Five or More Types of Prevailing Wage by Advantage Resource Inc.

Are “Prevailing Wage” and “Davis Bacon” synonymous? A common misconception is “yes”.

Some think of Prevailing Wage as nothing more than a (very high) minimum wage law for construction contractors.  They believe that a pension plan that accepts prevailing wage contributions has only to abide by the rules set forth by the IRS and the Employee Benefits Security Administration (EBSA) division of the Federal Department of Labor (FDOL) to satisfy any Prevailing Wage requirement.  In actuality, the FDOL Wage and Hour Division (WHD) and the many state and local governing authorities have additional requirements if any pension plan contribution is to qualify as a Prevailing Wage contribution. Simply having Prevailing Wage language in an Adoption Agreement and labeling a contribution “Prevailing Wage” is not enough. Periods of determination for compensation, disposition of forfeitures, timeliness of contributions and offsets are just a few of the issues that require special consideration when prevailing wage contributions are made to a retirement plan. Any properly constructed pension plan must take all of these into account, and each could easily be the subject of a separate article. So, what is Prevailing Wage?

“Prevailing Wage” is a generic term used to define certain construction and public works projects which are wholly or in part funded with government money. In fact, one contractor may have five projects, each subject to a different set of prevailing wage regulations, with their own requirements, wage determinations, and penalties for noncompliance. Although Davis-Bacon is the most common, there are other federal prevailing wage laws, state prevailing wage laws, and even some localities have their own prevailing wage requirements. The funding authority typically requires any contractor working on a particular project to pay the minimum of a specified hourly wage plus an additional amount defined as Bona-Fide Fringes for any specific task performed. It is interesting to note, in this instance, that “Bona-Fide Fringe” once again has a unique definition and is not necessarily as defined by the IRS.

Prevailing Wage is an ongoing issue for construction contractors, and penalties for noncompliance can be severe and even crippling. Contractors can save a great deal of money by having a properly constructed and administered pension plan as part of their prevailing wage benefits program. A contractor must be able to count on their service provider to be knowledgeable of the rules and regulations regarding any advice offered. Knowledge of prevailing wage, in general, is a good place to start.

The Laws

The Davis-Bacon Act (DBA) is a federal prevailing wage law that applies to contractors performing work on federal contracts in excess of $2,000 for the construction, alteration, or repair of public buildings or public works. Passed into law in 1931, the Davis-Bacon Act, or “Davis-Bacon”, is what some contractors may think of when they hear “prevailing wage”, but the two terms are not synonymous. In addition to the DBA, approximately sixty federal laws authorize federal assistance on construction projects through grants, insurance, loans, or loan guarantees. These laws, collectively referred to as “Davis-Bacon Related Acts” (DBRA), include provisions that require Davis-Bacon labor standards. To the contractor, DBA and DBRA are essentially one and the same, as the requirements for DBRA projects are generally the same as those for DBA projects.

The Walsh-Healey Public Contracts Act (PCA) applies to federal contracts in excess of $10,000 for the furnishing or manufacture of supplies, materials, or equipment to the U.S. government. Passed in 1936, the PCA sets minimum wage, overtime, and recordkeeping standards for covered contracts, and covers employees who handle, assemble, produce, or ship goods under these contracts. Certain contracts are specifically exempted from PCA requirements. While PCA projects may be rare among construction contractors, it is still important to be aware of its existence and requirements.

The McNamara-O’Hara Service Contract Act (SCA), passed in 1965, requires contractors who perform services on covered contracts in excess of $2,500 to pay service employees a local prevailing wage and to furnish specific fringe benefits. The SCA was originally intended to “close the gap” between federal construction (DBA/DBRA) and procurement (PCA) projects. Construction contractors often find that some of their prevailing wage projects are actually subject to SCA requirements, in that the project may be funded under a maintenance or service contract.

In addition to federal prevailing wage laws, some states also have their own prevailing wage laws. Collectively referred to as “Little Davis-Bacon” laws, state prevailing wage laws are typically similar to the Davis-Bacon Act, with additional regulations and requirements. Kentucky, Ohio, Indiana, Illinois, Tennessee, and Missouri are just a few of the thirty-two states that have their own state prevailing wage laws.

Kentucky’s prevailing wage law, the first of which was passed in 1940, is administered by the Division of Employment Standards, Apprenticeship, and Mediation of the Kentucky Department of Labor. State contracts in excess of $250,000 for the construction, reconstruction, improvement, enlargement, alteration, or repair of any public works project are subject to state prevailing wage laws. Most work on state roads, local courthouses, and public schools are Kentucky state prevailing wage projects. One large difference between the Davis-Bacon Act and Kentucky’s prevailing wage law is the presence of daily overtime laws on state projects. Most prevailing wage audits in the state are performed by investigators from the Kentucky DOL.

In Ohio, prevailing wage is regulated and administered by the Ohio Department of Commerce. Aside from using different cost thresholds, depending on project type, before prevailing wage requirements come into effect, Ohio has certain notification requirements of employers to their employees and stiffer penalties for noncompliance than some other states.

Indiana calls prevailing wage the Common Construction Wage (CCW), and wage scales are adopted on a project-by-project basis. Indiana also differs in its cost thresholds, wage determination means, and CCW project exemptions in comparison to other states.

In some respects, prevailing wage is like a sporting event. While the general layout of the game may remain the same, the rules, requirements, and penalties can differ depending on where the game is played. As with most things, it is the duty of the contractor to know which “rules” he or she must abide by. For example, a contractor may be doing work on a Federal courthouse (Davis-Bacon), a state courthouse in Ohio (Ohio State PW), a school in Kentucky (Kentucky State PW), a water treatment plant in Indiana (Indiana State CCW) and service work at a military facility (McNamara-O’Hara). Five projects, five sets of rules to follow, all prevailing wage.


2013-04; written for RMS Newsletter; all rights retained by Advantage Resource Inc.



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