One of the penalties companies can receive if they fail to follow prevailing wage laws is having payments withheld. An Illinois contractor found this out the hard way when the state withheld payments on $5 million in state projects until they addressed complaints.
An Illinois contractor hired to install broadband in multiple locations was the subject of an investigation after a worker with the Laborers’ International Union filed a complaint. As a state-funded project, the work fell under prevailing wage laws which required the payment of prevailing wages and the filing of certified payrolls to the Department of Labor (DOL).
Upon investigation, it was found that certified payrolls were not filed, and workers were not paid prevailing wages. Some workers were owed over $20,000 in back wages alone. In response to the investigation, the state withheld $870,629 in payments for work on projects until the contractor paid $72,935 in owed wages and a $14,587 fine.
Susana Mendoza, the Illinois State Comptroller, had this to say regarding the action:
“The comptroller’s efforts should serve as a warning to contractors that prevailing wage requirements are the law of the land, and failure to follow the law has serious consequences,” said Sean Stott of the Laborers’ International Union.
How to prevent it
The two problems cited in this case are failing to file certified payrolls with the DOL and failing to pay the correct prevailing wage rates. While we don’t know how either of these happened with this specific case, we do know how the problems can occur on prevailing wage projects.
Failing to submit certified payroll reports
Not understanding the reporting requirements associated with prevailing wage work can leave a company out of compliance. This can quickly turn into a large problem that’s difficult to fix as the weeks go by and the number of missed reports adds up. Companies trying to complete payroll and reporting by hand, and those new to public work projects, are particularly vulnerable.
In Illinois, certified payroll reports can be submitted online and must be uploaded no later than the 15th of each calendar month in which work is completed. Certified payroll questions can be sent via email at firstname.lastname@example.org or by calling (312)793-3600. Each state has different rules, so be sure to check with your state’s Department of Labor or similar oversight agency.
Incorrect prevailing wage rates
Every construction company that does prevailing wage work is responsible for knowing and following the law. They are also responsible for ensuring they are using the correct rates for the project and type of work being performed.
Even if prevailing wage and fringe benefits rates are provided in the bid packet or with the contract, it’s important to verify them with official sources. You can check the current prevailing wage rates for Illinois here. Additionally, you need to create a system for checking rates during the payroll process to ensure mistakes don’t make it to paychecks or official reports. Using software designed for prevailing wage time, attendance and payroll can dramatically reduce these types of mistakes.
Making sure you understand the law and your responsibilities under it is critical to success as a government contractor. Prevailing wage projects can be a great source of contracts and growth, but it comes with risk. Mistakes from not understanding the law and simple errors from manual entry and similar administrative processes all create risk.
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.