Summary Definition: A standardized rate for wages and benefits that government contractors or those with foreign laborers must pay their workers.
Prevailing wages are standardized benefits, overtime, and wage rates contractors with foreign workers or a government contract must pay their workforce.
Federal and state agencies calculate prevailing wages based on the rate used in more than 50% of instances for that work in a given market region. If no one rate is used in over 50% of cases, a weighted average rate is calculated.
For example, the prevailing wage for a welder in New York City will be based on the aggregate or most common rates paid to welders in that city and region. Conversely, the prevailing wage for a welder in Tulsa, Oklahoma would be based on the aggregate or most common rates in that city and region.
The primary purpose of prevailing wages is to prevent contractors from undercutting each other through unnatural wage reductions. They also help prevent local workers from being displaced by foreign laborers who are willing to work for less pay.
Contractors receiving government funds must prove they’re paying laborers the established prevailing wage by regularly submitting a certified payroll to the U.S. Department of Labor via Form WH-347. The form records each worker’s identity and their benefits, tax deductions, etc.
There are a few different laws that regulate the use of prevailing wages:
These are the monetary thresholds that determine if a contractor must provide a prevailing wage. Federally, the prevailing wage determination is $2,000. In other words, if a government contract is worth $2,000 or more, the contractor has to provide a prevailing wage to their workers. At the state level, prevailing wage determinations vary all the way from $0 to $1 million.
The two main types of prevailing wage determinations are general determinations and project determinations. A general determination is proactively calculated for a certain type of construction in a specified area. It never expires but is updated annually.
Project determinations, on the other hand, are unique to a specific contract and must be requested by a contracting agency. It’s only applicable to that individual project and typically for 180 days after it’s issued.
General determinations are updated every year, but employers requesting a project determination should anticipate the process taking at least 30 days.
Employers requesting a wage determination as part of a nonagricultural immigration program should expect the process to take up to nine months depending on the type of program (i.e., CW-1, H-1B, H-2B, or PERM).
While both prevailing wages and minimum wages aim to provide a minimum standard pay rate for workers, they go about it in very different ways.
Minimum wage rates are set by federal and state legislatures to be the lowest amount of pay any employer can pay an employee, regardless of the industry or type of work being performed. Prevailing wage rates are instead set by market conditions and focus on specific types of work (e.g., labor, construction, etc.) performed through a government contract.
Contractors who violate the Davis-Bacon Act by failing to provide prevailing wages face several penalties, including:
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