What Is Prevailing Wage?

A question we often we get asked! Prevailing wage is a standardized rate for wages and benefits that certain employers must pay their workers, typically on government-funded projects or when employing foreign workers.

Here are the key points about prevailing wage:

1. Definition: It’s the hourly wage, usual benefits, and overtime paid to the majority of workers in a particular area for a specific type of work.
2. Purpose: To prevent contractors from undercutting each other through wage reductions and to protect local workers from being displaced by lower-paid foreign labor.
3. Calculation: Usually based on the rate used in over 50% of instances for that work in a given region. If no single rate is used that often, a weighted average is calculated.
4. Applicability: Typically applies to government contractors and employers with foreign workers. The federal threshold is $2,000 for government contracts.
5. Laws: Regulated by laws like the Davis-Bacon Act at the federal level, with many states having their own “little Davis-Bacon Acts.”
6. Enforcement: Contractors must submit certified payrolls to prove compliance.
7. Differences from minimum wage: Prevailing wages are set by market conditions for specific types of work, while minimum wages are legislated minimums for all work.
8. Benefits: Supporters argue it maintains high earnings for workers, ensures quality work, and prevents a “race to the bottom” in wages.
9. Criticisms: Some argue it increases costs for government projects.
10. Expanding scope: In some areas, prevailing wage requirements are expanding beyond traditional government contracts to other sectors receiving public funding or tax incentives.

    The concept of “prevailing wage” refers to the average or standard wage paid to workers in a specific industry, region, or job type, often determined by government or regulatory bodies. Its significance lies in ensuring fair compensation for labor, preventing undercutting in competitive markets, and maintaining a standard of living for workers.

    Determination of Prevailing Wage:
    Prevailing wages are typically determined through surveys and analysis of wage data across various employers within a specific geographical area and industry. Authorities like the Department of Labor in the United States use this data to set wage rates that reflect the average earnings for particular job categories.

    Examples of Variation:

    • Industry: In the construction industry, prevailing wages might be higher due to union agreements and the skilled nature of the work. Conversely, service industries might have lower prevailing wages due to less specialized labor requirements.
    • Region: Wages vary significantly from urban to rural areas. For instance, a prevailing wage for electricians in New York City may be higher than in a rural town due to higher living costs and demand for services.
    • Job Type: Highly specialized roles, like software engineers, often have higher prevailing wages compared to less specialized roles like administrative assistants due to skill demand and availability.

    Impact on Employers and Employees:

    • Employers: Prevailing wage laws ensure a level playing field for companies bidding on government contracts. However, they can increase project costs, which might be transferred to consumers or lead to reduced hiring if budgets are tight.
    • Employees: These wages protect workers from exploitation, ensuring fair pay that reflects the cost of living and industry standards. They also encourage skill development as workers seek roles with higher prevailing wages.

    Legal and Regulatory Considerations:
    Prevailing wage laws, such as the Davis-Bacon Act in the U.S., require that contractors and subcontractors on public projects pay their laborers and mechanics at least the locally prevailing wages. Compliance with these laws is crucial to avoid penalties, legal disputes, and reputational damage.

    This blog doers not constitute formal HR or legal advice.  For more information please refer to our Mineral HR Resource Center or contact your friendly APlus CSS. You can also contact us here for more general questions about Payroll and TLM.