What Are Prevailing Wages?

Among some employers, the terms "prevailing wages" and "minimum wage" occasionally get confused. "Minimum wage" specifically refers to the federal minimum wage for employees established by the Fair Labor Standards Act, as well as the minimum wage set by individual states. When there's a difference between federal and state minimum age rates, employees must be paid the higher of these two rates.

"Prevailing wages" are rates of pay established by the U.S. Department of Labor, based upon a geographic location for a specific class of labor and type of project. The federal government and many states adopted prevailing wage standards to avoid situations where non-union employers or contractors could offer the lowest bid on a project by undercutting employee compensation and compromising or neglecting safe working conditions.

Generally speaking, prevailing wages surpass federal or state minimum wage rates.

Types of Employees Covered

According to the Davis-Bacon Act of 1931, all contractors or subcontractors hired for federal projects over $2,000 "must pay their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area." Typically, the types of workers covered by the prevailing wage law include those in:

• Construction
• Building
• Building services (cleaners, gardeners, security guards, janitors, workers transporting office equipment, fossil fuels, or refuse to and from publicly owned facilities)

Individual states also have a say in determining the types of employees covered (such as part-time, temporary, or seasonal hires), as well as independent contractors.

Also, according to the Department of Labor, prime contracts exceeding $100,000 require that contractors and subcontractors pay laborers and mechanics, as well as guards and watchmen, "at least one and one-half times their regular rate of pay for all hours worked over 40 in a workweek."

Fringe Benefits Included

Per federal guidelines, contractors can pay less than a specified hourly pay rate if the value of accompanying fringe benefits is sufficient to create a combined total equivalent to the required prevailing wage. Fringe benefits can encompass a contractor's spending for medical or hospital care, payment for occupational illness or injury, disability and sickness insurance, life insurance, vacation and holiday pay, and pensions.

"These benefits can be paid in either of two ways," notes the Citizens Budget Commission of New York. "The employer can make a supplemental payment according to the hourly rate specified on the prevailing wage schedules, or the contractor can elect to make a contribution to a benefit plan on the employee's behalf."

Do Davis-Bacon and prevailing wage standards affect your business? This can be a difficult area to navigate, particularly for small business owners who are too busy to stay current on changes in federal and state legislation.