With contract work, pay correct wages

Janet Arrowood

Do you work on federal, state or other government contracts? Do you understand what it means to pay employees according to Davis-Bacon or Colorado prevailing wage scales?

Many small business owners bid — often as subcontractors — on projects on which one or the other of the wage scales, or both, apply. However, business owners often aren’t aware, or really understand, these wage scales must often be used. In many cases, although not all, these wage scales are higher than what workers are normally paid.

While it’s tempting to pay employees less to make a bid more competitive, the risks and resulting costs and penalties aren’t worth it. Business owners should consult with an employment law lawyer or an organization such as the Employers Council for guidance.

How do you know if these wage scales apply to you?

Davis-Bacon wages generally apply to nearly every construction, alteration or repair of public buildings or public works project that receives public funds.

There are two components: wages and fringe benefits. The wages component is determined based on federal government surveys to determine prevailing wages for workers in commercial, heavy, highway and residential construction. The scale determines the minimum hourly rates paid workers during the duration of the contract.

According to the U.S. Department of Labor, the wage rates for bona fide supervisory employees aren’t regulated under the Davis-Bacon and related acts because their duties are primarily administrative or executive in nature. However, employees who devote more than 20 percent of their time during a work week to mechanic or laborer duties are laborers and mechanics for the time so spent and must be paid at least the appropriate wage rates specified in the wage determination. Employees who are bona fide executive, administrative or professional employees as defined under the Fair Labor Standards Act aren’t covered by the Davis-Bacon Act.

Colorado prevailing wages apply to most state projects. According to the Colorado Department of Labor and Employment, state projects that don’t receive federal funding, aren’t covered by federal prevailing wage requirements or aren’t awarded by the Colorado Department of Transportation, require weekly payment of prevailing wages to laborers, mechanics and other construction workers employed on public projects pursuant to a contract of $500,000 or more with an agency of state government and each subcontract awarded thereunder. In many cases, the Colorado prevailing wage follows the Davis-Bacon wage scale.
But always check with CDLE to ensure you use the correct rate.

In addition to the wage component, there’s a fringe benefit component. A sample wage determination for Mesa County highway construction, including the fringe benefit amount, is available at https://drive.google.com/file/d/103kPg3FSlYly5duuhK1u00laBo-6bGT4/view. This determination offers a useful starting point.

What goes into fringe benefit determinations? The costs of contributions for such benefits as health and life insurance, holidays, vacations, sick leave, pension plans and other bona fide benefits. Payments required by federal, state or local law don’t count —  payments for Social Security, unemployment compensation and workers’ compensation, for example.

Davis-Bacon wage determinations from the U.S. Department of Labor are available at https://sam.gov/content/wage-determinations. Additional information is available at https://cdle.colorado.gov/wage-and-hour-law/prevailing-wages.

This column isn’t intended as benefits, legal, tax or other advice. Always consult with licensed professional advisors.