Prevailing Wage in Construction: What It Means and What It Costs You

Prevailing wage laws require contractors on covered public projects to pay workers at rates set by a government agency, not at the market rate you negotiate with your crew.

The rates are determined by surveys of local wages in each trade and published as wage determinations. They include a base hourly rate and a fringe benefit rate, which covers health insurance, pension, vacation, and other benefits. Both must be paid.

If a worker is paid $30 per hour in base wages but the prevailing wage rate for their classification is $38, you owe the difference. If you also owe $12 per hour in fringe benefits that you are not providing through a bona fide benefit plan, you owe that too.

At the federal level, the Davis-Bacon Act covers construction contracts with the federal government over $2,000. The Contract Work Hours and Safety Standards Act extends these rules to federally assisted construction projects where the federal share exceeds a threshold.

Most states have their own prevailing wage laws, called Little Davis-Bacon Acts, that apply to state-funded public works. Thresholds vary. Some states apply prevailing wage to any public contract; others have minimum dollar amounts.

The trigger is not always obvious. A school funded partly by federal grants, a highway project with federal highway funds, or a water treatment plant with federal SRF financing can all be subject to federal prevailing wage even if the contract is with a city or county.

Read the wage and labor sections of any public RFP. They will tell you whether Davis-Bacon or a state prevailing wage law applies and will often attach the applicable wage determination.

Federal wage determinations are published on SAM.gov. You look up rates by state, county, and construction type. There are separate determinations for building, heavy, highway, and residential construction.

The RFP should include the applicable wage determination as an attachment or reference a specific determination number. If it does not, you can pull it yourself before bidding.

Each determination lists wage rates by job classification. Your workers must be classified correctly. An electrician doing electrical work must be paid the electrician rate, not a general laborer rate. Misclassifying workers is the most common prevailing wage violation.

Calculate the all-in prevailing wage cost for each worker classification you will use. That is the base rate plus the fringe rate.

If you provide benefits through a bona fide benefit plan, you can credit those against the fringe requirement. If you pay all wages in cash with no benefits, you owe the full base plus fringe rate in cash.

Compare that to what you would normally pay your crew. The difference is the premium you need to add to your bid. On a job with a lot of labor content, this can be significant.

Also account for certified payroll. Prevailing wage jobs require you to submit weekly certified payroll reports documenting every worker, their classification, hours, and pay. This is administrative work. Factor in the time it takes to produce it.

Every prevailing wage job requires certified payroll records submitted weekly to the contracting agency. The form is WH-347 for federal jobs.

You must keep payroll records for three years after project completion. Audits happen, and the burden is on you to prove compliance.

If you use subcontractors, you are responsible for their prevailing wage compliance too. Get certified payrolls from every sub, review them, and keep copies.