The Davis-Bacon Act and Prevailing Wage
The Davis-Bacon Act (DBA) was instituted in 1931 to ensure that contractors and subcontractors performing work on federally funded projects in excess of $2,000 pay their laborers and mechanics no less than the wages and fringe benefits paid for similar work performed on equivalent projects, in the same area. This not only includes contracts made directly with federal agencies, but it applies to any project that may receive federal assistance, such as the construction of hospitals or airports.
In order to stay on the right side of prevailing wage laws it is important that employers who need to abide by the DBA are compliant in the following areas:
Properly classify laborers and mechanics: This classification is determined by the type of work that is performed. Employees may perform work in more than one category and need to be classified as such.
Pay the prevailing wage including fringe benefits: Employees need to be paid for all hours worked, including the proper calculation of overtime wages. In addition, if they perform work in more than one category, the time spent in each must be accurately recorded.
Keep accurate records: Specific information must be recorded for each worker including their name, address, social security number, job classification, hours worked, deductions, and actual wages paid. These records need to be kept throughout the project and for three years after.
Provide certified payroll reports: Payroll reports must be sent weekly and need to include a “Statement of Compliance” (Form WH-347) signed by the employer or other party supervising the payment of wages.
Under the DBA, the penalties for those who do not pay the prevailing wage rate are expensive. Payment for the work may be withheld in order to compensate for the underpayment of wages to workers. Contracts can be terminated, and the contractor can be banned from any future federal work for up to three years after the violation. The federal government can also assess liquidated damages for unpaid overtime for projects over $100,000 at a rate of up to $29 per day, per affected employee.
Contractors and subcontractors should note that just because a project isn’t federally funded, it doesn’t mean a prevailing wage rate doesn’t have to be paid. Many states, including Pennsylvania, New Jersey, and New York, have their own prevailing wage laws to cover state-funded projects. Each state has their own rules and requirements that must be followed.
Also, there may be changes on the horizon for the Davis-Bacon Act. In March 2022, the U.S. DOL released a proposal to return to the original three-step method to determine the wage rate, rather than just relying on the weighted average. This proposed process will identify the prevailing wage rate by determining the following:
What is the wage rate paid to a majority of workers?
If there was no majority rate, the 30% rule is used. The wage rate paid to the greatest number of workers is used as long as it was paid to at least 30% of them.
If the 30% rule is not met, then the weighted average should be used.
If this proposal is accepted, the DOL will then issue new wage determinations.
If this seems like a lot to keep up with…it is. That’s why it is important to work with accountants and payroll providers who know the current rules and regulations and educate themselves on any changes that may present themselves in the future.