Laws, classifications and rates: A complete guide for prevailing wages determination

Construction areas with intensive labor have a sense of prevailing wages for the classification based on hourly or weekly rates. It is not always easy to keep track of payments made to different parties. We are all aware of the fact that a construction project has multiple stakeholders involved. There are estimators, designers, and architects. For the completion of construction work, equipment and labor are the two most important factors. Contractors and subcontractors remaining equally important. The wages are determined given the laws of different countries and states. Around the globe, countries have their own labor laws and wage determination mechanism. Today we are going to discuss this important idea and the laws that govern the determination process. The US states have their own thresholds but the law that governs it all is the Davis-bacon act of 1931. In this detailed piece of writing, we are going to discuss and enlist the important laws and details associated with the Davis-bacon law, the wage rates, Davis-bacon wage determination, labor classification and wage determination for construction specified labor. It is important to have all the legal and detailed information before starting working on big construction projects. As the wages are determined in case of projects that value at $50000 or above, the classifications are important to understand. So keep reading.

Also Read: How to start a construction business in 2021?

What is meant by prevailing wages?

In order to understand the whole concept and laws of what this is and how this works, we have to start with the simple idea of what these terms refer to.

It is defined as the hourly wage or the benefits or overtime payment made to the labor and workers of that area. It is referred to as a standard wage paid to similarly employed workers in a specific occupation for the areas where the employment opportunity is intended. It is paid to the majority of them and mechanics are also included in this class. It is also referred to as the union wage. The regulatory authorities established this concept. These authorities regulated the work and wages for every trade and occupation that is involved while the process of construction. It includes even the truck drivers and regulates their wages as well.

Prevailing wages by labor classification:

Classification of labor is done under the Fair Labor Standard Act. Fair labor standard act is a federal law applicable to each state in the US. It covers important information related to the type of payment for the labor and worker. It also includes the methods for the calculation of these wages.

Classified under three main headings that are listed below.

  • Exempt: As the name suggests, the workers under this classification do not receive any overtime pay. There are, however, exceptions to this. Exceptions are made in case of executives, administrators, professionals, computer operators, or outside sales.
  • Non-exempt: Under this classification, workers receive the pay for overtime. However, as the time limit is 8 hours as per the standard time, they will receive it on working above 8 hours.
  • Independent contractors: Under this class, the employees are not required to pay insurances, taxes, and other benefit costs to the independent contractors.

Consequences of misclassification:

The misclassification of these wages can pose the possibility of loss on the worker’s side. It can lower the pay for the worker. It can reduce the benefits and protections for them as well. It can result in the incomplete payment made to the exempt workers. It includes overtime as well. The independent contractors are also not paid for all the work hours. In addition, they can stay deprived of social security payments and also the required benefits.

Prevailing Wage laws by the US states:

The federal law determines federal rates. This law is termed as the Davis-Bacon Law. IN addition to this federal law, several states have passed jurisdictions. These are termed as the Little Davis-Bacon laws. These laws determine the statutory thresholds in terms of the threshold amount. These wages by the state are regulated with the help of federal law. In order to draw a clear picture of how the wage rates are determined, we have to first build a basic understanding of the law.

This federal law establishes the requirement for paying these local wages on public works projects for laborers and mechanics. The project amount stands at $50000 or above. This law applies to the contractors and the sub-contractors who are working on federally funded projects.

Since the law increases the cost of federal construction projects, workers earn higher from this. The annual increase stands at an average of $1.4 billion.

Now we are going to look at the little bacon-Davis laws that are enacted in place by different US states.

There are many states that have no law in place related to this concept. These states include Alabama, Arkansas, Colorado, Florida, Georgia, Indiana, Kansas, Oklahoma, Utah, Virginia, and others. 25 states do not have the wage laws or any specific threshold amount.

Connecticut, Delaware, Maryland, Nevada, and Vermont have a range of $100,000 to $1,000,000.

Alaska, Maine, Minnesota, Missouri, Montana, New Mexico, Ohio, Oregon, Pennsylvania, Tennessee, and Wyoming have a range of $25000 to $75000.

California, Hawaii, New Jersey, Rhode Island have a range of $1000 to $2000.

Whereas, Illinois, Massachusetts, Nebraska, New York, Texas, and Washington have no threshold amount.

An important point while reading and implementing these laws is to know that these laws are only applicable to the state-funded projects. That is to say, wherever the state money is involved in the projects that are beneficial to the public, such as roads or public buildings, these laws are being applied there. Under the law, the threshold is set at a minimum of $2000. That is to say, that for any public construction work that is more than this amount, the wages must be paid. The law is binding for the states where the public work of the federally funded project is involved.

Areas covered by the Davis-Bacon Act:

Four main areas are covered by the Davis-Bacon act. These areas are related to the construction and the laws are applied here. These include the Residential sector, Heavy construction, buildings, and highway. Many classifications are done for craft positions. These are listed through the crafts as a plumber, cement mason, labor, painter, carpenter, electrician, insulator, concrete finisher, lather, welder, etc. Truck drivers are also included in this classification of crafts.

Wage and hour division Agency:

The US Department of Labor has a wage and hour division agency in place for the wage data. The agency is responsible for collecting and disseminating the data regarding wages. This agency has a number of procedural steps through which it not only collects the data but also analyzes it for errors and issuance of wages. Those steps are as follows:

The agency devises a detailed plan for the survey and schedules it. The planning for conducting a survey is done carefully in order to include the wages rates that are either updated or changed. In the next step, the surveys are conducted for the local prevailing data of wages and also the bargaining systems. These are then referred to the federal wages for their area. Wages reflect the local economy.

As the data is received related to the wages, it is further clarified and analyzed. The respondent’s data presents the different factors that are important in the determination and issuance of wages. After careful analysis of the data, the wage determination is then issued.

Payroll submission:

Under the law, it is extremely important to do a payroll submission for the project that must contain the necessary information related to the construction project. It is a two-page document. On the first page, it is required to list all the necessary information related to employee information. The classification of the work hours that have been utilized is also included on the first page of the payroll document.

On the second page, it is extremely important and necessary to write a statement of compliance. This statement must be authentic and original.

Many agents who are there to help get this right for submission list the necessary information for the payroll submission. The information must contain the worker’s name and identification number. It must also include the right and correct classification of wage decisions for each worker. The information related to the work hours must be there as well. To make it specific, total work hours, these can be daily or weekly must be listed in the payroll document that you are going to submit.

If you have made any deductions in the wage, you are required to mention that in the payroll as well. In addition to that, you are required to mention the net and gross pay as well.

Prevailing wages determination for construction-specific labor:

For its determination, the important concept that must always be kept in mind is that not every project is going to be included in the process of determination. The project inclusion sometimes depends on the funding amount or the committed funds by the state. Sometimes it is independent of the budget limitations. There are two possible scenarios for that as well. One, if the state has committed the funds for the project, the project is included for the determination. In the case of non-funding by the state, the project is excluded. The maintenance work with local workers is also excluded from the determination.

The required amount for deciding the fate of prevailing wages determination by the state is $50,000 or more as we mentioned earlier. If the amount committed is less than this, the project is not included. If there is any maintenance work that requires the local workers, it is also excluded. The building can be a public building.

The state funds the whole construction project that gets included. The prevailing wages determination process is related to the bid document that is submitted through the bidding process. Therefore, through the document, the owner or the employee has all the information related to the bidding and the wage rates.

The determination of wages includes the minimum hourly wages for labor. It also includes the benefits for the construction workers. According to the county data of wage rate by the Maine Labor Department, the laborers including helpers and tenders received a benefit of $1.04 with a minimum wage of $16. Similarly, the skilled laborers received a benefit of $2.79 with a minimum wage of $18.05. A communication equips installer received a benefit of $3.16 on a minimum wage of $23.0. A carpenter received a benefit of $3.16 on a minimum wage of $23.00. These statistics are included to develop a better understanding for you how the wage determination helps the workers and the laborers working on state-funded projects.

Prevailing wage rates:

The prevailing wage rates are categorized into four main categories. These wages are generated against these categories and in accordance with the counties. The four main classifications for the wage rates are:

  • Building 1: One or two-family homes
  • Building 2: other than one or two-family homes.
  • Highway and earthwork.
  • Heavy and bridge.

These are the main classifications for the wage rates. Under these main classes, buildings are further divided. We are going to list some of them here for a better understanding of the concept.

Highway and earthwork

The highway and earthwork include the following areas of construction:

  • Alley construction
  • Concrete construction: roads, highways, public sideways, and streets.
  • Grading for highway streets and runways.
  • Sidewalk construction
  • Athletic fields.
  • Brush cleaning or cutting
  • Drainage project construction
  • Manhole construction
  • Pond construction
  • Soil compacting
  • Trail building
  • Bridlepath construction
  • Golf course construction
  • Trenching
  • Land leveling
  • Resurfacing streets and highways
  • Parkway construction
  • Street maintenance or repair.
  • Clearing of land
  • Cutting right of way
  • Land reclamation
  • Trailer parks and campgrounds
  • Guardrail construction on highways

The list is long. However, we have listed some of them here for your understanding.

Heavy and bridge:

This area includes many of the projects related to the heavy construction as is evident by the name. It also has a long list of construction areas and requires time for coverage. We are also going to list some of them here.

  • Bridge construction
  • Causeway construction and structural support
  • Overpass construction
  • Tunnel construction
  • Underpass construction
  • Aqueduct construction
  • Cable laying construction
  • Cable laying construction
  • Natural gas compressing station construction
  • Pipeline construction
  • Pole line construction
  • Pipe laying construction
  • Sewage collection and disposal line construction
  • Conduit construction
  • Distribution line construction
  • Telephone line construction
  • Power line construction
  • Radio transmitting towers
  • Water main line construction
  • Blasting except building demolition
  • Canal construction
  • Central station construction
  • Hydroelectric plant construction
  • Flood control projects
  • Furnace construction for industrial plants.
  • Industrial incinerator construction
  • Irrigation project construction
  • Jetty construction
  • Kiln construction
  • Levee construction
  • Light and power plant construction
  • Lock and waterway construction
  • Marine construction
  • Oil refinery construction
  • Oven construction for industrial plants
  • Petrochemical plant construction
  • Petroleum refinery construction
  • Railway road board construction

The list is long and lengthy for this as well. However, we have listed some of the construction classifications for a better understanding of the scope of the project under each classification for the wage rate.

Payrolls are required to be submitted for each job of construction that is accomplished under either one of the construction specifications.

Programs that require prevailing wage determination:

The wage rate is obtained by submitting a request to the National Prevailing-Wage center. These can also be obtained by submitting a request to an online wage library. Prevailing wage rates are determined for the H-1B, H-1B1, or E-3 programs. The submission must be done at the same time as filing the labor condition application. Temporary agriculture programs are not granted the wages determination issuance.

Process of wage determination:

According to the Department of Labor, in order to obtain the prevailing wage determination, there are multiple options available. Employers can follow either of these steps.

They can request a wage from the National Prevailing-Wage Center.

They can look at the survey done by an independent authority and use that for a wage.

They can explore and use any other source of information that is legal and authentic.

Safe-Harbor status:

There are many concepts that come handy when obtaining a determination form from the NPWC. One of the concepts is of Safe-Harbor. The safe-Harbor status is awarded to the employers that have obtained this kind of wages from NPWC. This status makes them exclusive of any challenge to the validity of their wage. The US Department of Labor’s wage and hour division will not have any jurisdiction to challenge the validity of this if applied through proper channel.

Penalties for contractors for not paying wages:

There are strict laws in place for the payment of wages, despite these laws, many sectors in construction industry record violations because of either the nature of the government contract or the areas of exposure that these fields have. The act covers many areas related to maintenance and repair work in the field of construction but there are many technicalities involved.

There are penalties in the law for the kinds of violations that are committed at the end of contactors. According to the New York Labor Law, if a contractor is found in negligence of his legal duty or has committed any violation related to the wage rate and payment of the wages, his contract would stand terminated. He must be excluded from ass the DBA covered projects for a period of three years and he will be liable to pay the costs as wages that he owes to the unpaid workers. Falsification of such records may evoke civil or criminal persecution for which the penalties result in imprisonment.

There are also severe penalties under the Federal False Claims Act. These include heavy payments under liabilities and liquidated damages.

Union and prevailing wages:

These wages are not the wage rates prevailing in that area. Instead, these wages generally paid to the union workers in that area. The word itself is a misnomer. The areas where non-union workers are at work, they do not have wages for the projects. The repeal of wage laws negatively affects union workers.

The reason for this is that under the California Wage Law the calculation of wages is done based on mode, which is also regarded as the modal rate. The modal rate is the single wage rate that is the most common in a given area. This differs from the methods of average and the middle numbers and is highly favorable for the union workers. This can be simply understood by the quote that hypothetically speaking, the mode method gives the rate of at $37.63 for the wages that lie in the range of $20 to $40.

Based on this simplified calculation and example, it can be safely established that these wages are usually seen as a favor for the union rates and are often higher than the market rates. The single rates become the wage if established in a region.

In the state of California, the cost of construction increases due to these wages. The reason for this is that the workers are paid more when it comes to the hourly rates with the wage and hence their benefits are doubled as compared to the non-prevailing ones. The cost increase recorded at 40% of the construction cost.

401K and determination of fringe benefits:

Fringe benefits are a common term when talking about employment benefits. Companies set up these types of benefits for their professionals.  Fringe benefits refer to the incentives or add-ons that are a form of compensation paid at the end of the employment period of the professionals. In addition to this, there are many additional incentives for employees other than wages and salaries. Health insurances, bonuses, and cars are types of fringe benefits.

401k is also a type of fringe benefits and it is the plan for savings after retirement. This method allows the workers and professionals to save money for their life after retirement taking advantage of tax relaxations and deferments. The employer manages the 401K plan and is the sponsor of the plan.

The method of determination of fringe benefits is usually the mathematical calculations. The percentage is calculated using the method of division by the annual salary of the employee. All you need to do is to add up the cost of the fringe benefits to a year and divide it by the employer’s annual salary. Multiply it with 100 to get the percentage. There you have the percentage for annual fringe benefits calculation.

Prevailing wages and public/private jobs:

There is a huge difference between the public and private jobs and their methods and amounts of payments. Public area projects are governed under the laws that state that the employees must be paid equal amounts for the same job opportunities. The job specifications or nature may vary and hence the pay for that will vary as well but the laws prevail for governing the wages in the public sector. Whereas in the private sector, there are no such laws and the payments vary even in case of the same job opportunities. This causes the selection bias problems for the employers as well as the employees. These wages have benefits attributed to the jobs and hence are practiced in the United States of America.

In this piece of writing, we have listed all the important information related to wages. This includes the basic concept and understanding of the prevailing-wages, wages by the labor classification, which includes the exempted, non-exempted, and independent contractors based on the work hour’s limit of eight hours. We have also discussed the laws that the United States has in place for this concept and the laws by the states. In addition, the process and benefits of the prevailing wage determination. It is extremely important to have the legal and necessary information related to wage matters. The laws are clear and the classifications are made public for better understanding. It is important to keep in mind the benefits that are associated with the determination. According to the county data of prevailing wage rates gathered and presented by the Maine Bureau of Labor standards by the state of Maine, the wage rate for B2 class of construction has shown an average of $10 to the workers associated with different trades and occupation. Hence, keeping in view the importance of this information for worker’s benefits, laws and regulations must be observed.

Here is to building safe and in accordance with legal standards.