October 2018

by Julie A. Pace and Heidi Nunn-Gilman, The Cavanagh Law Firm

Companies doing business with the U.S. government or on projects that are funded by federal loans or guarantees are subject to numerous additional legal requirements, including compliance with prevailing wage and fringe benefits under the Davis-Bacon Act or Davis-Bacon Related Acts. The potential liability for violations of the DBRA can include debarment from Federal contracting.

Davis-Bacon and Related Acts

The DBRA requires the contractor and subcontractors to pay laborers and mechanics employed on the contract and working on the project site no less than the local basic wage and fringe benefits (collectively called the “prevailing wage”) for similar work on similar projects in the area.

The Department of Labor determines the prevailing wage for each location and each job type and publishes the “Wage Determination” for each area and each project type online at www.dol.gov. The applicable wage determination is required to be incorporated in covered contracts, and after the contract starts the wages applicable to the project generally will not change, even if a new wage determination issued.

In addition to paying the prevailing wage, the DBRA requires contractors to keep certain records, post notices, and include certain provisions in all subcontracts.

Classification of Employees Working on a Covered Contract

The prevailing wage required to be paid to employees on the site of work is based on the classification of the work they are performing. The DBRA does not contain standard classification definitions for employees. Instead, questions regarding the proper classification of work are determined by the local custom or practice for categorizing laborers who perform the duties at issue. The relevant local custom is that of similar projects (same type of construction) performed in the same county during the year prior to the wage determination lock-in date for the contract. Using the wrong classification for the work performed is one of the most common and costliest errors under the DBRA.

When there is a question regarding the proper classification of work, DOL may conduct a limited area practice survey by contacting local unions or private shops to determine how they classified individuals performing the work in question. For example, if there is a question of whether individuals installing a metal roofing system should be classified as roofers or metal workers, DOL may call local unions and/or local businesses who install metal roofing systems to determine how they classify and pay the employees installing the metal roofing system.

If there is no classification on the Wage Determination that fits the work being performed, then the employer can request a “wage conformance” to determine the wage rate and fringe benefits for the worker. A conformance can be requested if the work to be performed by the classification requested is not performed by a classification in the wage determination; and

1. The classification is utilized in the area by the construction industry; and
2. The proposed wage rate, including bona fide fringe benefits, bears a reasonable relationship to the wage rates contained in the wage determination.

The Wage and Hour Division may approve, modify, or disapprove any proposed conformance.

Contractors should review the classifications on the Wage Determination prior to bidding to determine the proper classification and whether a conformance is needed. If a conformance is needed, it should be discussed with the contracting agency and requested before work begins.

Basic Rate Plus Fringe Benefits

There are two elements to the “prevailing wage”—a basic hourly wage and fringe benefits, both of which are listed in the Wage Determination. The total value of the hourly rate plus the value of the fringe benefits comprises the “prevailing wage.” The prevailing wage obligation may be met by a combination of cash wages and “bona fide” fringe benefits provided by the employer.

Travel time and lodging are not part of the prevailing wage requirement, but DOL has taken the position that the employer may be required to satisfy an employer’s prevailing wage obligations if employees are required to travel overnight to perform work on a Davis-Bacon covered project.

The total prevailing wage (including fringe benefits) may be paid entirely as cash wages or by any combination of cash wages and the value of “bona fide” fringe benefits payments made by the employer.

Under DBRA, monetary wages paid in excess of the hourly rate may be used as an offset or credit toward satisfying fringe benefit obligations and vice versa. Overtime is paid at a minimum of one-and-one-half times the basic hourly rate. Fringe benefits must be paid for all hours worked, including overtime, but the fringe benefit amount can be excluded from the half-time premiums due as overtime compensation, as long as the half-time premium meets or exceeds one-half of the basic hourly rate.

Example:

A Davis-Bacon wage determination requires:

Basic hourly rate         $15.00

Fringe benefit             $1.00

Total prevailing rate    $16.00

The contractor can comply by paying:

1. $16.00 in cash wages;
2. $15.00 plus $1.00 in pension contributions or other “bona fide” fringe benefits; or
3. $14.00 plus $2.00 in pension contributions or any combination of “bona fide” fringe benefits. In this case, overtime must be paid at one-and-one-half times the basic hourly rate of $15.00.

Example:

An employee worked 44 hours as an electrician. The wage determination rate was $12.00 (basic hourly rate) plus $2.50 in fringe benefits. He would be due:

44 hours x $14.50                   $638.00 (straight time pay)

4 hours x ½ ($12.00)               $24.00 (overtime pay)

$662.00

No credit may be taken for any benefit required by federal, state or local law, such as:

1. Workers’ compensation.
2. Unemployment compensation.
3. Social security contributions.
4. Paid sick leave required by state or federal law.
5. Certified payroll reports.

Contractors must submit certified weekly payrolls in a form that will satisfy the DBRA regulations at 29 C.F.R. Parts 3 and 5.

The DOL has created a certified payroll form, WH-347, which satisfies the requirements of the certified payroll regulations. The use of the Form WH-347 is not mandatory, but is made available as a convenience to the contractor and the contracting agency. There are also numerous electronic systems on which employers can create the certified payroll reports, and some contracting agencies have begun to require the submission of electronic certificated payroll reports.

Davis-Bacon Requires Specific Contract Provisions to Subcontractors

The bid specifications and the federal contracts are required to contain specific provisions identifying the prevailing wage requirements for the contract so that bidders will know in advance what wages will be required on a DBRA-covered project. Contractors are then required to include this language in all subcontracts, this is sometimes referred to as including the “flow down” language from 29 C.F.R. § 5.2(f).

If the required Labor Standards Clause and Wage Determination are not included in each subcontract, then the higher tier contractor can be liable for any DBRA violations committed by subcontractors, as well as facing penalties for not including the required contract provisions.

Posting and Record-Keeping Requirements

Under the DBRA, contractors and subcontractors must maintain the following records identified in 29 C.F.R. § 5.5(a)(3). These records are required in addition to the records required by the Fair Labor Standards Act. Covered contractors also must post a notice to employees that they are subject to the Act. The applicable prevailing wage rates must be posted with the DOL poster.

Penalties for DBRA Violations

The DBRA is enforced by the DOL Wage and Hour Division and/or the contracting agency responsible for the federal contract. At the conclusion of an investigation, the federal contracting agency or DOL will hold a final conference to discuss the findings of the investigation. If back wages are owed, the federal contracting agency will request that the contractor pay back wages. If the employer is a subcontractor, the prime contractor may be required to make back wages payments if the subcontractor refuses.

If there is no agreement to pay back wages, the contracting agency or DOL is allowed, after notice to the contractor, to withhold a portion of the payment due to the federal contractor under the contract at issue or any other federal contract with the same contractor or any other federally-assisted contract subject to the Davis-Bacon prevailing wage requirements that is held by the contractor, in an amount considered necessary to pay the full amount of wages required by the contract. DOL or the contracting agency will use the withheld funds to pay the employees the back wages that they believe are due.

Debarment is considered if the violation of the Davis-Bacon Act was “in aggravated or willful violation of the labor standards provisions.” A federal contractor may be debarred for a period of up to three years. The payment of back wages does not eliminate the possibility of debarment.

Debarment is most often considered in cases where (1) the contractor has submitted false certified payroll records, (2) the contractor required kickbacks of wages or back wages, or (3) the contractor has committed repeated DBRA violations.

DBRA Pitfalls

Failure to properly classify employees is a common error. The contractor cannot classify a pipelayer as a laborer in order to avoid paying the higher pipelayer prevailing wage. Each employee must be accurately classified and paid according to the prevailing wage for their job classification. The use of the “laborer” classification is always closely scrutinized by DOL and is strongly disfavored. Additionally, contractors must use care not to classify workers as an apprentice or helper in order to pay them a lower prevailing wage.

Another common problem is failing to pay the fringe benefit equivalent if the actual fringe benefits provided by the employer are not of a value equal to the fringe benefit required in the prevailing wage.

Failing to submit the certified payroll as required can also subject a contractor to liability and is one of the most common errors by companies working on federal contracts, particularly subcontractors.

Other issues that may trigger an audit and violations include but are not limited to: paying cash; failing to maintain accurate time records, including time cards completed and signed by the employee; failing to keep daily time records; and failing to pay short term employees the required DBRA prevailing wage. Even if an employee works on the job site for just one day, that one day must be paid at the DBRA prevailing wage.

Julie Pace is a senior member at Cavanagh Law. She concentrates her practice in the fields of employment law, immigration compliance, OSHA, health care, and construction. She defends claims of sexual harassment, employment discrimination, retaliation, whistleblower, and wrongful discharge, and against charges by the EEOC and ACRD. She handles matters involving OSHA, ICE, OFCCP, DOL, NLRB, Davis-Bacon, FAR, ADA, FMLA, and wage and hour laws, audits and issues. Pace also handles issues involving the Affordable Care Act and addresses the changes and options it presents to companies. Her Davis-Bacon and prevailing wage practice includes counseling and training on state and federal prevailing wages and benefits requirements, coverage and applicability of prevailing wage laws, coverage exemptions, worker classification and pay issues, addressing wage determinations, wage surveys, and representation of employers before the Department of Labor Wage and Hour Division and similar state agencies. She can be reached at (602) 322-4046 or jpace@cavanaghlaw.com. Heidi Nunn-Gilman is a senior member at Cavanagh Law. She is a member in the Employment, Labor, OSHA, and Immigration Department.  Nunn-Gilman’s practice focuses on human resource counseling and employment litigation. She has extensive experience handling employment immigration compliance strategies, including I-9s, E-verify, ICE and worksite investigations and enforcement under the Legal Arizona Workers Act (LAWA) and similar state and local laws. She regularly advises clients on matters relating to labor and employment law, federal contractor compliance (including Affirmative Action, Davis-Bacon, and federal contractor E-Verify requirements), ADA, Title VII, FLSA, NLRB, FMLA, leaves, drug and alcohol, union matters, wrongful discharge, wage and hour laws for both public and private employers, employee handbooks, confidentiality and non-compete agreements, and executive agreements. She can be reached at (602) 322-4080 or hnunngilman@cavanaghlaw.com.

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