May 19, 2024

How to Navigate Prevailing Wage in California

Brek Goin

Stepping into the public work sector offers a big opportunity for growth, expansion, and diversification, but for newcomers, it can feel like diving into uncharted waters without a life jacket. Sounds fun, doesn’t it?

In the complex world of construction projects, ensuring fair compensation for workers is key. And when it comes to fairness, prevailing wage laws take center stage, especially in California, where it can feel like a maze because regulations can be intricate and varied.

Understanding these laws is like having a compass in a dense jungle – it's your ticket to navigating projects like a pro while staying on the right side of the law.

Buckle up as we dive deep into the world of prevailing wage, their application, determination, and consequences of non-compliance.

Welcome to the jungle of California Prevailing Wage. Ready for an easy guide?

Here’s what we’ll cover:

Table of Contents:

  1. Introduction
  2. What is Prevailing Wage?
  3. California Prevailing Wage Rules
  4. How are California Prevailing Wages Determined?
  5. Basics of Prevailing Wage Rates in California
  6. Prevailing Wages on Residential Projects
  7. Threshold Requirement
  8. Overtime Pay
  9. Changes in the Prevailing Wage Rate
  10. Consequences of Non-Compliance
  11. Additional Financial Penalties
  12. Keeping up with California Prevailing Wage Regulations

1. What is Prevailing Wage?

It's like the golden ticket for construction workers on public projects. It refers to the hourly wage, benefits, and overtime paid to workers. These rates are determined by government entities, acting as the North Star, guiding contractors to pay their crews fairly and maintain a level playing field. Prevailing wage laws aim to ensure that contractors bidding on public projects pay wages comparable to those in the local market, preventing unfair labor practices. Think of it as the referee making sure everyone plays by the rules and nobody's left holding the short end of the stick. In a nutshell, this ensures construction workers are being paid fairly on public projects.

2. California Prevailing Wage Rules:

California – where even the rules have rules. California has its own set of prevailing wage rules, which are administered by the Department of Industrial Relations (DIR) and keep the prevailing wage train on track. These rules apply to all public works projects, including construction, alteration, demolition, or repair work, funded in whole or in part by public funds.

In other words, as long as public money is in the mix, there are prevailing wage rules to follow.

3. How are California Prevailing Wages Determined?

So how do they figure out who gets what out here in California? Surveys.

The DIR goes out and talks to everyone – contractors, unions, and other relevant parties in specific geographic areas and for particular types of construction work. Then the DIR crunches this data to establish the prevailing wage rates for each craft or classification of workers. It's like setting the menu based on what folks are willing to pay. And the menu changes but we’ll get into that fun stuff soon.

4. Basics of Prevailing Wage Rates in California:

Federal Projects (Davis-Bacon Act):
  • On 100% federally funded projects, contractors must pay prevailing wages as determined by the Davis-Bacon Act, which sets wage rates for construction workers employed on federal contracts exceeding $2,000.
  • It's the government’s way of making sure the folks in the field swinging hammers and laying bricks get their fair share
State-Funded Projects:
  • Now we’re talking California state money. Similarly, on state-funded projects, prevailing wages must be paid as determined by the DIR. These rates are typically higher than federal prevailing wages and vary depending on the location and type of work.
  • The rundown:
    • Applies to projects with any California awarding body.
    • Must comply with both federal and state prevailing wage requirements.
    • And don’t forget the paperwork — it requires both state and federal certified payroll reporting.
California Prevailing Wage Projects:

For projects funded by local government agencies or special districts, prevailing wages are determined by the DIR based on local survey data.

  • This typically includes everything from building to tearing down. Projects such as:
    • Construction
    • Alteration
    • Demolition
    • Installation
    • Maintenance
    • Repair work
    • Done under contract
    • Paid for (in whole or in part) with public funds. In other words, as long as it’s on the taxpayer’s dime, it’s fair game.
  • This can also include include pre-construction and post-construction activities related to a public works project. So remember, that’s fair game too.
Certified Payroll Reporting for State Projects:

Ah, paperwork, paperwork, paperwork. Contractors on state-funded projects must submit certified payroll reports to the awarding body and the California Department of Industrial Relations (DIR), detailing the wages paid to each worker, including fringe benefits.

  • Reporting must be submitted online using California’s portal.
  • Here’s the Certified Payroll Reporting Portal for when you need to start punching your keyboard. In other words, grabbing your keyboard to start punching in the data.

5. Prevailing Wages on Residential Projects:

Let’s switch gears here. Unlike commercial projects, prevailing wage rates for residential construction projects in California are separate and may differ. If you’re a contractor taking on residential projects you should familiarize yourself with these specific rates to ensure compliance.

So, what’s the scoop for residential projects?

Here’s what you need to know:

The Residential Definition:
  • Single-family homes
  • Apartments up to 4 stories

If you need more information on residential projects, head on over to the Department of Industrial Relations: Current residential prevailing wage determinations.

6. Threshold Requirement:

Now, let’s talk numbers. Understanding prevailing wage requirements in California is essential for contractors, as these obligations can vary depending on the project's size and the type of awarding body. It's like knowing when the traffic light's going to turn red – you don't want to get caught snoozing.

Here’s a breakdown based on these factors:

For Projects Over $1,000:
  • Prevailing wages are typically mandated for all workers.
For Awarding Bodies with a Labor Compliance Program (LCPs):
  • Construction Projects: Projects under $25,000 are exempt from prevailing wage. You’re off the hook.
  • Alteration/Demolition/Repair/Maintenance: Projects under $15,000 are exempt. Once again, off the hook.

Now, remember, these are just the basic general guidelines. Contractors should always double-check the requirements and potential changes with the awarding body.

And when you need a little extra guidance, the California Department of Industrial Relations (DIR) has got you covered.

7. Overtime Pay:

It’s time for overtime — if you're working one of these jobs, workers on California public works projects subject to prevailing wage are entitled to overtime pay for hours worked beyond the standard workweek. So pay attention, contractors must play by these overtime rules to avoid penalties for non-compliance.

Here’s the breakdown on overtime:

Standard Overtime:

You’re looking at 1.5x regular pay (time-and-a-half) for exceeding:

  • 8 hours in a workday
  • 40 hours in a workweek
Specific Overtime Rules:
  • Each prevailing wage determination for a craft may have specific regulations and pay rates for overtime.
Overtime Resources:
  • California Department of Industrial Relations (DIR): Prevailing Wage Requirements.
  • When in doubt, check the prevailing wage determinations for more details.

8. Changes in the Prevailing Wage Rate:

This is the heartbeat of California's prevailing wage — you’ll want to stay on top of this.

Prevailing wage rates in California are updated twice a year, so mark your calendar:

  • February 22nd
  • And August 22nd

And they don’t waste time kicking in either. The determinations become effective 10 days after the rates are published.

Now, here’s the important part: refer to the date of the bid advertisement to determine which wage rates must be used for the project. It will save you a massive headache down the road.

Since it’s a contractor's job to stay informed, bookmark the Director's General Prevailing Wage Determinations page so you can always refer to any updates to California’s prevailing wage rates.

9. Consequences of Non-Compliance:

Prevailing wage rates. Sounds fancy, doesn’t it? Let’s break it down because these rates aren’t just pulled out of thin air. They are enforced by committees comprised of both employers and labor organizations representing workers in the industry and specific locations.

In California, these committees were established under the Labor Management Cooperation Act of 1978. They have the authority to take legal action against California employers who fail to pay the prevailing wage to their employees. And they will come knocking.

To initiate such action, a Notice of Completion must be filed with the county recorder's office in the county where the public work is located. Legal proceedings must be within 18 months of this filing. If successful, the court may award the affected employees back wages, plus interest from the due date. Ouch.

Non-compliance with prevailing wage laws can lead to major consequences for contractors, including financial penalties, project delays, and potential suspension or debarment from bidding on public projects.

10. Additional Financial Penalties:

Besides the whole back wages owed to workers mess, there's this other fun thing contractors might run into if they're not careful. If you’re caught playing fast and loose, you might find yourself facing some big fines imposed by the DIR or other regulatory agencies.

Contractors who fail to pay prevailing wage may be penalized $200 per day, per worker paid less than the set rate.

Now, picture this:

Let's say there were 3 workers underpaid for 2 days straight:

Quick math, that's $1,200 in penalties. And that's just an example. Imagine if this went on for the entire project with a full crew. That’s not exactly pocket change.

Before you start sweating bullets, know this — these penalties don’t always apply. Instead, the penalty amount is determined by the Labor Commission based on two factors:

1) They'll want to know if the contractor or subcontractor made an honest mistake. If they did and promptly fixed it when caught, they may cut you some slack.

  • Legal jargon translation: Whether the failure of the contractor or subcontractor to pay the correct wages was a good faith mistake. And if the error was promptly and voluntarily corrected when brought to the attention of the contractor or subcontractor

2) If this isn’t your first rodeo and you've got a track record of playing fast and loose with the prevailing wage rules, don't expect them to go easy on you. And yes, they will maintain a written record of failure.

  • Legal jargon translation: Whether the contractor or subcontractor has a prior record of failing to meet its prevailing wage obligations.

Moral of the story — Ignorance isn’t bliss — it’s expensive. Pay your workers what they're owed. It's not just good business sense; it'll keep you out of trouble.

11. Keeping up with California Prevailing Wage Regulations:

Given the ever-changing landscape of prevailing wage laws, it's like trying to steer a ship in a storm – you have to stay sharp to stay on course. It’s crucial for contractors to stay in the know on the changes and updates to maintain ongoing compliance

For contractors, that means engaging and rubbing shoulders with industry associations, attending training sessions, and when in doubt, seeking advice from legal experts who can guide you through the complexities of prevailing wage regulations.

Understanding California's prevailing wage laws demands a deep understanding of regulations, determining applicable rates, and being diligent about reporting requirements. By staying informed and following these guidelines, contractors can minimize risks and ensure they are paying their workers fairly on public projects.

Entering the public work sector provides a big opportunity to grow and diversify your projects but at the same time, it may seem daunting for newcomers. It can be like navigating a jungle without a compass, which can have you feeling uncertain about where to start or lacking confidence to bid on public projects.

When in doubt, the California Department of Industrial Relations offers valuable support through the Public Works Manual, which provides a map of wage regulations and access to essential resources such as general labor laws.

How can Hammr help:

If you find yourself approaching our currently navigating the jungle construction payroll, grappling with prevailing wage, or scratching your head over wage determinations, Hammr hits the nail on the head. Our modern platform handles everything from construction payroll, HR and operations. You’ll feel like you have superpowers. Want to learn more? Connect with our team.

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