The United States Department of Labor unveiled its newest regulatory update, “Revitalizing the Davis-Bacon and Corresponding Statutes Regulations.” This regulatory overhaul of federal prevailing wage law represents a return to the pre-1982 definition. These changes to Davis-Bacon impact how prevailing wage rates are calculated, but they also add compliance responsibilities on top of an already compliance-heavy process. Additionally, the ruling gives the DOL more enforcement abilities.
An Overview of Changes to Davis-Bacon 2023
The following overview provides key points related to this change, but every federal contractor is encouraged to dig into the ruling to understand its impact fully.
New Compliance Responsibilities for Contractors
The DOL’s new Davis-Bacon ruling elevates record-keeping requirements for federal contractors. Contractors working on federal projects must maintain certified payroll records as usual but must keep the project contract, related documents, employee telephone numbers, and email addresses for three years past the completion of the project.
The DOL ruling also clarified that general contractors could indeed be held liable for the violations of their subcontractors. This elevates the risks and responsibilities facing federal contractors. At the same time, however, it reduced the obligations of the contracting agency hiring those contractors.
The new ruling also states that contracting agencies don’t have to include the complete Davis-Bacon contract clauses within the contract; they can simply include the requirements by reference alone. They also are not obliged to include wage determinations with contracts, a longstanding practice intended to help federal contractors with compliance efforts.
New Ruling on Annualization of Fringe Benefits
For years, there has been uncertainty and confusion surrounding the annualization of fringe benefits when credited against the employer’s contribution obligations, even though a previous court case stated that annualization was required. This new DOL ruling ends the debate, requiring that fringe benefits be annualized.
This especially impacts construction companies that use Supplemental unemployment benefits (SUB) to handle fringe benefits. One of the draws of SUB plans comes from crediting contributions against fringe benefit obligations. This new DOL ruling verifies that you cannot take full credit for your contributions to the plan, you must annualize them.
For example, if you put $5,000/year into a SUB plan for an employee that works 25% (520/2080 hours) on prevailing wage jobs, you can only take $1,250 of credit for those contributions. This dramatically reduces the appeal and benefit of SUB plans and could leave contractors exposed to legal and financial risk.
“New” Way of Setting Prevailing Wage Rates
Currently, the DOL sets prevailing wage rates based on information provided by wage surveys using a majority (50% or more) as the determining factor. So if 50% or more survey respondents report a wage rate for any job classification, that rate would become the prevailing rate. The 2023 DOL ruling returns to the 30% rule, so it no longer takes a majority of respondents to set prevailing wages. This 30% rule was in place from the inception of Davis Bacon through 1982.
The DOL can now also use wage data from metropolitan areas to set prevailing wages in nearby rural areas. They can decide to adopt state and local prevailing wage rates as their own. And if a wage determination hasn’t been updated in three or more years, they can use the U.S Bureau of Labor Statistics Employment Cost Index (ECI) to set them.
More Projects Covered Under Prevailing Wages
The new ruling expands “building” and “work” under Davis-Bacon to include installing solar panels, broadband, electric vehicle charging stations, and wind turbines. It also expanded the definition of “worksite” to now include off-site locations where a portion of the construction work may be done. This seems to only apply if the site is dedicated to a single Davis-Bacon eligible project and only during the time required for any off-site construction needs.
Another change is how the DOL regards the small amounts of time truck drivers may spend taking things back and forth from a prevailing wage worksite. Previously the idea of “de minimis” was in place, meaning the time was too minimal to count. When the ruling becomes law, the DOL will consider small amounts of time in aggregate (by day or workweek) to determine if the time is counted and paid, prevailing wage rates.
Increased Enforcement and Punitive Capabilities
Under the new DOL ruling, companies can be forced to provide job reinstatement, back pay with interest and benefits, or other compensation if retaliation is discovered. The new rules also officially incorporate interest on back wages at the IRS interest rate compounded daily
The DOL is also utilizing a more punitive standard for debarment. Previously, a violation had to be considered aggravated or willful to qualify for debarment. This typically meant that companies believed to have made unintentional mistakes would not face debarment. Under the new ruling, companies can be debarred for “disregard of obligations.”
It is unclear how this will be applied to violation cases, but it suggests that the DOL may debar companies previously considered accidental violators. Additional changes include an increased debarment period for Davis-Bacon Related Acts violations to three years. Contractors will also no longer be able to petition the DOL for early removal from debarment.
Additional changes to debarment include:
- The rules increase the debarment period for Related Acts violations to a mandatory three years and eliminate the ability for contractors to petition for early removal from the debarment list.
- The DOL can now direct other agencies to withhold payment to contractors due to compliance violations, not just the contracting agency. Additionally, the DOL can withhold payments to other legal entities related to the contractor being investigated, extending the authority of the DOL.
When does the new Davis Bacon ruling start
These and other changes to Davis Bacon not covered in this article go into effect just 60 days after the ruling is published in the Federal Register. The DOL will likely issue guidance to help clarify some murky points of the law, but don’t wait for that to start looking at how the changes apply to your operations.
This ruling marks a significant change in federal prevailing wage regulations and expands the reach of the DOL. At the same time, it places additional cost compliance burden and risk on contractors. This means it is a great time to audit your internal processes and consider implementing construction payroll software solutions designed to simplify compliance on federal government contracts.
Learn more about the final rule to modernize Davis-Bacon Act regulations.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.
