California Assembly Bill 889: What to Know About the New Prevailing Wage Rules

Introduction

Signed into law on October 11, 2025, and effective January 1, 2026, the published Assembly Bill 889 (AB 889) announced updates and standards for annualization, fringe benefit credit calculations, fringe benefit documentation, and what counts toward benefit contributions. Below is a breakdown of what the bill does, how contractors are impacted, and best practices to navigate these changes. 

Table of Contents

• Introduction
• Annualization 
• How Annualization Appears on Both Public and Private Projects 
• Employer Documentation Requirements 
• Which Payments Count as Fringe Benefits 
• Collective Bargaining Agreement (CBA) Filing Requirements (Simplified) 
• Conclusion 

Annualization

Annualization is a calculation that converts an employer’s fringe benefit contribution into an hourly amount. The amount of employer payments must be divided by the total number of hours worked in a year on all projects, both public and private, not just the number of hours worked during that year on public works projects. 

Contractors aren’t required to provide benefits on prevailing wage projects. However, if they choose to offer fringe benefits on a prevailing wage job, they must calculate those benefits using proper annualization. 

This calculation must: 

• Be done on a yearly basis 
• Be completed separately for each individual employee because of varying benefits offered and hours worked

Calculation formulas can vary depending on the frequency that benefit payments are issued. Per standard, 2,080 annual hours are used to calculate hourly amounts (40 hours weekly x 52 weeks). 

How Annualization Appears on Both Public and Private Projects

Annualization is required for employers that claim a higher fringe contribution rate on public works than on their private projects unless one of the following exceptions applies: 

• The employer is contractually required to pay the higher rate on future private jobs. 
• The higher rate is required by a Project Labor Agreement (PLA).
• The payments are made to the California Apprenticeship Council (CAC).
• The Director of the Department of Industrial Relations determines that annualization would not serve the purpose of the law. 

Any exemptions to the annualization requirements above issued by the director prior to January 1, 2026, are revoked. 

Annualization applies to all employer-paid fringe benefits not paid directly to the worker, whether or not the employer provides those benefits on private jobs. 

• Exception: Defined‑contribution pension plans with immediate participation and immediate vesting do not need to be annualized. Employers may take full credit for contributions to these plans on public works even if they contribute less, or nothing, on private work. 

Employer Documentation Requirements

The employer is responsible for proving that its annualization calculation is correct. If the Labor Commissioner requests it, the employer must provide: 

• Records of employee hours on private construction
• Records of employer payments on private construction 

If the employer cannot produce these records, the Labor Commissioner may deny the fringe credit. 

Which Payments Count as Fringe Benefits

AB 889 amends Labor Code Section 1773.1 to define which per diem employer payments count toward fringe benefits, which include: 

• Health and Welfare 
• Pension 
• Vacation 
• Travel 
• Subsistence 
• Apprenticeship or other training programs authorized by Section 3093, to the extent that the cost of training is reasonably related to the amount of the contributions. 
• Worker protection and assistance programs or committees established under the federal Labor Management Cooperation Act of 1978 (29 U.S.C. Sec. 175a), to the extent that the activities of the programs or committees are directed to the monitoring and enforcement of laws related to public works. 
• Industry advancement and collective bargaining agreements administrative fees, provided that these payments are made pursuant to a collective bargaining agreement to which the employer is obligated. 
• Other purposes similar to those above if the payments are made pursuant to a collective bargaining agreement to which the employer is obligated. 

Employer payments (which can be credited toward the prevailing wage fringe requirement) include: 

• Irrevocable contributions the employer makes to a trustee or third party under a benefit plan.
• Reasonably anticipated costs of providing benefits under a written, financially responsible plan. 
• Required payments to the California Apprenticeship Council. 

These payments can count as a credit toward the prevailing wage, but no credit is allowed for: 

• Benefits already required by other state or federal laws 
• Payments for monitoring or enforcing public‑works laws unless made to a qualifying Labor‑Management Cooperation program 
• Industry advancement or CBA administrative fees unless required by a binding collective bargaining agreement 

Credits cannot reduce the required straight‑time or overtime wage. However, a contractor may increase fringe contributions and lower the base hourly rate without violating prevailing wage, if: 

• The increased contribution follows the terms of a collective bargaining agreement 
• The combined base rate and fringe still meet or exceed the prevailing wage (including overtime and holiday rates) 
• The contribution is irrevocable (unless corrected due to error) 

Employers may take credit for these payments even if they are not made in the same pay period, as long as contributions or costs are paid regularly (at least quarterly). 

Collective Bargaining Agreement (CBA) Filing Requirements (Simplified)

• Unions or worker representatives must file fully executed CBAs with the Department of Industrial Relations (DIR) for each craft or classification used on public works projects. 
• CBAs must be filed after they are signed and must be on file at least 30 days before the bid call to be considered in prevailing wage determinations.
• If the CBA isn’t finalized yet, a typeset final draft may be filed temporarily, along with a sworn statement confirming its effective date. 
• If a CBA has already been filed, the representative must also file all signed modifications or extensions that affect wages or holidays. 
• Failing to file a CBA or its updates does not invalidate a prevailing wage determination, as long as the information used to set the wage was accurate. 

Conclusion

AB 889 brings significant updates to California’s prevailing wage rules, reshaping how contractors calculate fringe credits, apply annualization, and maintain documentation. These changes raise the standard for accuracy and compliance on public works projects, making it essential for contractors to review their current practices and prepare for stricter oversight. Those who understand the new requirements and adjust early will be better positioned to stay compliant, avoid costly findings, and remain competitive in California’s public construction market. 

If your team needs assistance reviewing fringe benefit plans, updating annualization methods, or preparing for AB 889 compliance, our consultants are ready to support you. Reach out today to verify that your company is fully prepared for the new requirements.