5 Must-Know Prevailing Wage Facts for Contractors

Navigating prevailing wage is more than just checking boxes—it's about understanding the nuances to protect your business , ensure profitability and avoid devastating penalties. For contractors, subcontractors and accounting professionals on public projects, mastering these critical areas is essential for compliance and profitability.

1. It's Not Just About the Hourly Rate: Fringe Benefits are Key

Many contractors think prevailing wage means just paying the specified hourly rate. FALSE! A significant portion of the "prevailing wage" is often designated for fringe benefits.

Your Options: You must meet the total prevailing wage rate (basic hourly rate + fringe benefits) by either:

• Paying the entire amount in cash wages
• Paying the basic hourly rate in cash and contributing the remaining fringe benefit amount to bona fide benefit plans (e.g., health insurance, pension, vacation, training funds)
• A combination of both

The Big Mistake: Failing to properly account for and document fringe benefit contributions is a top reason for violations and back wage claims.

Smart Tip: Utilizing legitimate fringe benefit plans can often reduce your payroll tax burden compared to paying all cash. This is a powerful strategy for both compliance and cost savings. Ensure your benefit plans are "bona fide" – meaning they meet specific IRS and DOL criteria.

Calculation Clarity: When converting fringe benefits to an hourly equivalent, divide the total annual contribution for a benefit by the total hours worked by the employee on all projects (prevailing wage and private) during that year. This ensures accurate allocation.

2. Employee Classification is a Minefield: Get it Right!

Misclassifying workers is one of the most common and costly prevailing wage errors. It's not about job titles; it's about the actual work performed.

The Challenge: A worker might perform duties that fall into multiple classifications (e.g., a laborer also doing some carpentry).

The Rule: Pay the rate for the highest classification of work performed during any portion of the day, unless you have verifiable, precise timekeeping for each distinct classification. This means if a worker spends 15 minutes doing skilled electrical work, they might need to be paid the electrician's prevailing wage for the entire day unless you have meticulous records.

Working Foremen: If a foreman or supervisor performs more than 20% manual labor, they must be paid the prevailing wage rate for that labor. Don't assume salary exempts them from prevailing wage requirements.

Apprentices & Trainees: These workers can be paid less than the full prevailing wage, but only if they are registered in a bona fide apprenticeship or training program approved by the Department of Labor or a recognized state agency. Strict ratios of apprentices to journeymen must also be maintained. Failure to adhere to these rules means they must be paid the full journeyman rate.

Action: Conduct regular job-duty audits to ensure your classifications align with wage determinations. Train your supervisors on proper classification and timekeeping.

3. Certified Payrolls: More Than Just a Form

The WH-347 (or state equivalent) isn't just paperwork; it's your weekly attestation of compliance. Errors here signal deeper issues and invite scrutiny.

Accuracy is Paramount: Every field must be correct—employee names, classifications, hours worked (daily AND weekly), actual wages paid, fringe benefits and deductions.

Matching Records: Your certified payroll must precisely match your internal timekeeping records and payroll registers. Discrepancies are red flags that will trigger an audit.

Zero Hours Don't Mean Zero Reports: If no work was performed on a prevailing wage project for a given week, you still typically need to submit a "no work performed" certified payroll.

Beyond the Form: Be prepared to provide supporting documentation (timecards, canceled checks, benefit plan statements) during an audit. These are your primary defense.

Timely Submission: Late submissions can also lead to penalties or project payment delays. Establish a strict internal deadline for certified payroll submission.

4. Staying Updated is Non-Negotiable: Wage Determinations Change!

Prevailing wage rates are dynamic, not static. Using outdated wage determinations is a guaranteed path to non-compliance.

Frequent Updates: Federal (Davis-Bacon Act) and state wage determinations are updated regularly, sometimes monthly or even more frequently. Always obtain the latest determination for your project and location before work begins and monitor for changes.

Project Specific: Ensure you have the correct determination for the specific type of construction (building, heavy, highway, residential) and the specific contract/project. Different types of work on the same project might even have different rates.

Monitoring Changes: Set up alerts or regularly check official government websites (e.g., sam.gov for federal, state labor department sites) for new or modified determinations. Consider subscribing to industry newsletters or services that track these changes.

Impact: If rates increase mid-project, you may be required to pay the higher rates for work performed after the effective date of the new determination. This can significantly impact your project budget if not anticipated.

5. The Power of Proactive Record-Keeping & Technology

Your records are your defense in an audit. Don't wait until an inquiry to organize your documentation.

Comprehensive Records: Maintain precise daily time sheets, payroll registers, certified payrolls, proof of fringe benefit payments (e.g., invoices from benefit providers), apprenticeship agreements and all related correspondence.

Retention Period: Generally, records must be kept for at least three years after project completion, but some states require longer. Always adhere to the longest applicable retention period.

Leverage Technology: Manual tracking is prone to errors and incredibly time-consuming. Invest in robust construction accounting software that specifically handles prevailing wage calculations, certified payroll generation, and detailed record-keeping. Look for features like:

• Automated wage determination updates
• Ability to track hours by classification per employee per day
• Seamless integration with payroll and timekeeping
• Reporting features for audit readiness

Internal Audits & Training: Regularly conduct internal audits of your payroll and record-keeping processes. Provide ongoing training to your payroll staff, project managers and foremen on prevailing wage requirements and best practices.