What Are Prevailing Wages?

Prevailing wages have been around in the United States since 1931 when the federal government created the Davis Bacon Act. In the Davis Bacon Act, contractors and subcontractors who are working on a federally funded project that costs over $2,000 must pay their laborers the locally prevailing wages and fringe benefits of the state for corresponding work on similar projects in the area. This pay includes the contract work, overtime work hours, and employee benefits.

The wage rates are set from surveys that are taken by laborers, contractors, and union workers in the area. Each county in the United States offers these surveys to workers every three years. After the laborers, contractors and union workers complete the surveys, the wages are then calculated in order of classification to determine the prevailing wage. This generally works based on an average for the workers in the county but here is a breakdown of the classification method:

• The Majority Wage of the Largest City in the County: If more than half of the wages reported in the largest city of a county are worked at one wage rate, then that is the going rate for wages in the entire county.
• The Average Wage of the Largest City in the County: A weighted average wage is calculated using data from the largest city in a county. The hours that are worked at that wage are used as the weight to comprise this data. This option is only used if there is no Majority Wage in the largest city of the county.
• County Average: When there are no hours worked documented within the county’s largest city, the hours worked are calculated using county wide data.
• Existing Wage Rate: As a last resort, if there is no data available within the county, then the county wage continues will remain the same for the following three years until potential new data is available for calculations.

The wages are published on August first and February first every year and go into effect thirty days after publication. It is a necessity to have the wages published so that adjustments can be made to the rates that are based on the surveys taken, wage changes, and changes to any rates that are based on a union majority.

Many critics complain about the way the wages are set, stating that it is a waste of the government’s resources because the wages inflate the labor costs. However, research has shown that is not the case. The studies that have been performed utilize a cross-sectional approach that compares contracts subjected to a prevailing wage with contracts that are out of season or regular work period. Another form of research has been to use a time series approach, or to study whether contract costs have changed due to a repeal of a prevailing wage requirement. Due to these studies, results have been found that instead of compromising the government’s resources, the prevailing wages actually increase government revenues, elevate worker’s technical skills within the industry and provide a safer working environment.

However, there are some problems that can arise with Prevailing Wages. The contractors could classify the laborers or mechanics improperly, have inadequate record keeping, fail to pay the full prevailing wage, neglect to maintain documentation of the workers and apprenticeships that are taking place under the contract, leave the payroll unfulfilled, or are delinquent updating the Davis-Bacon poster and applicable wage determination.

The Department of Labor has a way of ensuring that contractors follow the protocol for the Prevailing Wage system so that should an error be made, it is swiftly corrected to ensure the workers and electricians are paid on time. The Copeland “kickback” Act prohibits contractors from neglecting to give the workers the compensation they are entitled to under their contract. Contractors are required to submit a weekly statement of the wages that are paid to each employee under the Davis Bacon and Related Act.

In 2009, there was a final rule instated by the United States Labor and Wage Division that states no employee’s private information shall be released in the weekly statements. This is to ensure the employee’s safety at all times, particularly regarding identity theft. No social security numbers, phone numbers, or addresses shall be included in the weekly report from the contractors. Instead, employees are to be given an individual identifying number for tracking purposes. Generally, it is the last four digits of the contract workers’ social security number. It is the Labor and Wage division’s hope that the identifying number will substantially limit the possibility of identity theft.

Additionally, the Department of Labor has regulatory and oversight authority under the Reorganization Plan of 1950. The Department of Labor can investigate compliance issues at any given time under President Truman’s plan. The federally contracting or assistance administering agencies have daily tasks and responsibility to enforce the Davis Bacon labor standards.
A lot of local and state governments have required the pay of contracted workers for many years. It wasn’t until 1931 that the United States government found a way to ensure that basic right for employees who work under contract. This was in part due to the great depression and the dire need that families find a way to ensure some form of income during those harsh times. The number of skilled construction workers have increased and state tax revenues have been enhanced as well. Recently, the prevailing wages have evolved to ensure that not only every contracted employee making over $2000 for a job is guaranteed their contracted pay, but they also have their identity protected so that they can work safely and efficiently on the job.