Table of Contents
- Introduction
- Misconception 1: “Prevailing wage doesn’t apply to me”
- Misconception 2: “Only government projects mandate prevailing wage compliance”
- Misconception 3: “Compliance means just paying the prevailing wage rate”
- Misconception 4: “Prevailing wage rates are fixed and don’t change”
- Misconception 5: “The contractor is responsible only for their direct employees”
- Conclusion
Introduction
The contents of this blog have been transcribed from our YouTube video.
Avoid costly compliance mistakes. Learn the top 5 prevailing wage misconceptions and how to stay on the right side of the law.
Prevailing wage requirements can admittedly be complicated and confusing to follow. Regulations can vary based on funding type, type of facility being constructed, and location of work being performed amongst a variety of other factors. Although the requirements differ depending on the applicable prevailing wage laws, there are common misconceptions that are found amongst contractors on all types of projects.
Misconception 1: “Prevailing wage doesn’t apply to me”
Once prevailing wage is effective on a project, the body responsible for upholding prevailing wage requirements can enumerate the requirement in their contracts. In certain cases, prevailing wage applies even if it’s not explicitly stated in the contract.
Under the Inflation Reduction Act, the taxpayer attempting to claim the increased credits is responsible for making sure all contractors on the project are paying prevailing wages to their employees and meeting the apprenticeship requirements. The taxpayer will be required to submit documentation showing that these requirements were met in order to receive the increased credit.
A question our team frequently receives is: “Do independent contractors or material suppliers need to be paid prevailing wage?” In California, an employee’s job title on a project does not affect their prevailing wage requirement applicability. If they complete physical labor on the project site, they must be paid prevailing wages for the classification of work performed. Under the Davis Bacon Act, material suppliers become subject to prevailing wage if employees engage in construction work at the site of the work. Their laborers and mechanics employed at the site of the work would be subject to Davis-Bacon labor standards in the same manner as those employed by any other contractor or subcontractor.
Misconception 2: “Only government projects mandate prevailing wage compliance”
There are prevailing wage projects that exist outside of a federal scope. State-by-state and local prevailing wage laws, even down to the city, can apply to a project. Alternately, the Inflation Reduction Act prevailing wage requirements applies to all clean energy projects, including private projects, where the increased credit is being claimed by the taxpayer on the project. Under the IRA, the funding source does not decide the applicability of prevailing wage requirements – the facility being constructed does.
Misconception 3: “Compliance means just paying the prevailing wage rate”
While paying the prevailing wage rate is a piece of the puzzle, it isn’t the only thing that decides if a contractor is compliant. Keeping adequate records or complete documentation of your efforts to pay the prevailing wage is another factor. This documentation can include check stubs, time cards, fringe benefit remittances, authorizations from employees allowing deductions from their pay, and a myriad of other forms of documentation.
The purpose is to have accurate records that paint the full picture of how an employee received their pay, so keeping this paper trail is a major part of prevailing wage requirements. This can also include records showing that any additional requirements were met, such as the employment of apprentices.
Misconception 4: “Prevailing wage rates are fixed and don’t change”
Though it varies widely depending on the applicable prevailing wage law, prevailing wage rates can change due to multiple factors. Some states or localities require annual increases issued on the same date each year, while other wage determinations include periodic increases throughout the year and footnotes indicating percentage additions to the rate of pay.
In another instance, if an employee is being paid as a laborer, but they assist an Electrician and handle equipment specific to the Electrician’s scope of work, this employee may be owed an Electrician’s rate of pay for their time spent completing Electrician work.
Prevailing wage rate changes can occur for several reasons, and it’s best practice to verify your rates and what may potentially cause your rates to change with the awarding body or project owner.
Misconception 5: “The contractor is responsible only for their direct employees”
In many cases, if a contractor hires a subcontractor, and additional subcontractors are hired to work on the project under them, the contractor would be liable for ensuring that all subcontractors working on the project under them are paying prevailing wages. Contractors can face penalties of different varieties, like underpayment interest or a per hour penalty for not meeting certain requirements. Including specific prevailing wage clauses in contracts is one of the most useful tools for upholding prevailing wage requirements at all levels of a project.
Conclusion
As prevailing wage regulations evolve, remaining aware of the changes and understanding the complexities helps avoid costly mistakes. As you work toward compliance, make sure you avoid these misconceptions. Need help navigating prevailing wage compliance? Contact our team for expert guidance