A financially struggling contractor has the unenviable position of being involved in one of Minnesota’s first wage theft cases since the law was passed in 2019. While the work was performed on an apartment complex, it fell under state prevailing wage law because the property had received tax increment financing.

Here’s what happened
In 2019 a painting contractor won a bid to perform painting and cleaning work at an apartment complex in Minneapolis. This development had received tax increment financing (TIF) through the city, making all work on the property subject to prevailing wage law. As such, all workers were due prevailing wage rates for the contracted work.

The City of Minneapolis provided contractors with information regarding their obligations, including a Notice of Civil Rights Rules and Regulations which discussed prevailing wage requirements. This notice included the prevailing wage rate for painting at $55.62 per hour and cleaning at $54.95. The expected cost for labor and materials for painting was expected to be $223,681.

During the course of the project, the painting contractor did not pay prevailing wages. They also withheld pay and submitted official reports that did not include hours worked by some employees. Additional workers were underpaid an aggregate total of over $35,000. By the end of the project, the painting contractor had received nearly $300,000 for the project.

How to prevent it
This situation has not fully resolved and it’s difficult to know if prevailing wages were not paid due to a misunderstanding or error, or an intentional effort to reduce labor costs. We do know that in this situation the wage rates and expected total labor costs were provided to the contractor. We also know that submitted reports omitted worked hours and pay was withheld. 

Other than an intentional effort to reduce costs, there are several mistakes which are easy to make but may result in workers being underpaid, such as:  

  • The wrong wage determination is used, such as using low-voltage electrician rates for work that more closely falls under high-voltage.

    Prevent it by:  It’s important that you carefully read wage determinations to ensure you’re using the correct one for the work being performed. Several labor classifications may be listed under one identifier, each with a separate hourly and fringe rate. The type of work for each is different, even if they are similar or related. If you cannot confidently find a labor classification for the work being performed, contact the Wages and Hours Division (WHD) for clarification or a conformance. This is a special wage rate granted when there is no existing labor classification in place. 
  • An outdated wage determination that’s no longer in effect is used.

    Prevent it by: Wage determinations expire and may even change during the course of a project. State laws vary on how mid-project rate increases are handled, but it’s critical that you are aware of increases and the rules for handling them. Before starting a project, check the bid packet and official resources to determine the correct rates. 
  • Work classifications aren’t being tracked carefully, resulting in workers being paid a rate that doesn’t match the actual work being done.

    Prevent it by:
    When workers switch roles in the field, it needs to be tracked so the correct prevailing wage rate is paid. This can be difficult to address if you’re tracking time by hand, spreadsheet or using a time and attendance system that isn’t set up to make it easy.  Make sure to regularly remind your workforce about this requirement, and consider updating how you handle time tracking if it continues to be a problem.
  • Failing to accurately track all hours worked.

    Prevent it by: This problem isn’t specific to government contracts, but still can lead to trouble if you’re investigated. Make sure to regularly check timesheets to make sure the hours reported match the number of hours scheduled. Regularly address company policy for tracking hours with workers to highlight the importance of accurately tracking time. 

Currently there is a push for the increased enforcement of labor laws across the country. More labor laws are also being signed into law, including wage theft and prevailing wage laws. Making mistakes, even if a law is new or unclear, carries the same risk as ignoring the law. The first way to reduce your risk is to stay on top of what is happening in your state and city. Use your local Department of Labor (DOL) as a resource and if you’re unsure about anything, contact them. 

Last but not least, make ongoing education and process improvement a part of your culture. Empowering your staff with the right tools and information to accurately handle certified payroll, reporting and related tasks might save you from legal and financial risk. 

Helpful information on certified payroll & prevailing wages:
Minnesota Prevailing Wage 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.