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California SB 35: What Contractors Need to Know About Prevailing Wage & Compliance

Multifamily housing under construction with a tower crane, alongside a completed apartment building.

California Senate Bill 35 (SB 35) reshaped the approval process for multifamily housing developments by introducing a streamlined, ministerial approval pathway for qualifying projects. While the bill is primarily viewed through a housing development lens, it carries significant compliance implications for contractors, especially those operating in the prevailing wage space.

Below is a practical guide to SB 35 focused on what contractors, subcontractors, and compliance teams need to know to stay compliant and audit ready.

Important Update: SB 35 Was Extended and Amended by SB 423

Before diving into compliance details, it’s worth flagging a development that changes how this law should be understood today: SB 35 is no longer a standalone statute operating on its original 2017 terms.

In October 2023, Governor Newsom signed SB 423 (Wiener), which took effect January 1, 2024, and substantially amended the streamlined ministerial approval process originally created by SB 35 (codified at Government Code § 65913.4). Some jurisdictions and planning departments now refer to the process as “SB 423 (formerly known as SB-35).”

Key changes contractors should know about:

  • The sunset date was extended a decade. SB 35 was originally set to expire on January 1, 2026. SB 423 pushed that expiration to January 1, 2036.
  • The old blanket labor standard was replaced with a tiered structure. Previously, SB 35 applied a single objective standard requiring prevailing wage and use of a skilled and trained workforce across covered projects. SB 423 restructured this into size- and height-based tiers (detailed in the Skilled and Trained Workforce section below), rather than a one-size-fits-all requirement.
  • A small-project exemption was added. Projects of 10 units or fewer that are not otherwise a public work are exempt from the prevailing wage, apprenticeship, and healthcare expenditure requirements entirely.
  • The coastal zone exclusion was removed, expanding the geographic reach of projects eligible for streamlined approval.

For contractors and compliance teams, the practical takeaway is this: prevailing wage still applies broadly, but which additional labor standards apply (skilled and trained workforce, apprenticeship utilization, healthcare expenditures) now depends on specific project size and building height thresholds rather than a blanket rule. The sections below reflect the current SB 423-amended framework.

What Is SB 35?

SB 35 allows qualifying multifamily housing projects to bypass discretionary approvals and move through a streamlined, by-right approval process if they meet objective zoning and affordability requirements.

Key features include:

  • Ministerial (non-discretionary) approvals
  • Strict timelines for local agency review (60–90 days depending on project size)
  • Requirements tied to affordability thresholds and housing production goals
  • Applicability to jurisdictions that fall behind on regional housing needs (RHNA)

Prevailing Wage Requirements Under SB 35

SB 35 explicitly ties streamlined approval eligibility to prevailing wage compliance.

When Prevailing Wage Applies

Under SB 35, developers must certify one of the following:

  • The project is a public work, OR
  • All construction workers will be paid at least the general prevailing wage for the applicable trade and location

This applies even when the project is privately funded.

Contractor Responsibilities

For contractors and subcontractors, this means:

  • Paying DIR-determined prevailing wage rates
  • Ensuring apprentices are paid the correct apprentice wage rates
  • Flowing prevailing wage requirements down to all subcontractor tiers
  • Including prevailing wage clauses in all contracts
  • Skilled and Trained Workforce requirements (if applicable)

Failure to comply can lead to:

  • Civil wage and penalty assessments
  • Liquidated damages
  • Enforcement actions by the California Labor Commissioner

Certified Payroll & Recordkeeping Requirements

SB 35 reinforces standard California Labor Code §1776 recordkeeping requirements.

Contractors must maintain and verify certified payroll records, make records available for inspection upon request, and retain documentation sufficient to support reported wages and classifications.

Best Practice: Go Beyond CPRs

As seen in similar compliance frameworks, certified payroll alone is not sufficient for audit protection. Contractors should also maintain:

  • Timecards and daily job logs
  • Worker classification documentation
  • Fringe benefit contribution records
  • Fringe benefit annualization calculations
  • Apprenticeship agreements and ratios
  • Subcontractor compliance documentation

Without these, contractors risk exposure during Labor Commissioner investigations, worker complaints, and potential audits.

Skilled and Trained Workforce (STW) Requirements

Under the pre-2024 version of SB 35, a single objective standard applied broadly across covered projects. SB 423 replaced that with a tiered labor standard based on project size and building height:

  • Projects of 50 or more housing units must meet apprenticeship-utilization and healthcare expenditure requirements for construction craft employees, either directly, or by being signatory to a collective bargaining agreement that already requires both. Each construction contractor must also maintain and verify payroll records pursuant to Section 1776 of the Labor Code, and submit payroll records directly to the Labor Commissioner at least monthly in a format prescribed by the Labor Commissioner in accordance with subparagraph (A) of paragraph (3) of subdivision (a) of Section 1771.4 of the Labor Code.
  • Buildings taller than 85 feet must utilize a skilled and trained workforce and hit certain percentage goals, or face penalties for non-compliance.
  • Projects of 10 units or fewer where the project is not otherwise a public work are exempt from the prevailing wage, apprenticeship, and healthcare expenditure requirements entirely.

What This Means

Rather than assuming a flat STW threshold applies, contractors need to check a given project against its unit count and building height to determine which labor standards apply. A 12-unit, 3-story project and a 200-unit high-rise can trigger very different obligations under the same law. All subcontractors on a covered project are still required to comply with whichever standards apply.

Reporting Obligations

Developers (and often contractors supporting them) must submit monthly compliance reports to the local jurisdiction and demonstrate adherence to STW requirements.

Failure to comply may result in:

  • $10,000/month penalties for missing reports
  • $200/day per non-compliant worker penalties

Subcontractor Compliance: Flow-Down Liability

As with other public works frameworks, SB 35 places responsibility on prime contractors to enforce compliance across all tiers. This includes collecting certified payroll from subcontractors, verifying wage rates and classifications, and ensuring proper contract language is in place.

If a subcontractor fails to comply, liability may flow upstream, particularly where oversight procedures are lacking.

Apprenticeship Requirements

SB 35 aligns with broader California apprenticeship requirements:

  • Proper apprentice-to-journeyman ratios must be maintained
  • Apprentices must be registered in approved programs
  • Wage rates must match applicable prevailing apprentice rates
  • Payment of training amount to applicable program or CAC

Noncompliance in this area is a frequent audit trigger and often overlaps with STW requirements.

Interaction with Other Regulations

SB 35 projects may also intersect with:

California Prevailing Wage (DIR)

Core requirement for all covered work. Includes:

  • Use of wage determinations
  • Public works enforcement framework
  • CPR and recordkeeping obligations

Davis-Bacon (Federally Funded Projects)

If federal funding is involved:

  • Federal prevailing wage requirements may apply concurrently
  • Dual compliance (state + federal) may be required

Section 3 (HUD-Funded Projects)

If HUD funding is used:

  • Hiring and contracting goals for low-income workers
  • Additional reporting and documentation requirements

Project Labor Agreements (PLAs)

If a PLA is in place, some enforcement mechanisms (e.g., payroll record provisions) shift to arbitration frameworks instead of statutory enforcement.

Audit & Enforcement Risk

Scrutiny under SB 35 enforcement can come through the following forms:

  • Public reporting requirements
  • Streamlined approvals tied to compliance certifications
  • Monthly workforce reporting (STW)

Common audit triggers include:

  • Payroll discrepancies
  • Worker complaints
  • Missing documentation
  • Misclassification issues

Penalties can include:

  • Back wages
  • Interest and fines
  • Debarment from future public works

Key Takeaways for Contractors

Contractors should approach these projects with a compliance-first strategy:

  1. Treat all SB 35 projects as high-compliance work. Even if privately funded, prevailing wage can apply.
  2. Strengthen recordkeeping systems. Certified payroll is not enough. Maintain full supporting documentation.
  3. Audit subcontractors proactively. Do not assume compliance. Verify it through every party.
  4. Prepare for Skilled & Trained Workforce tracking. Ensure workforce eligibility and reporting systems are in place.
  5. Align contracts with compliance requirements. Include all mandated language and obligations upfront.

Final Thoughts

Compliance under SB 35 requirements layers prevailing wage, workforce requirements, and reporting obligations. Contractors who succeed under SB 35 will be those who build compliance into project workflows early, maintain a well-documented paper trail of proof of compliance, and actively manage subcontractor risk.

As enforcement continues to evolve, partnering with experienced prevailing wage consultants can help ensure your projects stay compliant from bid to closeout. Connect with us to learn how you can get assistance in the compliance process.

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

capitol building image

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

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.

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California AB 2143 Overview

The contents of this blog post have been transcribed from our YouTube video, “California’s New Solar Regulation and Requirements: AB2143”  

Renewable energy is taking the construction space by storm and keeping up with regulations can be a tough feat, but we’re here to help. We’ll be discussing changes made to California’s net energy metering program that came into effect January 1st, 2024 in this overview of Assembly Bill 2143, also known as AB 2143. 

Table of Contents

Net Energy Metering Explained

Net energy metering is a tool that allows customers with renewable energy  systems, namely solar panels, to gain credit for solar projects exceeding 15 kW of energy generated that is fed back into the grid. So, extra energy gathered from a renewable energy source can be sold for credit. 

Applicability and Requirements

AB2143 is applicable to contractors entering into a contract to perform work on a renewable electrical generation facility or associated battery storage.  

The requirements include:  

• Paying Prevailing Wages  

• Maintaining and Verifying Payroll Records 

• Submitting digital copies of payroll records biannually  

Paying Prevailing Wages

Prevailing wages are the minimum rate required to be paid out to workers in a specific occupation, also known as a classification. California prevailing wage rates are issued by the Department of Industrial Relations, also known as the DIR. Not only are there required base rates assigned to each occupation type, but there are also fringe amounts and provisions that can differ per classification. For an in-depth review on prevailing wage, you can visit this video on our YouTube channel.

Maintaining and Verifying Payroll Records

The second requirement is the requirement to Maintain and Verify Payroll records. Payroll records must be accurate and display the following: 

• Employee name 

• Address 

• Social security number 

• Work classification 

• Straight time and overtime hours worked each day and week

• Actual wages paid 

They must also be signed under penalty of perjury, which is a legal statement by the signer verifying that all information on the payroll record is true.  

These payroll records must also be available for inspection or furnished upon  request to the awarding body and Division of Labor Standards Enforcement, also known as the DLSE. 

Biannual Payroll Submissions

Finally, each contract must submit digital copies of certified payroll records biannually. The dates for submission are July 1st and December 31st of each year.  The commission team that monitors Net Energy Metering projects will be retaining these records as public record for five years. 

So, to summarize the key points, prevailing wages must be paid at minimum to employees on renewable energy projects, payroll records of these wages must be kept and available upon inspection or request, and records must be submitted biannually. 

Penalties

While the requirements can be vast, violation of the requirements can pose major issues. AB 2143 is enforced through the following means: 

A civil wage and penalty assessment can be issued. So, if a contractor is found to be in violation, interest will accrue on all due and unpaid wages and the violator will be publicly listed by The Labor Commissioner. Construction workers cannot be underpaid and administrative complaints or civil action can be pursued for violation of the bill. 

Additionally, willful violation can result in revoked eligibility for the energy facility to receive service pursuant to AB 2143 Section 769.2(d).  

Exemptions

Please note, this bill is not applicable to the following (as derived from AB 2143 Section 769.2(f)):  

“  

• A residential renewable electrical generation facility that is eligible to receive service pursuant to the standard contract or tariff developed pursuant to Section 2827.1 and has a maximum generating capacity of 15 kilowatts or less of electricity. 

• A residential renewable electrical generation facility that is eligible to receive service pursuant to the standard contract or tariff developed pursuant to Section 2827.1 and that is installed on a single-family home. 

• A project that is a public work, as defined in Section 1720 of the Labor Code, and that is subject to Article 2 (commencing with Section 1770) of Chapter 1 of Part 7 of Division 2 of the Labor Code. 

• A renewable electrical generation facility that serves only a modular home, a modular home community, or multiunit housing that has two or fewer stories. 

“  

Conclusion

With everything discussed in mind, it’s important to be aware of and comply with the requirements of AB2143. Our team works closely with contractors through dozens of project types to assist in remaining compliant. If you would like in-depth assistance, please feel free to get in touch.