Prevailing Wage
Minimum wage rate for construction and service workers on government-funded projects, set by the Department of Labor.
Prevailing wage laws require contractors and subcontractors performing work on federally funded or assisted construction, service, or supply contracts to pay workers at least the locally prevailing wage rates and fringe benefits for corresponding work on similar projects in the area. The federal prevailing wage framework is established by the Davis-Bacon Act (1931) for construction workers and the Service Contract Act (1965) for service workers on federal contracts.
The Davis-Bacon Act applies to federal construction contracts exceeding $2,000, requiring payment of the 'prevailing wage'—the wage rate and fringe benefits paid to the majority of workers in the same trade in the same geographic area, as determined by the Department of Labor through wage surveys. Fringe benefits include health insurance, pension contributions, vacation, holiday pay, and other benefits—contractors can satisfy the fringe obligation through direct cash payments, qualified benefit plans, or a combination.
The Service Contract Act (SCA) applies to contracts over $2,500 for services performed in the U.S., requiring payment of wage determinations issued by the Department of Labor for covered service employees (janitors, security guards, food service workers, etc.).
Many states have enacted their own prevailing wage laws applying to state-funded construction projects, often with lower dollar thresholds and covering more worker classifications than federal law.
Prevailing wage compliance requires: identifying applicable wage determinations for each contract and location, classifying all workers to the correct trade/occupation, paying at least the prevailing wage for each classification, maintaining certified payroll records (Form WH-347) documenting hours worked, wages paid, and fringe benefits for all workers, and submitting weekly certified payrolls.
Violations can result in contract debarment, back wage assessments, and False Claims Act liability for federal contractors.
FAQs
What is a certified payroll and when is it required?
A certified payroll is a weekly payroll report that contractors and subcontractors on covered federal and federally assisted projects must submit to the contracting agency, certifying that each employee was paid at least the applicable prevailing wage rate and fringe benefits. Standard format is Form WH-347 (or equivalent). The report shows each worker's name, classification, hours worked each day, total hours, rates of pay, gross wages, deductions, and net wages. The contractor also certifies under penalty of law that the information is correct and complete. Certified payrolls must be maintained for 3 years after project completion. False certifications can expose contractors to criminal fraud liability and False Claims Act qui tam suits.
How are prevailing wage rates determined?
The Department of Labor determines prevailing wages through surveys of wages paid to workers in specific job classifications in specific geographic areas (counties or metropolitan statistical areas) for similar construction work. When a majority of workers in a classification in a geographic area are paid the same wage, that wage is the prevailing rate. When no majority exists, a weighted average is used. Wage surveys are conducted periodically, and resulting determinations are published in the Federal Register. Contractors must use the wage determination in effect at the time of bid for fixed-price contracts; the DOL may issue new determinations for longer-term contracts. Local unions often formally protest DOL wage surveys to push rates higher.
What happens if a contractor pays below prevailing wage?
Contractors who pay below prevailing wage on covered contracts face: back wage assessments requiring payment of the difference between prevailing wage and wages actually paid for all covered workers; potential contract termination; debarment from federal contracting for up to three years; and False Claims Act liability if false certified payrolls were submitted (triple damages plus attorneys' fees in qui tam suits). Workers can also file private lawsuits for back wages under applicable state prevailing wage laws. Investigations are initiated by DOL Wage and Hour Division investigations, worker complaints, union referrals, or qui tam suits by whistleblowers with inside knowledge of underpayment. Construction and service contractors on federal projects should treat prevailing wage compliance as a significant legal obligation.
