Prevailing Wage in Construction

As a cornerstone of labor regulations, prevailing wage not only shapes the financial landscape of the construction industry but also plays a pivotal role in ensuring fair compensation for workers.

In this article, we delve into what prevailing wage and the Davis-Bacon Act are, how prevailing wage is determined by the Department of Labor (DOL), the benefits of prevailing wage for both workers and employers and how construction accounting software can play a helpful part in managing prevailing wage.

Prevailing wage in construction refers to the hourly wage, benefits and overtime compensation that must be paid to workers on public construction projects. These projects are typically funded by federal or state government entities and prevailing wage laws are designed to ensure that workers receive fair and competitive compensation for their labor. Prevailing wage laws aim to prevent unfair competition among contractors based on low labor costs and maintain a skilled and stable workforce within the construction industry.

The Davis-Bacon Act, a federal law passed in 1931, was one of the earliest prevailing wage laws in the United States that requires contractors and subcontractors working on federally funded construction projects to pay their laborers and mechanics the prevailing wage rates and fringe benefits as determined by the U.S. Department of Labor.

These prevailing wages are determined by the U.S. Department of Labor and are based on surveys of wages and benefits paid in each particular locality. The intent of the act is to ensure that construction workers performing government work are paid fair wages, while also preventing unfair competition among contractors bidding for jobs based on low labor costs.

The Davis Bacon Act is widely considered to be one of the most important labor laws governing construction industry wage standards and it serves as an effective tool for protecting the rights of workers across the country.

In the United States, prevailing wage rates for construction are determined primarily through the Davis-Bacon Act and related laws.

Here's how prevailing wage rates are determined under this framework:

1. Classification of jobs: Construction jobs are categorized based on skill levels and duties. The U.S. Department of Labor (DOL) provides a list of construction job classifications, each with specific tasks and responsibilities.
2. Data collection: The U.S. DOL conducts surveys to collect wage and benefit data from contractors, subcontractors, labor unions and other relevant sources in the construction industry. These surveys gather information on the wages paid to workers in various construction trades.
3. Data analysis: The collected data is analyzed to determine the prevailing wage rates for each job classification. The analysis considers factors such as job duties, geographic location, skill level and any fringe benefits that workers might receive.
4. Publication and review: Once the analysis is complete, the U.S. DOL publishes the prevailing wage rates for each job classification and geographic area. These rates are made publicly available and serve as the basis for compensation on federally funded construction projects.
5. Public comment: The published prevailing wage rates are subject to a public comment period, during which contractors, unions, workers and other stakeholders can provide feedback on the proposed rates. This step adds transparency to the process and allows for potential adjustments based on input.
6. Finalization: After considering public comments and making any necessary revisions, the U.S. DOL finalizes the prevailing wage rates. These rates become legally binding for contractors and subcontractors working on federal construction projects.
7. Enforcement: Contractors and subcontractors must adhere to the prevailing wage rates and provide accurate and complete payroll records. The Wage and Hour Division (WHD) of the U.S. DOL enforces compliance by conducting audits, investigations and inspections.
8. Updates: Prevailing wage rates are typically updated annually or as needed to reflect changes in the construction industry and economic conditions. The data collection, analysis and review process is repeated for these updates.

It's important to note that prevailing wage laws and practices can also vary at the state and local levels in the U.S. Some states have their own prevailing wage laws that apply to state-funded projects. Contractors and employers need to be aware of the specific laws and regulations that apply in their jurisdiction.

For the most accurate and up-to-date information on prevailing wage rates in the U.S., it's recommended to refer to the official resources provided by the U.S. Department of Labor and relevant state labor agencies.

Manage Construction Payroll Complexities

Learn best practices for managing prevailing wage/certified payroll and union payroll.

Watch On-Demand

Prevailing wage laws in the United States are designed to ensure that construction workers receive fair compensation and working conditions on government-funded construction projects. There are several benefits associated with prevailing wage laws for construction workers:

1. Fair compensation: Prevailing wage laws require contractors and subcontractors to pay construction workers a wage rate that reflects the local or regional standards for the type of work being performed. This ensures that workers are paid a fair and competitive wage that reflects the value of their skills and labor.
2. Prevention of wage undercutting: Prevailing wage laws prevent contractors from undercutting wages to win contracts. This prevents a race to the bottom where contractors would lower wages to the detriment of workers.
3. Stabilizing local economies: Fair wages paid to construction workers can contribute to the stability of local economies. When workers earn decent wages, they have more disposable income to spend in their communities, supporting local businesses and economic growth.
4. Skilled workforce retention: By offering competitive wages, prevailing wage laws can help retain skilled construction workers within the industry. This can prevent a shortage of experienced labor, ensuring that projects are completed efficiently and to high standards.
5. Attracting qualified workers: Fair wages can attract more qualified workers to the construction industry. When wages are attractive, individuals are more likely to consider careers in construction, helping to maintain a skilled workforce for the future.
6. Health and safety standards: Prevailing wage laws often come with regulations that address health and safety standards on construction sites. These regulations aim to protect workers from hazardous conditions and ensure their well-being.
7. Better quality of life: Fair wages can improve the quality of life for construction workers and their families. Workers are better able to provide for their basic needs, access healthcare and invest in their education and professional development.
8. Reduced reliance on social services: When workers are paid fair wages, they are less likely to rely on government assistance programs, reducing the burden on public resources.
9. Support for local communities: Construction workers are often members of local communities. When they are paid fair wages, they are more likely to contribute positively to their communities, both economically and socially.
10. Stronger labor relations: Prevailing wage laws can contribute to healthier labor relations by providing a clear framework for compensation and working conditions. This can lead to fewer labor disputes and a more stable working environment.

While prevailing wage laws in the United States primarily focus on ensuring fair compensation and working conditions for construction workers on government-funded projects, there can be certain indirect benefits for contractors and employers as well. Here are some potential benefits from their perspective:

1. Skilled workforce availability: Prevailing wage laws can contribute to a stable and skilled construction workforce. Fair wages attract and retain skilled workers, which can enhance the overall quality of work on projects. Contractors can benefit from having a dependable pool of qualified labor to choose from.
2. Reduced turnover: When construction workers are paid fair wages, they are more likely to stay with a project and an employer for a longer duration. This reduces turnover rates, which can save contractors money on recruitment, training and lost productivity.
3. Improved reputation: Contractors and employers who consistently adhere to prevailing wage requirements can build a positive reputation for fair labor practices. This can enhance their standing in the industry and make them more attractive to clients and partners.
4. Compliance with Regulations: Adhering to prevailing wage laws helps contractors avoid legal issues and penalties associated with non-compliance. This can save them from facing fines, legal disputes and damage to their reputation.
5. Stable work environment: Prevailing wage laws often come with regulations related to working conditions and safety standards. Following these regulations can contribute to a safer and more stable work environment, reducing the risk of accidents and injuries.
6. Potential for skilled apprenticeship programs: Prevailing wage laws sometimes include provisions that support apprenticeship and training programs. Contractors and employers can benefit from a skilled pipeline of workers who have been trained in-house or through partnerships with unions and vocational schools.
7. Long-term relationships: When contractors treat their workers well and pay fair wages, it can foster positive relationships and loyalty among workers. This can lead to longer-lasting partnerships and collaborations on future projects.
8. Positive public relations: Demonstrating a commitment to fair wages and labor practices can generate positive public relations for contractors. This can be particularly important for companies working on high-profile projects or seeking to attract socially conscious clients.
9. Enhanced productivity: Well-compensated workers are generally more motivated and satisfied, which can lead to increased productivity and higher-quality work. This can ultimately contribute to project success and client satisfaction.
10. Better performance on bids: While prevailing wage laws may increase labor costs, the potential for higher-quality work and a more skilled workforce can give contractors a competitive advantage when bidding on projects.

It's important to note that while there are potential benefits, prevailing wage laws also come with compliance requirements that can add administrative complexity and potentially increase project costs. Contractors and employers should carefully assess both the benefits and challenges of working on projects subject to prevailing wage regulations.

Construction accounting software can significantly streamline the process of dealing with prevailing wage requirements. Here's how such software can make managing prevailing wage easier for contractors and employers:

1. Automated payroll calculations: Prevailing wage laws often require complex wage calculations based on various factors such as job classifications, fringe benefits and geographic locations. Construction accounting software can automate these calculations, ensuring accurate and consistent wage determinations for different roles and projects.
2. Job cost tracking: Prevailing wage projects can have multiple labor categories and cost components. Job costing can help track and allocate labor costs accurately to specific jobs or projects, making it easier to maintain compliance and generate accurate reports.
3. Fringe benefits management: Many prevailing wage laws require contractors to provide certain fringe benefits in addition to wages. Construction accounting software can help manage these benefits, such as health insurance, retirement contributions and other perks, ensuring accurate tracking and reporting.
4. Real-time reporting: Construction accounting software can generate real-time reports that show how prevailing wage requirements are being met on different projects. This makes it easier to monitor compliance and address any issues promptly.
5. Certified payroll reports: Prevailing wage projects often require contractors to submit certified payroll reports to government agencies. Construction accounting software can generate these reports with the necessary details, reducing manual paperwork and the risk of errors.
6. Timekeeping integration: Some construction accounting software, like Deltek ComputerEase, can integrate with timekeeping systems, making it easier to track hours worked by different employees on various job tasks. This integration helps ensure accurate wage calculations and streamline the payroll process.
7. Automated compliance alerts: The software can be programmed to send alerts and reminders about upcoming deadlines for certified payroll submissions, wage rate updates and other compliance-related tasks.
8. Efficient record keeping: Prevailing wage projects require extensive record keeping. Construction accounting software can centralize and organize records related to wages, benefits, job classifications and other compliance-related documentation.
9. Streamlined audits: In case of audits or inspections related to prevailing wage compliance, having all the necessary data and reports readily accessible in the software can expedite the process and reduce the stress associated with audits.
10. Accuracy and error reduction: Manual calculations and data entry can lead to errors, which can result in compliance issues and penalties. Construction accounting software reduces the risk of errors by automating calculations and data management.
11. Customization: Different prevailing wage laws can have unique requirements. Construction accounting software can often be customized to accommodate specific jurisdictional requirements, ensuring that the software aligns with local regulations.
12. Overall efficiency: Dealing with prevailing wage regulations can be time-consuming and complex. Construction accounting software streamlines the administrative tasks associated with compliance, allowing contractors to focus on project management and execution.

Ultimately, construction accounting software helps contractors and employers navigate the intricacies of prevailing wage regulations more efficiently, reducing the administrative burden and minimizing the risk of non-compliance.

See How Deltek ComputerEase Can Help Keep You Compliant

Take your business to the next level with Deltek ComputerEase, the industry-leading accounting software for construction.

Request Demo