How the New Davis-Bacon Ruling Affects Prevailing Wage Contractors

The United States Department of Labor (DOL) 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.

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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. 

Contracting Agency Rules

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.

Construction Company Impact

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 an SUB plan for an employee who 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.  

How to Set Prevailing Wage Rates

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

Debarment Standard

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

• 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 went into effect just 60 days after the ruling was published in the Federal Register on October 23, 2023. The DOL has issued guidance to help clarify some murky points of the law. Find ways the changes apply to your operations so ou can move forward with a plan. 

New Regulatory Update

The United States Department of Labor (DOL) has recently issued a new regulatory update, titled “Revitalizing the Davis-Bacon and Corresponding Statutes Regulations”. This update is a major overhaul of the federal prevailing wage law, which dates back to 1931. The new ruling restores the original definition of prevailing wage, which was changed in 1982. It also introduces some significant changes to how prevailing wage rates are calculated and enforced, as well as the compliance responsibilities of contractors and contracting agencies.

If you are a contractor working on federal projects, you need to be aware of these changes and how they affect your business. In this blog post, we will provide an overview of the main points of the new Davis-Bacon ruling, and offer some tips on how to comply with the new requirements and avoid potential penalties.

What is the Davis-Bacon Act and Prevailing Wage?

The Davis-Bacon Act is a federal law that requires contractors and subcontractors working on federally funded or assisted contracts worth more than $2,000 to pay their workers no less than the prevailing wage rates and fringe benefits for the area where the work is performed. The prevailing wage rates are determined by the DOL based on surveys of wages and benefits paid to workers in similar occupations and locations. The purpose of the law is to protect workers from being underpaid and to ensure fair competition among contractors.

What are the Changes to the Definition of Prevailing Wage?

The new Davis-Bacon ruling changes the definition of prevailing wage to the one that was used before 1982. Under the old definition, the prevailing wage rate was the rate paid to at least 30% of the workers in the same occupation and area, or the average rate if less than 30% of the workers received the same rate. Under the new definition, the prevailing wage rate is the rate paid to a majority (more than 50%) of the workers in the same occupation and area, or the average rate if there is no majority.

This change means that the prevailing wage rates will likely be higher and more reflective of the current market conditions. It also means that the DOL will have to conduct more frequent and accurate surveys of wages and benefits to determine the prevailing wage rates.

What are the New Compliance Responsibilities for Contractors?

The new Davis-Bacon ruling also imposes new compliance responsibilities for contractors and subcontractors working on federal projects. These include:

• Keeping certified payroll records for three years after the completion of the project, instead of the previous two years. The records must include the project contract, related documents, employee telephone numbers, and email addresses.
• Submitting certified payroll records to the contracting agency or the DOL upon request, instead of the previous requirement of submitting them weekly.
• Ensuring that subcontractors comply with the Davis-Bacon Act and the contract clauses, and being liable for any violations by subcontractors.
• Posting the prevailing wage rates and the Davis-Bacon poster at the worksite, and informing workers of their rights and obligations under the law.
• Cooperating with the DOL in any investigations or audits of compliance, and reporting any suspected violations or complaints.

What are the New Enforcement Powers of the DOL?

The new Davis-Bacon ruling also gives the DOL more authority and tools to enforce the prevailing wage law and penalize violators. These include:

• Issuing debarment orders to contractors and subcontractors who violate the law, which means they will be ineligible to bid on or work on any federal contracts for up to three years.
• Imposing civil monetary penalties of up to $2,000 per violation, and up to $11,000 for willful or repeat violations.
• Withholding contract payments or funds to cover the amount of underpaid wages and benefits, and distributing them to the affected workers.
• Seeking injunctive relief or legal action against contractors and subcontractors who violate the law or fail to cooperate with the DOL.

How to Comply with the New Davis-Bacon Ruling and Avoid Penalties?

As a contractor working on federal projects, you need to be proactive and diligent in complying with the new Davis-Bacon ruling and avoiding any potential penalties. Here are some tips to help you:

• Stay updated on the prevailing wage rates and fringe benefits for your area and occupation, and adjust your payroll accordingly. You can find the latest wage determinations on the DOL website or by contacting the local DOL office.
• Review your contracts and subcontract agreements, and make sure they include the required Davis-Bacon contract clauses and wage determinations. You can also use the DOL’s online tool to generate the contract clauses.
• Keep accurate and complete payroll records, and submit them to the contracting agency or the DOL when requested. You can use the DOL’s online tool to generate the certified payroll reports.
• Educate your workers and subcontractors about their rights and obligations under the Davis-Bacon Act, and post the required notices at the worksite. You can download the Davis-Bacon poster and other materials from the DOL website.
• Monitor your subcontractors’ compliance, and report any violations or complaints to the DOL. You can also use the DOL’s online tool to file a complaint or check the status of a complaint.

Federal Prevailing Wage Law is Changed

The new Davis-Bacon ruling is a significant change to the federal prevailing wage law, and it affects contractors and subcontractors working on federal projects. 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.

FAQ About Prevailing Wage and the New Davis-Bacon Ruling

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.