Table of Contents
- Introduction
- What Is Minimum Wage and When Does It Apply?
- Understanding Prevailing Wage Requirements
- When Do You Pay Minimum Wage vs. Prevailing Wage?
- Conclusion
Introduction
The contents of the following blog come from our YouTube video.
With the applicability of prevailing wages expanding across industries and increasingly complicated regulations, it’s easy to get caught in the confusion of what wages apply when trying to figure out what you owe your workers. While minimum wages and prevailing wages are similar in concept, there are key differences between the two. Learn when to pay minimum wage or prevailing wage, how they differ, and how to stay compliant with labor laws on your projects.
What Is Minimum Wage and When Does It Apply?
A minimum wage is the lowest wage an employer can legally pay to their employees. Minimum wages can exist on different area levels, like federal, state, and local levels. The minimum wage is always applicable to employers in an area, and employers are required to pay the highest of the active minimum wages in their area. For example, if the federal minimum wage is $7.25, the state minimum wage is $14.50, and the city minimum is $15.25, the employer should pay $15.25, the highest of the three.
Understanding Prevailing Wage Requirements
While a minimum wage is applicable to areas, prevailing wages are applicable to specific trades. Prevailing wages are typically collected from the union wages in an area, typically gathered from local data. For example, a project subject to prevailing wage would require that an employer pays their workers, laborers, and mechanics the wages set for the trade they work in. Prevailing wages typically set a unique rate for each classification or trade. For example, laborers may be owed $24.00 and electricians may be owed $50.00.
When Do You Pay Minimum Wage vs. Prevailing Wage?
SCENARIO: A contractor has received federal funding for a project in 2015. They found that their project is subject to federal prevailing wages, the Davis-Bacon Act, and these wages have been set for the project.
In 2015, they owed $9 under the local minimum wage and $12 under the prevailing wage. In 2020, the local minimum wage became $13, but the prevailing wages were still $12.
Although the prevailing wage for the trade is $12, the employer must meet the minimum wage and pay $13.
Conclusion
It’s best practice to evaluate the highest rate you may be obligated to pay to avoid potential penalties or legal implications for underpayments. Be sure to review the minimum wages for your area and prevailing wages for your project to make sure you’re paying your employees in accordance with the legal requirements for the project. Have any questions? Let’s get in touch.
Helpful Links
Federal Minimum Wage: https://www.dol.gov/general/topic/wages/minimumwage
Davis-Bacon Act Prevailing Wage Determinations: https://sam.gov/wage-determinations