We all know that prevailing wage violations come with real consequences. Often times this comes after a small mistake is made, resulting in workers being paid the wrong amount. Small mistakes can grow into larger issues quite easily, so even a seemingly insignificant mistake can lead to a complicated and costly issue. For example, if a couple workers are being paid the wrong hourly rate, their paycheck and fringe benefits will be incorrect. This adds up with every hour logged. A contractor could find themselves owing thousands in wage restitution over the course of a couple pay cycles, or with the addition of other workers working under the same incorrect wage determination.
Sometimes violations come from intentional mismanagement, not simple mistakes. This is the case in largest criminal prevailing wage case in history. The fine for this case came out earlier in the year, as we reported, the details of which you can read in this article. Now there is more news on this record-breaking case, including a new guilty plea to felony criminal charges.
Here’s what happened
Glenn O. Hawbaker, Inc., a large prevailing wage contractor operating in Pennsylvania, mismanaged retirement money intended for prevailing wage workers. The money went to fund retirement accounts for all Hawbaker employees, including the owners and executives. Additionally, funds that were required to go to health and welfare benefits were used to subsidize the cost of a self-funded health insurance plan which included all workers. The activity was covered up by artificially inflating costs by millions and claiming credit for costs that are not allowed under prevailing wage law.
Hawbaker pleaded guilty to four felony counts of theft by failure to make a required disposition of funds received and the company was sentenced to five years of probation. Additional requirements where set forth by the court, including the repayment of $20,696,453 in restitution to 1,267 affected workers.
How to prevent it
In this case it appears that prevailing wage laws were intentionally broken. However, it pays to look at some of the ways similar mismanagement might happen by accident. This could occur if you are not properly managing fringe funds, such as funding and taking credit for benefits that are not allowed as fringe under prevailing wage law.
Remember, any type of payment that is required by federal, state or local law cannot be considered fringe benefits. That means that money paid toward workers’ comp or social security cannot be considered a fringe benefit. Apart from that, fringe benefits can be paid in cash or through eligible options including:
- Life insurance
- Health insurance
- Pension
- Vacation
- Holidays
- Sick Leave
You must also understand that some fringe benefits are subject to annualization, so a company cannot subtract the full amount of the fringe benefit from the amount they are required to pay. And as in this case, fringe money cannot be used to fund benefits for non-prevailing wage workers.
Another thing you can do to prevent similar issues happening by accident is to prioritize ongoing education for your team. Everyone needs to understand the laws surrounding prevailing wage work so they don’t accidently take steps that lead to compliance violations.
To get started, your team should have a detailed understanding of:
- Prevailing wage requirements
- How to locate correct wage determinations
- How to classify every worker role on the jobsite
- How to locate official resources pertaining to wage determinations, prevailing wage regulations, and worker classifications.
Staying well informed and ahead of the law won’t just happen, you’ll need to be proactive. Put one person over education for your team and task them with sending weekly emails with info and resources for the team. Here are some resources to get you started:
Fringe trust info
Fringe benefit FAQ
Certified payroll FAQ
Certified payroll resource list
Compliance tips for government contractors
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.
