What Contractors Need to Know About Davis-Bacon Wages
Anyone who's worked as a contractor on a government construction project has likely heard about Davis-Bacon. It may even be the reason that you haven't bid on those publicly-funded jobs. Davis-Bacon is the name on one specific piece of legislation about prevailing wages, but it has ended up becoming catch-all term referring to all the requirements around prevailing wages for contractors working on publicly-funded projects. The complexity of all the regulations around prevailing wages can keep contractors from getting involved with these projects, but if you take a little time to understand these laws, you can take advantage of them to get some potentially very lucrative contracts.
Here's what you need to know about Davis-Bacon.
1. Davis-Bacon sets wages federally, but they are applied locally.
While there are prevailing wage requirements set at state and local levels, the Davis-Bacon act governs most federal projects.
What Is the Davis-Bacon Act?
The Davis-Bacon Act of 1931 dictates that certain categories of workers are paid a certain minimum, based on what the local wages are for similar projects. Contractors and subcontractors are required to pay at least this prevailing wage, though Davis-Bacon allows them to pay this wage with cash and fringe benefits in combination. The Davis-Bacon Act applies to U.S. Government or District of Columbia contracts that exceed $2,000. This includes the construction, repair, or alteration of public buildings and other public works. Contractors are required to display the applicable wage scale in a prominent location at the work site.
What Are Davis-Bacon Related Acts?
People often use “Davis-Bacon” to refer to all the prevailing wage laws, but there are a number of state and local laws, was well as other federal laws, that govern prevailing wage requirements. DAVIS-BACON RELATED ACTS (DBRA) – There are about 60 statues in the DBRA category that have provisions for prevailing wages. These acts support Davis-Bacon projects with loans, grants, and/or insurance. MCMANARA-O’HARA SERVICE CONTRACT ACT (SCA) – While service work is not always covered under Davis-Bacon, SCA applies prevailing wage regulations to federal contracts for service work that exceed $2,500. The Davis-Bacon Act regulations also may apply to Service Contract Act contracts when there is a significant amount of construction activity as well (29 C.F.R 4.116). CONTRACT WORK HOURS AND SAFETY STANDARDS ACT (CWHSSA) - CWHSSA covers overtime requirements for Davis-Bacon and SCA contracts. Contractors are required to pay laborers and mechanics one and a half times the basic wage for hours in excess of 40 per week. This is a self-executing requirement, meaning that this regulation applies even if it is not stated in the contract. COPELAND “ANTI-KICKBACK” ACT – While the Copeland Act is often called the “Anti-Kickback” act, it isn't just about wage kickbacks. The Copeland act also regulates deductions from prevailing wages under Davis-Bacon, and it requires that contractors submit a statement of compliance, more commonly known as certified payroll, on a weekly basis.
What Are Davis-Bacon Wages?
The U.S. Department of Labor sets the minimum Davis-Bacon wages for an area “based on the wages the Secretary of Labor determines to be prevailing for the corresponding classes of laborers and mechanics employed on projects of a character similar to the contract work” in that local area (40 U.S.C. 3142). All of these Davis-Bacon wages are available online wdol.gov, along with the SCA wages. Each of these wage determinations lists the portion that is to be paid as fringe benefits for each worker classification, but cash can also be used to pay out the fringe requirements. Contractors should be sure to research any state or local wage requirements as well, because many jurisdictions have their on laws on top of the Davis-Bacon or SCA requirements.
2. There are many requirements determining who must be paid prevailing wages.
According to the Davis-Bacon Act, “all mechanics and laborers employed on the site of the work” must be paid prevailing wages. Employers should carefully determine what the site of work is and which employees are covered under this act. Laborers and mechanics are defined by the Code of Federal Regulations as including “at least those workers whose duties are manual or physical in nature . . . as distinguished from mental or managerial” (29 C.F.R. 5.2). This definition does not limit these categories to specific trades, and in certain conditions, it may include trainees, apprentices, and helpers. It may also apply to foremen who spend more than 20% of their work time doing physical or manual work. The specific definition of the site of work is also important. The primary definition is “the physical place or places where the building or work called for in the contract will remain.” If there are other sites established specifically for work on the contract nearly exclusively, those sites are also covered under Davis-Bacon. Non-adjacent sites such as prefabrication plants or tool yards that are also used for other jobs as well may not qualify as the site of work for these purposes. As an example, a laborer who is prefabricating materials at an off-site plant whose output is used for multiple projects may not qualify for Davis-Bacon, even though their labor is assisting with the federal project, because they are not “employed on the site of work.”
3. Contractors provide the information used to determine Davis-Bacon wages.
Whether or not you've worked a Davis-Bacon job, you may have received a Form WD-10 at some point from the Department of Labor. These forms are used to survey contractors in each state every three years. They use this information as the primary source for Davis-Bacon wage determinations; thus, contractors are the source of the prevailing wages for their region. Form WD-10 surveys building, heavy/highway and residential construction types separately. The Department of labor uses the information from these surveys to determine average pay and fringe benefit rates for the key class of workers in each of these construction types. If DOL does not receive enough results from contractors, they have to use certified payrolls from local area projects to set the prevailing wage instead. When their information is limited, the wage determinations can end up incomplete. This means that it is in the best interests of contractors to complete these surveys and provide the best information possible to DOL, helping rates to be fair and accurate. This takes analysis of payroll records, but good software makes this easier, and choosing software that will help you complete these WD-10s when you receive them will be very helpful. Look for functionality that produces retrospective certified payroll reports, which you can use to complete the form.
4. Go to the source for education and resources.
Real-world experience is the best way to learn how to navigate the Davis-Bacon Act requirements, but it's also important to arm yourself with knowledge up front. There are plenty of resources available that will let you know what to expect when you have a contract for a publicly funded project. Most contractors say that the most frustrating thing about Davis-Bacon wage requirements is trying to find the answers to questions that inevitably arise. The best way to find accurate answers is to go directly to the source. Use the current text of the law itself, as well as the Department of Labor's resources, to find the answers you need. The U.S. DOL and Hour Division (WHD) The Davis-Bacon Act, as Amended Code of Federal Regulations, Subtitle A Recent judicial decisions about Davis-Bacon wages Form WD-10 and instructions Davis-Bacon wage determinations
5. Utilize construction payroll software to keep up with Davis-Bacon requirements.
Understanding the Davis-Bacon wage requirements is the first step, but the next is compliance. You'll need a way to ensure that your payroll processes are following the regulations of the Davis-Bacon Act. Your staff will need a way to accurately track employees' time, complete certified payroll reports, and perform the complex calculations that all this requires. There are many software options available for managing payroll, but construction-specific software can be especially helpful by having the specific tools necessary to manage all the data and processes that you need when working a job with Davis-Bacon wages, and even other jobs as well.
Multiple rate tables for areas and trades
Even if a job isn't covered under Davis-Bacon, many regions have their own prevailing wage laws, so it is often necessary to have different rate tables for types of projects and different regions. Some employees also fall under different classifications depending on the specific work they're performing on the job site. The same employee may need to be paid at different rates for their work as a brush-and-roller painter in the morning and a sprayer in the afternoon. For all of these reasons, it's important that you have software that can handle a variety of rate tables and settings to calculate wages and fringe benefits based on detailed timecard information.
Options for fringe accruals
The flexibility to track fringe benefit accruals is important, because Davis-Bacon wage regulations allow contractors to pay out fringe benefits with cash instead of providing bona fide benefits. This is often easier, but it will lead to greater payroll taxes, so contractors may also choose to contribute fringe benefits to a third-party plan instead. This makes it vital to track accruals per pay period accurately.
Automatic fringe reductions
One key feature of Davis-Bacon is the ability to reduce fringe rates by the cost of the bona fide fringe benefits that you already offer. This is something that contractors should be taking advantage of, but many don't because it can be difficult to calculate for each employee on a weekly basis. Software that can handle these calculations will allow you to remain compliant with Davis-Bacon while saving money on those fringe reductions.
Extensive Davis-Bacon Reporting
Because weekly certified payroll reporting is required, you want a system that can complete this automatically. You will also want to ensure that your payroll software can provide retroactive reports, including federal Form WH-347, for Davis-Bacon wages, and any state forms for prevailing wages as well. These reports will be useful for completing Form WD-10 as well. If you have a construction payroll software system that integrates well with your accounting software for job costs, you'll be able to keep everything accurate and up-to-date, giving you work-in-progress (WIP) reporting with job costs, including labor, as soon as you post payroll. Being able to keep track of everything on a granular level, including fringe benefit costs, will help you create more accurate estimates. This in turn helps control your profit margins and you'll be able to thrive with Davis-Bacon opportunities as they arise.