Contractors and employers who hope to secure a federally-funded government contract are required to pay their laborers the prevailing wage for the area in which the project is located.
The prevailing wage for that geographical area is determined by government authorities based on local data, surveys, and collective bargaining agreements (if applicable).
What is Prevailing Wage?
A prevailing wage is the standard rate of pay for a particular type of labor and/or project in a specific geographical area.
Prevailing wages are determined by local, state, and/or federal government authorities, and are usually published annually (see the Department of Labor’s most recent publication for Maricopa County, Arizona).
Some states have laws that extend prevailing wage restrictions to state and local government contracts, but in the state of Arizona, prevailing wages are only required on federally-funded government contracts (that includes state and local contracts that are partially funded by federal programs).
In fact, Arizona law explicitly prohibits agencies and political subdivisions of the state, including charter cities, from passing regulations or ordinances with provisions that mandate prevailing wages.
What is the Purpose of Prevailing Wages?
Contrary to popular opinion, prevailing wages aren’t used by the government to keep project costs down. The primary goal for using prevailing wages is actually to protect local labor markets and prevent foreign competitors from undercutting local workers.
By using prevailing wages for a particular county, competitors from another geographical area with cheaper labor costs can’t come in and undercut the local contractors and subcontractors when bidding on a project.
Take, for example, a federal construction contract in Maricopa County. If a contractor in Pima County can pay her subcontractors less than a contractor in Maricopa County, and if both contractors bid on the construction job in Maricopa County, the Pima County contractor would likely win the bid with lower overall costs.
That scenario is especially problematic if the contractor in Maricopa County is required to pay higher wages to his subcontractors as part of a collective bargaining agreement with a union. If foreign, nonunion competitors could come in and undercut local laborers on every project, the local laborers would be at a permanent disadvantage.
How to Find Out if a Job is Subject to Prevailing Wages
The requirement for prevailing wages in federally-funded contracts is primarily dictated by three federal laws: the Davis-Bacon Act, the McNamara-O’Hara Service Contract Act, and the Walsh-Healey Public Contracts Act.
These laws—and by extension the prevailing wages that they mandate—are administered and enforced by the US Department of Labor’s Wage and Hour Division (WHD). In order to understand which jobs are subject to prevailing wages, it helps to understand what types of contracts are covered under these laws by the WHD.
Contracts Covered by the Davis-Bacon Act
The Davis-Bacon Act (DBA) generally applies to contractors and subcontractors who are performing work on federal and federally-funded contracts worth at least $2,000 for construction, alterations (including painting and decorating), or repairs.
Any mechanics and laborers who perform work on the site of DBA-covered contracts are required to receive the local area’s prevailing wage rates for their work.
Since Arizona doesn’t require prevailing wages, all of the prevailing wages for the state are issued by the federal government through the Department of Labor. The DOL publishes an annual report in January of each year for prevailing wages under the Davis-Bacon Act. The most recent publication was General Decision Number AZ180032 (updated 1/19/2018).
Contracts Covered by the McNamara-O’Hara Service Contract Act
As the name suggests, the McNamara-O’Hara Service Contract Act (SCA) covers government service contracts. The SCA requires contractors and subcontractors who are performing services for prime government contracts (worth more than $2,500) to pay all of their service employees no less than the prevailing wages and fringe benefits for that locality, or the rates (including prospective increases) contained in a predecessor contractor’s collective bargaining agreement.
The Department of Labor currently issues wage determinations on a contract-by-contract basis in response to specific requests from contracting agencies, and all prevailing wage determinations are incorporated into the contract.
For government service contracts that are less than $2,500, contractors and subcontractors are only required to pay their service employees the applicable minimum wage. The state of Arizona imposes a minimum wage that’s higher than the federal minimum wage, so government service contracts in Arizona would be subject to the state’s minimum wage (currently $10.50/hour).
Note that prime government service contracts that are worth more than $100,000 are also subject to the Contract Work Hours and Safety Standards Act (CWHSSA).
The CWHSSA requires contractors and subcontractors to pay mechanics and laborers, including watchmen and guards, at least 1.5x their regular wages for overtime (anything over 40 hours in a workweek). Additionally, the overtime provisions of the Fair Labor Standards Act may apply to SCA-covered contracts.
Contracts Covered by the Walsh-Healey Public Contracts Act
The Walsh-Healey Public Contracts Act (PCA) applies to government contracts worth more than $10,000 that involve the manufacturing or furnishing of supplies, materials, articles, or other equipment to the US Government or the District of Columbia. Specifically, the PCA establishes the minimum wage, maximum hours, and health and safety standards for work on these types of government contracts.
All covered workers under a PCA contract must be paid at least the minimum wage (either the federal minimum wage or the state minimum wage, whichever is higher), and the workers are entitled to overtime pay of 1.5x their normal wages.
The employer is also required to display copies of both the Service Contract Act and the Public Contracts Act while the contracted work is being performed. There are a handful of circumstances where the PCA doesn’t apply:
- Certain “open market” purchases
- When purchasing perishable goods
- Certain agricultural purchases
- Contracts for public utility services and certain transportation and communication services
- For supplies that are manufactured or furnished outside the United States (including Puerto Rico) or the Virgin Islands
- Contracts that are administratively exempted by the Secretary of Labor under special circumstances
All provisions of the PCA are administered by the Wage and Hour Division, with the exception of the law’s health and safety requirements. These provisions are administered and enforced by the Occupational Safety and Health Administration (OSHA), another division of the US Department of Labor.
Call our Employment Law team at (480) 464-1111 to discuss your case today.