Avoiding Compliance Pitfalls of Prevailing Wage Laws

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Prevailing wage laws require construction workers on public projects be paid an amount equal to the “prevailing” wage.

The federal prevailing wage law, the Davis-Bacon Act, requires prevailing wage to be paid on all federal projects exceeding $2,000.Oregon’s equivalent, its “Little Davis-Bacon Act,” requires prevailing wage/benefit packages to be paid on “public works” projects greater than $50,000.

A contractor violating prevailing wage laws faces contract termination, debarment, and withholding of payments, in addition to fines, penalties, liquidated damages, and an award of attorneys’ fees.

Prevailing Wage Jobs
The first step to maintaining compliance with prevailing wage laws is to determine whether and which prevailing wage laws apply. Which law applies is based on the source of funding: federal, state, or local. However, a project may have various funding sources. For example, the Davis-Bacon Act applies when work is performed using funds in excess of $2,000, regardless of whether a federal agency owns the project. In other words, if federal money provides even a part of the funding, it may be subject to the Davis-Bacon Act.

Establishing Proper Prevailing Wage Rates
The prevailing wage rate is made up of two components: (1) an hourly base rate and (2) an hourly fringe benefit rate. A contractor can pay the prevailing wage in a number of different ways. First, the contractor may pay the total prevailing wage rate, including the fringe benefit amount, as cash wages. Alternatively, the contractor may credit the cost of a “bona fide” fringe benefit toward the hourly fringe benefit rate. Last, the contractor may use a combination of cash wages and “bona fide” fringe benefits to meet the prevailing wage.

The fringe benefit portion of the prevailing wage rate is complicated and often misapplied. For example, certain benefits are not considered “bona fide” (e.g., use of a company truck, tools, travel expenses, and cellular phone), so the contractor cannot use these benefits to calculate the prevailing wage rate.
Finally, the prevailing wage at the time of bid solicitation controls even if the project spans years and the prevailing wage has been subsequently adjusted.

Correct Labor Classification
The prevailing wage rate that applies to a particular worker depends on the labor classification of the work being performed. Since labor classification is based on the actual work being performed, it is common for a single worker to be classified in different ways. Unfortunately, not all work performed on a given project falls neatly into the pre-established classifications. One option is to classify the worker at the higher pay rate. This, however, may not be economically feasible. Another option is to identify the tasks that do not fit neatly into any classification at the beginning of the project and agree in advance on the appropriate classification for that specific task.

Proper Bookkeeping
Contractors must maintain certain records on prevailing wage projects. For example, the Davis-Bacon Act requires contractors to maintain records that include: (1) name, address, and social security number of each employee, (2) each employee’s labor classification(s), (3) hourly rates of pay (including rates of contributions or costs anticipated for fringe benefits), (4) daily and weekly numbers of hours worked (5) deductions made and (6) actual wages paid. Contractors must maintain these records for three years after the project’s completion. In addition, contractors must submit certified payroll records. Failure to maintain proper records exposes the contractor to sanctions when the inevitable audit rolls around at the end of the project.

When it comes to prevailing wage compliance, an ounce of prevention is worth a pound of cure. When facing a prevailing wage issue, a contractor should seek out experienced counsel to guide them through the compliance pitfalls.

Jacob Zahniser is an attorney in Jordan Ramis PC’s Dirt Law practice group. His practice focuses on construction and real estate litigation. He can be reached at (541) 550-7900 or jacob.zahniser@jordanramis.com.

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About Author

JACOB A ZAHNISER of Jordan Ramis PC

A litigator and trial attorney at Jordan Ramis PC, Jacob Zahniser focuses his practice on construction law and construction and real estate litigation, as well as handling insurance coverage disputes arising from construction defects. He can be reached at 541-550-7900, or via email at Jacob.zahniser@jordanramis.com. www.jordanramis.com

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