Prevailing Wage
The minimum hourly wage and fringe benefit rate that contractors must pay workers on certain government-funded construction projects.
Definition
Prevailing wage is the minimum hourly wage and fringe benefit rate that contractors are required to pay workers on certain government-funded construction projects. In the United States, the federal prevailing wage requirement is set by the Davis-Bacon Act for federal projects, and most states have their own little Davis-Bacon laws that apply to state and local government projects.
Prevailing wage rates are published by trade and by county, and they reset periodically. They typically reflect union wage levels in the area, even on nonunion projects.
How prevailing wage is used in estimating
For estimators, prevailing wage requirements have a major impact on labor pricing. A nonunion contractor pricing a prevailing wage job has to use the published prevailing wage rates for every covered worker, plus the published fringe benefit rate, plus all the normal labor burden on top. The fully burdened labor rate on a prevailing wage job is often 30 to 50 percent higher than the same contractor’s rate on private commercial work.
Prevailing wage compliance also requires certified payroll reporting. The contractor must submit weekly certified payrolls showing every covered worker, hours worked, classification, and wages paid. Compliance staff time is part of the cost of bidding prevailing wage work and should be reflected in general conditions. Contractors entering the prevailing wage market for the first time often underbid jobs because they fail to fully account for the higher labor cost and the compliance burden.
Estimating with prevailing wage
Pull the published prevailing wage rates for the project location and trade. Use those rates plus the published fringe rate as the base wage in your estimate. Apply your normal labor burden (taxes, comp, benefits not covered by the fringe). Add general conditions cost for certified payroll compliance. On Davis-Bacon federal jobs, add bond and compliance overhead. The resulting fully burdened labor rate is your basis for productivity calculations and unit pricing on the project.
Frequently asked questions
Q.What is the Davis-Bacon Act?
A federal law requiring prevailing wages on federally funded construction projects above $2,000. The Department of Labor publishes wage determinations by county and trade. State equivalents (little Davis-Bacon laws) apply on state and local projects in most states.
Q.Who is covered by prevailing wage rules?
All laborers and mechanics performing covered work on the project site. Office staff, project managers, and most equipment operators offsite are typically not covered. Worker classification (carpenter vs. laborer) determines the applicable rate.
Q.How much higher is prevailing wage than market wage?
It varies by trade and location. In high-cost union markets the difference may be small. In low-cost nonunion markets the prevailing wage rate can be 30 to 50 percent higher than the contractor’s normal wage, plus the fringe benefit requirement.
Q.What is certified payroll?
A weekly report submitted by the contractor on prevailing wage projects, showing every covered worker, hours worked, classification, hourly wage, and fringe benefit. Federal projects use form WH-347. Falsifying certified payroll is a serious federal offense.
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