If you’re accustomed to working in the private sector, you may think that businesses get to set the wages they pay their employees, with few limitations. For the public sector and a wide variety of public works projects, prevailing wage laws are the order of the day. This regulation dictates how much you have to pay your employees in order to secure a public works project. Here are the basics of prevailing wage laws, and how they may relate to your contracting business.
What Are Prevailing Wage Laws?
A prevailing wage is a set hourly wage dependent on the area, including benefits and overtime. About 100 years ago, the wages that contractors and subcontractors might be paid for public works projects depended heavily on the state. Although this is still true to some degree, federal legislation establishes specific controls. The Davis-Bacon Act of 1931 ruled that on these types of projects over a certain amount of money, contractors had to be paid a specific wage that was considered average for the area. Many states like California have added their own laws to this federal legislation, providing clarification as they saw fit. These are considered prevailing wage laws.
What Are the Pros and Cons of Prevailing Wage Laws?
If you think about the Great Depression and the lack of worker protections that people were facing in the 1920s, it may not be difficult to think about what people hoped to achieve with prevailing wage laws. Someone who has hired people who are willing to work for far less money may be able to underbid other companies for the same job. This can lead to a race to the bottom as every business tries to survive on less.
On the other hand, many experts argue that setting wages for projects like this can hinder innovation and development. They claim that if someone is willing to work for a certain wage, they should be allowed to use that secure contracts. Higher wages set by the state can increase costs to the point that a business struggles to survive. Even the early proponents of the policies argued that oversight was difficult to guarantee, and that the laws may not provide enough of a penalty to discourage businesses from violating the rules.
How Can Prevailing Wage Laws Affect Your Contracting Business?
If you want to bid on a public works project in the state of California, you must show that you pay a specific per diem set by the state. This also applies to certain types of residential construction, if the funds to build are paid partially out of public funds. State officials use the most common wage that workers in a particular trade or classification are paid in the area. The state sets these numbers twice a year, on February 22 and August 22. These numbers may be set by the county or for a larger area. You can always pay your workers more for the work than the prevailing wage, but you may not pay less.
What Can Business Owners Do to Ensure Compliance?
If you’re interested in these types of projects, you need to be ready to prove you are compliant with prevailing wage laws. This is particularly important for businesses that have contracts in multiple states, which all have their own forms and specific criteria companies have to follow. If you’re trying to cut costs and do it the old-fashioned way, make sure you’ve got the right numbers for the area and the time of year. These rates expire every six months. For simplicity, you might try using software that will specifically handle prevailing wage paperwork. This can make it easier to ensure that you are up-to-date on the rules and less likely to have a bid rejected because you used obsolete wage rates.
Payroll is one of the biggest parts of your business overhead, and prevailing wage laws can make it more complicated. By understanding what they are and how to ensure your business meets the requirements, you can better ensure a successful bid on public works projects. To discover other benefits of starting your own business as a licensed contractor, contact CSLS today!