What Are Prevailing Wages?

Person counting money

Understanding Prevailing Wage Laws for Contractors 

Prevailing wages are wage rates determined by local markets; however, they are not the same as minimum wage rates set by federal or state governments. 

The term “prevailing wage” is sometimes confused with minimum wage, but they are very different. Minimum wage refers to the legal lowest hourly rate employers can pay employees, as set by federal or state laws. Prevailing wages, however, are localized wage rates that are calculated based on market rates in a specific geographic area for a given type of work. Prevailing wages are applicable to very specific types of workers. 

Federal and some state governments require contractors to pay prevailing wages on public works projects that are funded by the government to ensure fair compensation and prevent underbidding that lowers wages. This guide explains federal and state prevailing wage laws and thresholds to help contractors understand if and how these regulations apply to them. 

What are Prevailing Wages? 

Prevailing wages are hourly pay rates set based on a typical pay calculation in a local market for a given occupation. They vary by location and trade or occupation. 

The federal Davis-Bacon Act and similar state laws require contractors to pay prevailing wages on certain public works projects. These laws aim to prevent bidding wars that could incentivize paying lower wages. They are not fixed rates, but rather reflect local market conditions. 

 

Which Workers Are Covered? 

On covered projects, prevailing wage requirements apply to laborers and mechanics in construction trades, including but not limited to: 

  • Construction 
  • Building 
  • Specialty trades like electricians, plumbers 
  • Building services like janitors, guards, groundskeepers 

Laws may cover additional employee types like some temporary, part-time, and seasonal workers. Independent contractors may also be covered in some cases. 

 

How Prevailing Wages Are Calculated 

The Department of Labor regularly surveys pay in local markets to determine prevailing wage rates in a given area. Wages are broken down not just by location but by trade or occupation. 

Surveys consider the pay rates of both union and non-union workers. Federal prevailing wage rates often serve as a baseline for state rates as well. 

 

Fringe Benefits 

Contractors can pay part of prevailing wages as fringe benefits like health insurance, retirement, or paid leave. Benefits must make up the difference between hourly cash wages and the total prevailing wage rate. 

Alternatively, employers can provide supplemental cash payments to meet prevailing wage minimums. Some states have additional rules around counting fringe benefits.  

 

Understanding Federal vs. State Prevailing Wage Laws 

The landmark federal Davis-Bacon Act requires prevailing wages on federally funded construction projects over a certain amount. Many states have enacted "Little Davis-Bacon" laws that are similar but apply to state-funded public works. Let's look at some key details of federal and state prevailing wage regulations. 

 

Federal Davis-Bacon Act 

The Davis-Bacon Act applies to most federally funded construction, repair, or alteration of public buildings, roads, and bridges. Davis-Bacon does not cover all workers on a project, only specific construction occupations like carpenters, electricians, and plumbers. 

The Department of Labor website is always the best place to check for details on covered trades, wage determination, and compliance. Laws are subject to change, and you always will have the most updated information by getting it from the source.  

 

State Prevailing Wage Laws 

Over half of U.S. states have enacted "Little Davis-Bacon" laws requiring prevailing wages on state-funded construction projects, similar to the federal law. These laws set state-specific cost thresholds for coverage. They determine prevailing wages based on local market surveys, often using federal rates as a baseline. 

As with Davis-Bacon, state prevailing wage requirements don’t apply to all worker types on a project. Check the list of State Prevailing Wage Thresholds to check regulations in your state. Be sure to confirm requirements as some localities also have ordinances. 

Navigating complex federal and state wage regulations is challenging for contractors. Thousands of contractors throughout the country rely on Certified Payroll Reporting to simplify their prevailing wage reporting, join them today by clicking here to contact us.  

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