Glossary
Prevailing wage
A prevailing wage is a legally set minimum for public works: for each trade classification in each geographic area, a government agency publishes an hourly base rate plus a fringe benefit rate that contractors and subcontractors must pay workers on covered projects. The rates come from a wage determination attached to the solicitation.
The purpose is to stop public contracts from being won by underbidding local labor rates. The effect on a bidder is that labor cost is largely fixed by the wage determination, so competition shifts to productivity, crew mix and overhead.
The short version
- Prevailing wage is set per trade classification and per locality, and both parts matter. Misclassifying a worker is the most common violation.
- The obligation flows down to every subcontractor at every tier, and the prime is usually liable for a sub's underpayment.
- Certified payroll reports are typically due weekly and are a condition of payment.
- Fringe benefits can be paid as bona fide benefits or as additional cash wages, but they must be paid.
Why it matters to a bidder
Prevailing wage is where estimating error turns into legal exposure rather than just thin margin:
- Classification drives cost. The difference between a laborer rate and an operator rate on the same task can be $20 an hour plus fringes. Price to the classification the work actually requires.
- Certified payroll is administrative overhead. Budget for a payroll clerk who understands the state's reporting system. Late or defective reports stop progress payments.
- Apprentice ratios are enforced. Paying apprentice rates without a registered apprenticeship program and the required journeyman ratio is a standard audit finding.
- Penalties compound. Underpayment findings typically bring back wages plus per-day per-worker penalties, and repeat findings can lead to debarment from public work.
Our fuller treatment is in the prevailing wage guide.
A real example
An electrical subcontractor on a community college project classifies four workers pulling and terminating low-voltage cable as sound and communications installers rather than as inside wiremen. A state labor audit eighteen months after completion reclassifies them, assessing back wages plus statutory penalties per worker per day. The prime contractor, having already closed the job, is held jointly liable and pays. The subcontractor's bid was low by roughly the amount of the assessment.
Where state and local practice differs from federal
Two separate systems can apply to the same project, and sometimes both do:
- Federal: the Davis-Bacon Act and the Davis-Bacon Related Acts, using U.S. Department of Labor wage determinations.
- State: roughly two-thirds of states have their own prevailing wage law, often called a little Davis-Bacon act, with its own rate schedules, its own thresholds and its own reporting system. Several states have repealed theirs, and a handful of others have none.
Thresholds vary enormously by state, from a few thousand dollars to several hundred thousand, and some states apply different thresholds to different types of work or different classes of public body. When both federal and state rules apply, the general rule is that the higher rate governs for each classification. Never assume the wage determination in the bid package is the only one that applies.
Common questions
Which projects are covered?
Public works above the applicable threshold. Whether a project is public works can turn on ownership, funding source or the public purpose of the facility, and definitions differ by state.
Do I pay prevailing wage on a federally funded local project?
If a Davis-Bacon Related Act attaches to the funding program, yes, even though the contract is with a city or district. Check the grant conditions.
Can fringe benefits be paid in cash?
Yes. You may pay the fringe portion as additional cash wages or provide bona fide benefits of at least equal value, but the total must meet the determination.
What is certified payroll?
A weekly signed report listing each worker, classification, hours and wages paid, certified as accurate under penalty. It is usually a condition of payment.