⚖️ Prevailing Wage — The Complete Guide
Prevailing wage laws require contractors on public works projects to pay workers no less than the locally established wage rate for their trade. Get it wrong and you're looking at back-pay penalties, debarment, and losing your ability to bid public work.
Prevailing wage isn't just a pay rate — it's a total compensation package. The rate includes base hourly wages plus fringe benefits (health, pension, vacation, training). You must meet the total — how you split it between cash and fringes is where the strategy lives.
What Is Prevailing Wage?
Prevailing wage is the hourly wage, benefits, and overtime that must be paid to workers on publicly funded construction projects. The rates are set by government agencies based on what workers in a specific trade and geographic area are typically paid.
| Term | Definition |
|---|---|
| Prevailing wage | Minimum total hourly compensation required on public works |
| Basic rate | The cash hourly wage portion |
| Fringe rate | The benefits portion (H&W, pension, vacation, training) |
| Total rate | Basic + Fringe = Total prevailing wage rate |
| Wage determination | The official document listing rates by trade and area |
Why It Exists
Prevailing wage laws were created to:
- Prevent government projects from driving down local wages
- Ensure fair competition (so low-bidders can't win by underpaying workers)
- Maintain quality standards by paying skilled tradespeople properly
- Support local labor standards and apprenticeship programs
Federal: The Davis-Bacon Act
The Davis-Bacon Act (1931) is the federal prevailing wage law. It applies to all federally funded or assisted construction contracts over $2,000.
When Davis-Bacon Applies
| Project Type | Threshold | Davis-Bacon Required? |
|---|---|---|
| Direct federal construction | Over $2,000 | Yes |
| Federally assisted (grants, loans) | Over $2,000 | Yes — via "Related Acts" |
| Federal highway (FHWA) | Over $2,000 | Yes |
| HUD-funded housing | Over $2,000 | Yes |
| EPA water/sewer projects | Over $2,000 | Yes |
| Military construction | Over $2,000 | Yes |
| State-funded only (no federal $) | Varies | No — but state PW may apply |
| Private construction | Any | No |
"Related Acts" — The Hidden Trigger
Over 60 federal statutes incorporate Davis-Bacon requirements, including:
- Federal-Aid Highway Act
- Housing and Community Development Act
- Clean Water State Revolving Fund
- National Housing Act
- Federal Airport Act
Many projects that seem state or locally funded actually have federal money flowing through them (grants, loans, subsidies). If any federal dollars touch the project, Davis-Bacon likely applies. Always verify the funding source.
How Federal Wage Determinations Work
- The Department of Labor (DOL) conducts wage surveys by trade and geographic area
- Wage determinations are published on SAM.gov (formerly WDOL.gov)
- Each determination lists trades, classifications, basic rate, and fringe rate
- Determinations are locked in at the time of bid opening or contract award
- Rates may be updated annually — but the locked-in rate applies for the contract duration
Reading a Federal Wage Determination
A typical entry looks like:
| Classification | Basic Rate | Fringe | Total |
|---|---|---|---|
| Carpenter | $42.50 | $22.85 | $65.35 |
| Electrician | $48.75 | $26.10 | $74.85 |
| Laborer — Group 1 | $32.00 | $18.50 | $50.50 |
| Operating Engineer — Group 1 | $52.00 | $28.30 | $80.30 |
Federal Compliance Requirements
| Requirement | Details |
|---|---|
| Pay rates | Meet or exceed the total prevailing wage (basic + fringe) |
| Certified payroll | Submit weekly WH-347 forms |
| Posting | Post wage determination at the jobsite |
| Recordkeeping | Maintain payroll records for 3 years |
| Apprentices | Must be registered in an approved program |
| Overtime | Time and a half after 40 hours/week (CWHSSA) |
| Subcontractors | Flow-down — subs must comply too |
State Prevailing Wage Laws ("Little Davis-Bacon")
28 states plus DC have their own prevailing wage laws that apply to state-funded construction, even when no federal money is involved.
States with Prevailing Wage Laws
| Strong PW Laws | Moderate PW Laws | No State PW Law |
|---|---|---|
| California, New York, New Jersey, Massachusetts, Illinois, Connecticut, Pennsylvania, Ohio, Washington, Oregon, Nevada, Minnesota | Maryland, Michigan, Missouri, Montana, Nebraska, Hawaii, Alaska, Maine, Delaware, Rhode Island, Wyoming, Vermont, New Mexico, Tennessee, Texas (limited), Wisconsin | Alabama, Arizona, Arkansas, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Utah, Virginia, West Virginia |
Several states have repealed or weakened prevailing wage laws in recent years (Indiana 2015, West Virginia 2016, Kentucky 2017, Wisconsin 2017). Others have strengthened them. Always verify current law for your state.
California — The Gold Standard
California has the most comprehensive state prevailing wage program:
| Feature | California Requirement |
|---|---|
| Threshold | Over $1,000 (public works) |
| Rate source | DIR (Department of Industrial Relations) |
| Filing | Electronic Certified Payroll Reports (eCPR) |
| Deadline | Within 30 days of each pay period |
| Registration | Must register with DIR as a public works contractor |
| Apprentices | Mandatory apprentice ratios |
| Penalties | Up to $200/day/worker for violations |
| Debarment | Can be barred from public work for up to 3 years |
See the full California Prevailing Wage & DIR Guide for details.
New York
| Feature | New York Requirement |
|---|---|
| Threshold | Over $0 (any public works project) |
| Rate source | NYS DOL Bureau of Public Work |
| Filing | Certified payroll to contracting agency |
| Supplements | Must pay all listed supplemental benefits |
| Penalties | Civil penalties + criminal prosecution possible |
How to Look Up Prevailing Wage Rates
Federal Rates
- Go to SAM.gov → Wage Determinations
- Select state and county
- Select construction type (Building, Heavy, Highway, Residential)
- Find your trade classification
- Note both the basic rate and fringe rate
State Rates (California Example)
- Go to dir.ca.gov/oprl/DPreWageDetermination.htm
- Select journey type (Journeyman or Apprentice)
- Select craft/classification
- Select county
- Note effective date and expiration date
Prevailing wage rates change — often annually. If your project spans multiple rate periods, you may need to pay the updated rate once the old one expires. Some contracts lock rates at bid time; others require you to follow current rates throughout the project. Read your contract.
Meeting the Prevailing Wage Requirement
You must pay the total prevailing wage (basic + fringe). You have flexibility in how you meet it:
Option 1: Pay All Cash
Pay the entire prevailing wage amount as cash wages.
| Component | Amount |
|---|---|
| Basic rate | $42.50 |
| Fringe as cash | $22.85 |
| Total cash wage | $65.35/hr |
Pros: Simple. No trust fund administration. Cons: Higher payroll taxes (FICA, FUTA, workers' comp on fringe-as-cash).
Option 2: Bona Fide Fringe Benefits
Pay the basic rate in cash and provide bona fide fringe benefits worth the fringe amount.
| Component | Amount |
|---|---|
| Cash wage (basic rate) | $42.50 |
| Health & Welfare (to trust fund) | $12.00 |
| Pension (to trust fund) | $8.00 |
| Vacation/holiday | $1.85 |
| Training fund | $1.00 |
| Total compensation | $65.35/hr |
Pros: Lower payroll taxes (fringes paid to trust funds aren't subject to FICA/FUTA). Workers get real benefits. Cons: Administrative burden. Must actually fund the benefits.
Option 3: Combination
Pay basic rate plus some fringes to plans, and the remaining fringe shortfall as cash.
Most experienced prevailing wage contractors use Option 2 or 3. Paying fringes to bona fide benefit plans reduces your payroll tax burden significantly — often saving 10–15% on labor costs compared to paying everything as cash.
Common Prevailing Wage Violations
| Violation | Penalty |
|---|---|
| Paying below prevailing wage | Back pay + liquidated damages (often 2x) |
| Wrong classification | Back pay at correct classification rate |
| Falsifying certified payroll | Criminal penalties — fines and imprisonment |
| Not submitting certified payroll | Contract withholding, civil penalties |
| Not posting wage determinations | Civil penalties |
| Kickbacks | Criminal prosecution under Anti-Kickback Act |
| Repeated violations | Debarment from public work (3 years federal) |
The Real Costs of Non-Compliance
Beyond penalties, getting caught means:
- Contract termination — losing the project and all remaining billings
- Debarment — can't bid public work for 3 years (devastating if public work is your bread and butter)
- Reputation damage — word travels fast in construction
- Personal liability — owners and officers can be personally liable
Prevailing Wage Best Practices
Before the Project
- Verify all funding sources — federal, state, or local triggers
- Obtain the correct wage determination for the project location and type
- Confirm rate lock-in date vs. rate update requirements
- Register with state agencies (DIR in California, etc.)
- Set up payroll systems for prevailing wage tracking
- Train field supervisors on proper classification
During the Project
- Post wage determination at the jobsite
- Track hours by classification daily — not from memory at week's end
- Submit certified payroll weekly (federal) or per state requirements
- Monitor rate expirations and update as required
- Audit subcontractor certified payrolls
- Keep daily time records signed by workers
After the Project
- Retain all payroll records for minimum 3 years (5 years in some states)
- Retain certified payroll copies
- Respond to any audit requests promptly
- Document any classification disputes or corrections
Prevailing Wage and Estimating
Prevailing wage projects require different estimating than private work:
| Factor | Impact on Estimate |
|---|---|
| Higher labor rates | 20–60% higher than market rates in many areas |
| Fringe costs | Must factor in trust fund contributions or cash equivalents |
| Certified payroll admin | Budget 2–5% for compliance overhead |
| Apprentice requirements | Lower apprentice rates help, but ratio limits apply |
| Overtime | 1.5x the basic rate (not total rate) for federal; varies by state |
| Travel/subsistence | Some determinations include zone pay or travel allowances |
When estimating prevailing wage work, always calculate your fully burdened labor rate including: base wage + fringes + payroll taxes on base wage + workers' comp + general liability + overhead. The total cost per hour is typically 1.4x to 1.7x the prevailing wage rate.
Tools and Software
Manual prevailing wage tracking is a recipe for errors. Modern tools handle:
- Automatic rate lookups by project location and trade
- Classification tracking per employee per day
- Fringe calculation (plan vs. cash)
- Certified payroll generation (WH-347, state forms)
- Rate expiration alerts
- Compliance dashboards
Related Resources
- Certified Payroll Guide — WH-347 forms and filing requirements
- California Prevailing Wage & DIR — CA-specific compliance
- Worker Classifications — Understanding trade classifications
- Fringe Benefits in Construction — Calculating and managing fringes
- Government Contracts Guide — Bidding and managing public works
- Union Construction Guide — Working with unions
- Overtime Rules for Construction — ST/OT/DT calculation rules