the Davis-Bacon Related Acts)… and worth more than $2,000 in contract value? If the answer is yes to both, then prevailing wages are in order. Note: even when a project is indeed subject to prevailing wages, there are some exceptions for particular kinds of work. (i.e. certain types of trucking, testing, surveyor work, etc.). These exceptions can also fluctuate among states with their own prevailing wage laws. If you are ever unsure about whether a worker qualifies for prevailing wage, visit the U.S. Department of Labor (USDOL) for more info.
As for the craft classification, contractors are required to adhere to the USDOL’s defined craft classifications and their respective rates to ensure workers are being properly compensated for their actual work. These are listed on wage determinations and should be provided to the contractor by the project owner or public agency awarding the job. If you spot an error regarding worker classification (like a specific craft or type of work is omitted), you are required by law to write a letter to the USDOL to adjust the craft to the correct classification.
Contractors who fail to correctly classify their workers risk underpaying their workers and facing significant penalties. These mistakes might seem trivial at times. For example, if a contractor misclassifies an employee as a “tile setter” instead of a “tile finisher”, then it’s possible that employee is not making their full entitled wage – given that “tile setter” and “tile finisher” could have different wage rates. If mistakes like these are discovered during an audit or an onsite visit (yes, public agencies can occasionally show up on your jobsite unannounced to observe work and interview workers), the contractor could be subjected to an investigation and required to pay back wages and possibly even additional penalties for any mistakes caught.
Not Providing Fringe Benefits
In addition to paying their workers the prevailing wage rate for public works projects, contractors are also required to provide fringe benefits. These could include health insurance, retirement benefits, sick leave, and vacation pay. These benefits are designed to help ensure that workers are able to maintain a reasonable standard of living and that they are able to plan for their future.
The fringe benefit is listed in the wage determination of each craft. Fringe benefit violations can occur in several ways, such as:
- Failing to offer benefits to eligible employees
- Offering benefits that do not meet the minimum standards required by the wage determination
- Failing to make required contributions to employee benefit plans
When a contractor violates the fringe benefit requirements, again – workers can enlist the help of the USDOL or other state regulatory agencies. Contractors who are caught failing to meet this requirement will be required to pay restitution and penalties.
Curious about other common aspects of labor compliance that contractors typically struggle with? Stay tuned for our next blog in the series covering common prevailing wage mistakes…
And if you are looking to take an even deeper dive to learn the ‘ins’ and ‘outs’ of Davis-Bacon and prevailing wage compliance, check out our online courses at https://lcptracker.com/academy/.
These materials are being issued with the understanding that LCPtracker is not engaged in rendering legal or other professional services and is providing these for informational purposes only. If legal, accounting, or tax expert assistance is required, the services of a competent legal, accounting or tax professional should be sought.