Published date: 08/28/2024

The United States employs various mechanisms to safeguard workers’ rights. Prevailing wage is one of the most crucial for those working in public works construction, but just like any industry, there are unethical practices that can undermine these laws. Kickbacks are one of those practices.

What Are Kickbacks? 

Kickbacks are illicit payments made to someone or some organization in return for facilitating a business arrangement or transaction. In the context of labor and employment, they typically involve an employer demanding that an employee return a portion of their compensation – in some form or another.  

Kickbacks can take various forms, including: 

1. Direct Payments: Employees return a portion of their wages directly to the employer after receiving them. 

2. Impermissible Deductions: Employers apply deductions that are not permissible by the US Department of Labor (USDOL), illegally decreasing an employee’s take-home pay. 

3. Inflated Employment Costs: Employers inflate the prices of services they are providing with their employees, thereby reporting them on required reports like certified payroll reports at a higher rate than what they are actually being paid.

4. Unrecorded Work Hours: Employees are forced to work additional hours without proper documentation or compensation, which effectively lowers their overall hourly wage rate and violates prevailing wage laws. 

Food for thought: Like many ethical dilemmas, the immorality behind the concept of kickbacks is not difficult to grasp. The tricky part, however, is that it may not always be so blatantly obvious. Even someone without any malicious intent could unknowingly initiate a kickback. In the case of #2 above, for instance, perhaps a payroll administrator is not aware that they were applying an impermissible deduction. Perhaps they were trained incorrectly. Maybe they were just doing it “the way the company has always done it”.  

The Relationship Between Kickbacks and Prevailing Wage 

The construction space is a competitive scene. While kickbacks can occur in any industry, they can sometimes be a bit more glaring in public works.  

By design, Davis-Bacon and prevailing wages help even the playing field; they work to prevent employers from using the exploitation of workers as a means to compete. But unfortunately, as with any law, it doesn’t necessarily stop “bad actors” from trying. Kickbacks directly undermine the purpose of prevailing wage laws by effectively:  

1. Reducing the wages that workers receive and consequently impacting their ability to support themselves and their families.

2. Fostering a climate of mistrust and fear in the workplace; many workers are fearful of asking too many questions about their pay, especially if they have been told by others to “keep quiet and keep their head down”.

3. Promoting an environment where companies that follow the law and pay their workers the prevailing wage are at a competitive disadvantage to those that don’t.

4. Minimizing the impact that public funds can have on local economies by resulting in less disposable income that workers will have to spend on goods and services within their communities.

Preventing Kickbacks 

To safeguard the integrity of prevailing wage laws and protect workers from kickbacks, several measures can be implemented: 

1. Ensuring a Thorough Understanding of the Legal Consequences: Employers who engage in kickbacks may be violating both state and federal labor laws, which can result in severe legal consequences. These may include fines, disqualification from working on future public works contracts, and even criminal charges. Understanding what is truly at stake can help prevent both willful deception and honest mistakes. 

2. Worker Education: Workers should be informed about the legal wage rates, fringe benefits, and the protections against retaliation. This can be achieved through workshops, informational pamphlets or employer provided online resources.  Empowered with knowledge, workers are more likely to recognize and report potential exploitation. 

3. Clear Communication and Reporting Channels: Establishing clear, accessible, and confidential channels for reporting violations is essential for facilitating quick responses and resolutions. This includes helping ensure workers on a project feel safe enough to report something if they feel they might not be receiving the full compensation they are legally entitled to. Ensuring anonymity and confidentiality can encourage more workers to come forward.  
4. Regular Internal Assessments or Project Audits: Conducting regular internal assessments or periodic, unannounced audits and inspections of public works projects can help detect and prevent kickback schemes. Audits often review items like payroll records, applicable worker classifications, daily logs, timesheets, etc. to help monitor compliance with prevailing wage laws. Project owners and prime contractors can also walk the project site and interview workers privately to verify the accuracy of the reported information. 

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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.

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