Prevailing Wage

Each state sets its own standards and rules regarding wages and work conditions. The federal minimum wage, which is set by the Fair Labor Standards Act (“FLSA”), is currently $7.25 per hour. However, because each state has set their own minimum wage laws, an employee is generally entitled to receive whichever wage would be the highest.

Additionally, some cities and counties have “living wage” laws that set a higher minimum wage than both the state and the federal government. These laws most commonly apply to the companies that are doing business in the local area or government, in which case the employer must pay the highest minimum wage whether it is federal, state or local.

While minimum wage determines the lowest hourly rate at which an employer can legally pay an employee, employers do not need to pay employees by the hour. As long as the total amount paid is divided by the total number of hours worked and is equal to at least the minimum wage, it is considered to be legally compatible.

However, it is imperative to note that not all employers must pay the minimum wage. There are two requirements in order for the employer to pay its employees minimum wage. Under the FLSA, your business must receive $500,000 or more in annual sales; and, if your employees work in “interstate commerce,” which generally means doing business between the states.

The following are employees that are generally exempt from receiving federal minimum wage:

• Independent contractors;
• Outside salesperson;
• Workers on small farms;
• Switchboard operators who are employed by phone companies with no more than 750 stations;
• Workers of seasonal amusement or recreational business, such as a carnival;
• Employees of local newspapers that have a circulation of less than 4,000;
• Newspaper deliveries; and
• Students and learners as they are defined by law.

Keep in mind that employees may still be covered under the state or local laws, if they are not covered by the federal law. Additionally, employees who earn tips in addition to their wages can be paid a different hourly rate, which may be less than the federal minimum wage. However, these tips must be enough to meet minimum wage requirements.

The United States Department of Labor (“DOL”) issued new policies regarding overtime pay which are effective as of January 1, 2020. This increased the minimum salary requirement for FLSA overtime exemptions, as well as increased the annual compensation requirement. Employers are also now allowed to use the nondiscretionary bonuses or incentive payments in order to satisfy the required salary standard for exempt executive, administrative, and professional employees. It also altered the special salary levels for workers in US territories, and motion picture industries.

What Is A Prevailing Wage?

A prevailing wage is the average rate of pay that a worker can receive, based on their specific occupation in a particular place or region. What this means is that the standard wage that is paid in one state may be much higher than what a worker receives for doing the same job in another state.

According to the federal laws that govern prevailing wage standards, employers who hire workers to complete projects associated with government contracts must pay those employees the required rate. This is because the purpose of having a prevailing wage standard is to prevent the possibility of giving an employer an unfair advantage during the bidding process for a government contract.

An example of this would be how employers who hire non-union workers may attempt to win the bid for a government contract by paying their workers at a rate that is significantly below the average union pay rate. This would make their bid seem more attractive than others, because the contract price would be lower as a result of the slashed workers’ wages.

Prevailing wages can also help ensure safer working conditions for employees, and may guarantee that the workers who are hired possess the necessary skills for the job.

Generally speaking, workers who perform public work assignments can generally receive prevailing wages. The term “public work” refers to any kind of work that is financed and directed by the government, or other local public agency. The following are some common examples of public work activities:

• Construction for public buildings, such as schools and hospitals;
• Remodeling or renovation projects;
• Demolishing publicly funded works;
• Installation of public spaces such as parks, or transportation such as roads; and
• Utilities construction, such as electrical grids, water supply treatment, etc.

Additionally, prevailing wage rates may apply to certain residential and commercial works, such as when such projects are paid for either entirely or partly by public funds. The workers must be paid according to prevailing wage standards, despite the fact that what they are working on may be residential or commercial as opposed to public.

How Is A Prevailing Wage Calculated?

For federal projects specifically, the U.S. Department of Labor is the governmental agency responsible for setting the prevailing wage rates. These standards are generally based on the following factors:

• The type of labor involved in the project;
• Where the work is being performed, such as the designated geographic location; and
• What kind of project it is, such as construction, renovation, demolition, etc.

There are a number of different federal laws which provide what employers must pay out as prevailing wages. An example of this would be how according to the federal law known as “The Davis-Bacon Act,” any contractor or subcontractor who performs work on a federal contract that is worth more than $2,000 must pay basic prevailing wage rates. They must also pay corresponding fringe benefits, such as disability insurance, vacation, sick leave, etc.

A prevailing wage can also be determined by calculating:

• The hourly wage amount;
• The basic benefits; and
• Any overtime that is paid to the majority of workers within the vicinity. To reiterate, this means that the prevailing wage can vary widely between different states, and even among different municipalities within the same state.

In terms of state projects, the department of labor for each state is responsible for setting their own state’s prevailing wage standards, for every trade and occupation within that state. Governments may also review surveys or collective bargaining agreements made between unions and employers in order to determine their prevailing wage.

The following are some general ways in which states calculate a prevailing wage:

• The Majority Wage in the Largest City: If the largest city in a specific county reports that the majority of all working hours are compensated at a specific wage rate, that specific wage rate will be used to determine the prevailing wage for the entire county;
• The Average Wage in the Largest City: If there is no particular majority wage rate that can be uniformly applied across a county, a weighted average wage can be computed by using data from the largest city within a county;
• Using the Existing Wage Rate: If there is no new or current data to consider for a county, a previous prevailing wage in the county will be set as the new prevailing wage rate. This lasts until some time has passed and more data has been collected; and/or
• Countywide Average Rate: If the largest city has not provided or reported any working hour statistics, a weighted average wage can be established by reviewing the data from the county in general.

These are just some examples of how states may calculate their prevailing wages; meaning, there could be many more methods that a state could use to make these determinations.

Do I Need A Lawyer For Help With A Prevailing Wage Issue?

Prevailing wage laws are meant to cover employees who perform work on projects that are associated with government contracts. If you are working on an assignment that fulfills the terms of a government contract, and you are not being paid the standard prevailing wage rate, you could bring a legal action against your employer.

You should contact an employment law attorney who can help you understand your legal rights and options according to your state’s specific laws. Additionally, an attorney will also be able to represent you in court, as needed.