You've worked hard to turn a profit on a project funded by the federal government but imagine your surprise when you find out you owe your employees several thousand dollars in back wages.
The Davis-Bacon Act (DBA) governs the wages paid to workers on federal construction projects. The general contractor is responsible for ensuring that they and their subcontractors follow these rules. In this article we're going to walk through eight traps GCs can fall into they don't plan appropriately.
Key Takeaways
- The Davis-Bacon Act establishes the prevailing wage GCs must pay workers performing physical labor on federal construction contracts.
- The site of the work includes the project site and any off-site facilities established solely for the project.
- GCs may meet the prevailing wage requirements with any combination of wages and bona fide fringe benefits, provided they meet other minimum wage requirements.
What is the Davis-Bacon Act?
The Davis-Bacon Act (DBA) and related acts (DBRA) require contractors working on federally funded public buildings and public works to pay construction workers the prevailing wage rates and submit certified payrolls. The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) administers this act and publishes the locally prevailing wages as wage determinations. These determinations are typically published for each county of each state and the District of Columbia for four types of construction (building, heavy, highway, and residential). Periodically, the WHD conducts a wage survey and publishes the updated wage determinations at sam.gov.
Who is Covered?
DBA-covered workers include those whose jobs are manual or physical in nature, such as laborers, mechanics, apprentices, trainees, and helpers. As such, the act covers all employees who perform construction work.
In contrast, the DBA does not cover mental and managerial jobs whose duties are primarily administrative, executive, or clerical. It expressly excludes architects, engineers, timekeepers, and inspectors. Also excluded are owners who own at least 20% of the business and are actively engaged in its management.
But wait, what about workers who perform physical and mental work, like forepersons? If they spend more than 20% of their time performing manual or physical labor, the DBA covers them for that time. For this reason, they must record their physical labor and supervisory work separately or be considered covered employees for the entire workweek.
What Work is Covered?
The DBA covers all construction work at the site of the work, which includes the construction project’s site and any off-site facility where a significant portion of the work is performed, and the site is set up specifically for the project. This includes batch plants, borrow pits, job headquarters, and tool yards set up and mainly dedicated to a single project.
The contractor’s permanent home offices, branch plant establishments, fabrication plants, and tool yards that were established without regard to the project are not considered part of the site of the work. Established suppliers’ fabrication plants, batch plants, borrow pits, job headquarters, and tool yards are also excluded, even if they are dedicated to a project for a period of time.
Are Truck Drivers Covered Under the DBA?
The DBA covers the GC’s and sub’s drivers while at the site of the work, including loading and unloading materials, unless the time is de minimis (too trivial to be considered). It also covers these drivers transporting materials or prefabricated portions of the building between a support facility that is considered part of the site of the work and the actual construction job site.
The DBA excludes truck drivers who are not on the site of the work (except as noted above) and when transporting materials between a commercial supplier and the site of the work. For example, when transporting material from a commercial gravel pit to the job site, the DBA only covers the GC’s and sub’s truck drivers when they are on the site of the work. It also excludes drivers performing de minimis work on the site of the work.
The DBA treats owner-operators of trucks as business owners and exempts them from the Davis-Bacon labor standards. However, it does not consider drivers who rent their trucks as owner-operators.
What are Prevailing Wages?
The DBA requires that covered workers on federal contracts be paid the prevailing wage set forth in the project's wage determination. The prevailing wage includes the basic hourly rate and fringe benefits.
GCs can meet the prevailing wage requirements by paying any combination of wages and bona fide fringe benefits, provided the total paid to the employee meets or exceeds the sum of the basic hourly rate and fringe benefits. For example, a GC doesn’t need to provide its employees with fringe benefits but they may include the cost of the fringe benefits in the employees’ wages. Alternatively, if they provide more fringe benefits than are required, the excess funds spent on fringe benefits can be applied to the basic hourly rate.
Although basic hourly wages and fringe benefits can be used to meet each other's requirements, they are treated differently for overtime. GCs must pay one and a half times the basic hourly rate for hours worked in excess of 40 hours per workweek. The fringe benefits are the same for straight and overtime time.
Complying with the DBA on covered contracts does not relieve GCs from complying with executive orders and other federal regulations that provide workers protections, like the Fair Labor Standards Act (FLSA), which includes overtime and minimum wage requirements, and the Contract Hours and Safety Standards Act. Currently, an executive order requires that covered workers be paid a minimum of $17.20 per hour or the applicable wage rate, whichever is higher. GCs must also meet state and local minimum wage requirements.
🔎 Dive deeper into prevailing wage laws in construction.
What is a Bona Fide Fringe Benefit?
Bona fide fringe benefits include insurance (life, health, dental, and vision), pensions and retirement plans, vacation, holidays, and sick leave. The DBA expressly excludes Social Security, workers’ compensation insurance, unemployment compensation, use of a company vehicle, Thanksgiving turkeys, and Christmas bonuses.
The DBA also includes requirements for tracking and managing fringe benefits. Contributions to retirement and insurance plans must be made at least quarterly. These plans have additional requirements which are beyond the scope of this article. We recommend that GCs hire qualified advisors to ensure these benefits are correctly set up and managed.
Unfunded contributions (like funds set aside for vacation, holidays, and sick leave) must be kept in a separate account and funded quarterly. GCs should establish an accrued paid time off account in their accounting system and set aside funds in this account each pay period to cover future paid time off.
How Do GCs Show Conformance?
The DBA requires GCs and their subcontractors to submit a statement of compliance and certified payrolls documenting each employee’s hours worked, wages, and fringe benefits. The certified payrolls are used to show that the contractor and their sub are in conformance with the project’s wage determination. Compliance must be shown for each employee and can’t be averaged across employees. For example, GCs cannot use the average fringe benefits provided to their employees but must determine the cost of the fringe benefit for each employee.
8 Traps to Avoid
Trap #1 - Using the Wrong Wage Determination
Using the wrong wage determination can leave your company responsible for back wages. GCs should always obtain the prevailing wage determination from the contract documents or the contracting officer representing the project’s contracting agency.
Trap #2 - Not Accounting for Suppliers
That brings us to the second trap - not accounting for suppliers. Although a supplier’s employees are typically not covered by the DBA, they can inadvertently become so. Suppose a material supplier sends two employees to a project to troubleshoot a material installation problem, and they spend two days helping install the materials. Because they spend more than 20% of the workweek performing construction work, they are covered by the act for the work at the job site.
Trap #3 - Not Accounting for Off-Site Labor
What about off-site prefabrication? This is something that is often used in the construction industry and simply performing the work off-site does not relieve GCs from meeting the prevailing wage requirements. Suppose a framing contractor decided to rent an empty warehouse to prefabricate the trusses needed for a federally funded project. The DBA would cover the fabrication if they only fabricated trusses for that job. However, the fabrication would not be covered if they used the warehouse to fabricate trusses for several projects.
Trap #4 - Exempting Owners Who Aren't Bona Fide
Ownership must be bona fide (genuine) for a business owner to be exempt from the DBA requirements. GCs can run into problems when they set their employees up as business owners and hire them as subcontractors. Suppose a GC owns several dump trucks that they rent to drivers to be used on the GC’s projects. The GC considers the drivers to be owner-operators who are exempt from the prevailing wage requirements. In this case, the drivers are still subject to the DBA requirements because they rent the trucks and are not a bona fide business owners.
Trap #5 - Not Meeting the Minimum Wage
When dealing with employee wages, you need to check to see if they meet all the wage requirements. Suppose a project’s wage determination for insulators includes a basic hourly wage rate of $12.50 and a fringe of $0.23, for a total of $12.73. Currently, insulators are paid $14.00 per hour and provided with $3.00 per hour in fringe benefits. Although this meets the $12.73, it does not meet the executive order requiring that workers be paid a minimum of $17.20 per hour.
Trap #6 - Improperly Accounting for Optional Match
Retirement plans commonly have provisions where the company matches an employee’s contribution to encourage employees to save for retirement. If matching contributions are used to meet the DBA requirements, the GC must verify that the employees make their optional contributions. Should the employee choose not to contribute, which they have the right to do, the GC may be required to increase the employee’s wages by the cash equivalent of the GC’s retirement contribution to meet the DBA requirements.
Trap #7 - Not Calculating Insurance Credit for Each Employee
The hourly cost of insurance fringe benefits may be different for each employee. Because insurance is priced by the month, its hourly cost varies based on the number of hours the employee works each month. The more hours worked, the lower the hourly cost. Additionally, if a GC pays a percentage of the insurance cost, employees on family plans will cost more than those on a single plan. The hourly credit for insurance must be calculated for each employee when using insurance to meet DBA requirements.
Trap #8 - Paying Less Than the Prevailing Wage When Adding Overtime
GCs may inadvertently pay less than the prevailing wage when adding overtime. Suppose a GC did not plan to use any overtime on a project when determining the employee’s wages but later needed the employees to work overtime. In this case, the GC must revisit compliance with the prevailing wage. Some benefits adjust automatically (such as paying a percentage of the wages into a retirement account). Others (such as insurance) would decrease because their costs are spread over more hours. If the employee’s wage rate exceeds the basic hourly rate, paying overtime on their wages would automatically pay overtime on the basic hourly rate. However, this would not be the case if fringe benefits were used to meet part of the basic hourly rate.
Where to Learn More About the Davis-Bacon Act
The U.S. Department of Labor has prepared the Prevailing Wage Resource Book to help GCs and federal agencies comply with the DBA. GCs working on federally funded projects should have their compliance and management personnel review this book, especially Tab 9 DBA/DBRA Compliance Principles.
Final Thoughts
Compliance with the DBA is a critical part of working on federally funded projects, and failure to do so can be expensive. This article briefly reviewed some of the compliance requirements and pitfalls. However, it is not all-inclusive. GCs working on these projects need to hire personnel experienced in working with the DBA, involve their accountant and legal team in reviewing compliance, and provide ongoing training in its requirements for all employees.