Subcontractor Fined $900K: Avoid Prevailing Wage Mistakes NOW

A NY electrical subcontractor owes $900K in back wages and penalties for public works violations on multiple New York City Housing Authority (NYCHA) projects. They were found to have underpaid prevailing wages to over 200 employees over the course of three years. In addition to the heavy financial cost, the company is also banned from public works projects in New York for five years.

See what happened and how you can make sure it doesn’t happen on your next government contract.

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How a Subcontractor was Fined $900K

The electrical company was hired as a subcontractor to perform work on NYCHA houses in all five Boroughs between 2015 and 2018. Their work was primarily focused on installing and removing breaker boxes to scaffolding and sidewalk sheds. As a public works project, the work was subject to Article 8 of New York State Labor law requiring the payment of prevailing wages.

During this time, electricians working on the public works projects should have been paid a prevailing wage rate between $74 to $110 an hour, depending on the nature of the electrical work. In reality, workers were paid in the range of just $20 to $60 per hour. Responding to complaints, the Office of the Attorney General of the State of New York (OAG) investigated the situation.

Certified Payroll Review Concerns

After looking at certified payrolls and sign-in sheets, the OAG determined that the subcontractor had classified some electricians as supervisors, preventing them from being paid prevailing wage rates.  Other workers classified as electricians were paid the wrong prevailing wage rates, resulting in an underpayment.

The investigation resulted in the subcontractor owing $900K in back wages, benefits, penalties. In addition, they are debarred from public works contracts for 5 years within the state of New York.

The official stance of the OAG indicates that the subcontractor misclassified some electricians as supervisors intentionally in order to avoid paying prevailing wages. This type of issue isn’t an error, but a violation. Paying the wrong prevailing wages, however, is a mistake that can be easy to make. It typically occurs by relying on the wrong wage rate schedules or misclassifying workers.

Wrong Subcontractor Rate Schedule

In New York, you can view prevailing wage schedules for public construction and building service contracts on the NY DOL website. Additionally, you can request an original wage schedule from the Bureau of Public Work. Making sure you have the correct rate, however, can be more difficult.

Prevailing wage rates are separated by general and residential construction, and by county. Projects themselves may have criteria which do not live up the standard of the law or require occupations not listed under prevailing wage schedules. This means some of the rates in schedules have limited applicability.

Prevent the Fine

To prevent this type of mistake, it’s important that you exercise some due diligence. If the prevailing wage rates were provided by the agency holding the contract, check them. If they provide you the wrong rates, you are the one that will be in trouble for violations. This recently happened in NY when a contractor hired by a city was given the wrong rates and was subsequently found in violation by the DOL.

When you find the prevailing wage rate schedule, you have to look closely at the date, the job description and the counties where that rate applies. You then have to make sure your workers are doing the type of work expected for the job description. These can be simple or complicated, as shown below, where each group has their own prevailing wage and supplement benefit rate. When in doubt, contact the Bureau of Public Work to verify that you are using the correct rates.

Classify Workers Correctly

Workers must be classified correctly in order to be paid correctly. Even if you have the rates correct, you may be paying workers wrong if they are assigned to the wrong role. Each job description is different, but in the example above it shows how different types of work under the same classification can have different rates. This makes matching the actual work a person does in the field with the job classification critical in staying compliant.

Another way workers may be misclassified is if they perform work outside their main role while in the field without tracking it. If a low-voltage electrician does other types of work on a project, they need to track that change so that the correct prevailing wage rate can be paid. Failing to do so can result in a prevailing wage violation.

Put a System in Place

Due diligence in matching workers to roles is a good start to prevent this mistake. You should also have a system in place to verify that the work classifications each employee reports are consistent with the work actually performed. Check this routinely, especially if your workers work on multiple projects, or if you know that a worker regularly performs multiple roles.

Last but not least, make sure workers in the field know how important it is to track any changes to the type of work they perform during their workday. Periodically offer training to illustrate the types of situations that require changing roles, and how to handle that in your time system. If you’re not using a digital time tracking system that makes it easy for workers to do this, consider switching. The cost of switching is less than a mistake might be if the DOL finds out.

Read the official press release about the decision and check out the following resources on time keeping and prevailing wage compliance:

Solving construction time keeping problems

How to select the best certified payroll software

Payroll tips for contractors

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.