The Davis-Bacon Act is a federal law requiring contractors who receive government funds to pay their workers at least $7.25 an hour. It also sets minimum wages for construction projects of over $2,000. The act was passed in 1931 as part of President Herbert Hoover's New Deal program.
The Davis-Bacon Act has been amended several times since its passage. In addition to raising the wage floor from $5.00 per hour to $7.25 per hour, Congress has raised the threshold for triggering the requirement to 2 million dollars. The act also requires that all new public works contracts must be posted with the Department of Labor before they can begin work on them.
What Does the Davis-Bacon Law Require?
The Davis- Bacon Act requires that any contractor or subcontractor working on a project funded by the US Government must pay employees at least $7.50 an hour. The law applies to all construction projects with contracts in excess of $2,000.
Who Must Pay Under the Davis-Bacon?
Any contractor or subcontractor who receives money from the Federal Government must comply with the Davis-Bacon requirements. These include:
- State agencies
- Local governments
- Federally recognized Indian tribes
- Private companies doing business with the federal government
- Nonprofit organizations receiving federal funding
- Public housing authorities
- Housing corporations
- Any other entity that receives federal financial assistance
What Are Davis-Bacon Related Acts?
The Davis-Bacon Related acts are collectively referred to as ‘Davis-Bacon'. There are several different types of Davis-Bacon-related acts, including the Davis-Bacon Act, the Davis-Bacon Prevailing Wage Act, the Davis-Bacon Construction Contract Labor Law Amendments Act, and the Davis-Bacon Emergency Relief Act.
Although people will sometimes say 'Davis-Bacon' interchangeably with 'prevailing wage,' numerous other federal, state, and local laws govern wage rates. These laws include roughly 60 statutes that cover various aspects of labor standards, such as minimum wage, overtime pay, child labor, apprenticeship training, safety, health care, unemployment compensation, workers' compensation, family medical leave, etc.
These laws help ensure that contractors comply with labor standards during construction projects. For example, the Davis-Bacon Prevailing Wage Act provides that contractors pay laborers the same hourly rate regardless of whether the project is federally funded or privately financed.
What Are Davis-Bacon Wages?
Davis-Bacon wages are based on the wages the Secretary of Labor determines to be prevailing for workers performing labor of a character like that specified in the contract, 40 USC 3142. This contract includes all construction contracts for public works projects valued at $2,000 or more. A contractor must pay the same wages to employees doing comparable work regardless of whether it uses union or nonunion labor.
The federal government sets Davis-Bacon wage rates and maintains them over time, while state and local governments set additional wage requirements.
Wage determinations are posted online at the US Department of Labor. Contractors may also use cash to meet fringe requirements. State and local wage requirements apply to federally assisted construction projects.
What is a Davis-Bacon prevailing wage?
The Davis-Bacon Act requires contractors working on federally funded construction projects to pay laborers and mechanics no less than the "prevailing wage," defined as the wage paid to employees doing work of similar character in the locality where the work is performed. These wages include the base hourly rate and additional fringe benefits such as health insurance, pension contributions, and vacation pay.
A prevailing wage determination is published annually by the Secretary of Labor. These determinations will help to calculate the overall wage rates for federal contracts. A contractor must pay the prevailing wage rate to all laborers and mechanics employed on a project covered by the Davis-Bacon Act.
In addition, the contractor must provide the same fringe benefits to those employees as it provides to similarly classified employees under state law.
Davis-Bacon prevailing wage determinations are published annually by the Office of Management and Budget (OMB). These determinations list the base hourly wage rate, fringe benefit rates, and other requirements for different classifications of laborers and mechanics. For example, the OMB lists the base hourly wage rate for laborers and mechanics as $12.50 per hour. In addition, it specifies that employers must provide certain fringe benefits such as health insurance and paid vacations.
Prevailing Wage Requirements
The US Department of Labor's Wage and Hour Division (the WHD) has proposed new rules for the Davis-Bacon Act (DBA) and related laws. These proposed changes would be the first comprehensive regulatory review of these laws since they were enacted in 1931.
The DBA sets the minimum wage rates to be applied to laborers and mechanics who perform covered labor in the covered subdivisions of the state where the covered works are performed. Since 1935, WHD has surveyed construction contractors using one of these three methods to determine prevailing wages:
- The 50 percent rule—the salary paid to most workers.
- The 30% rule — pay rate for at least 30 percent of the contractors.
- The weighted average rate.
Penalties for Violating Davis-Bacon Act
The US Department of Labor continually punishes companies for violating the Davis-Bacon act. If you violate the Davis-Bacon Act by paying less than the prevailing wage, there are severe penalties, including fines and more:
- Paying back wages
- Contract termination
- Ban from participating in federal contracting for up to three years
Construction payroll software and Davis-Bacon wage requirements
Davis-Bacon wage requirements can become complicated and time-consuming as businesses keep track of the hours worked by every employee and report those numbers to the government. Any inaccuracies in your payroll reports could cause severe issues because project payments may be held back, or you might be barred from future bids.
The complexity of the regulations makes it easy for companies to overlook one important detail: paying employees correctly. A recent survey found that 80% of construction firms need help understanding the law. And while many contractors do try to follow the rules, they often fail because they need more tools to calculate worker payroll accurately.
That's where construction accounting software comes into play.
By streamlining processes and making collecting and analyzing data easier, you can ensure that your workforce gets paid accurately. Deltek construction accounting software allows businesses to effectively manage accounting data and automate all financial processes to ensure accurate payment and reporting.
How Deltek Supports the Construction Industry
Deltek ComputerEase is the leading construction software provider of job costing accounting, project management, and payroll services—delivering solutions that help customers connect and automate the project lifecycle that fuels their business. Deltek ComputerEase’s payroll services enables you to streamline tasks and processes with employees in ways only we can offer. Whether it is delivering taxes, employee payments, direct deposits and year-end documents or consulting on prevailing wage and certified payroll, Deltek ComputerEase construction payroll experts will help you every step of the way.
If you are currently using a generic accounting solution that’s built for standard accounting processes, you will undoubtedly benefit from switching to Deltek ComputerEase, a dedicated construction accounting solution that includes WIP reporting. Contact us today to learn how Deltek ComputerEase can help you to boost your profitability.