Prevailing Wage In California And How It Is Determined
If you run a construction-based business in California that supplies electricians, plumbers, mechanics, pavers, or other construction-related laborers to perform work on public works projects, you are required to pay a prevailing wage rate, which is a fixed hourly rate predetermined by the state or federal government. We have detailed everything you'll need to know about paying your workers a prevailing wage in California.
Prevailing Wage Legislation
Section 1774 of the California Labor Code states that workers employed in the execution of a public works contract cannot be paid less than the specified prevailing rates of wages. Essentially, prevailing wage rules apply to private contractors and sub-contractors providing construction, pre-construction, demolition, installation, repair, design, utility, irrigation, reclamation, carpet laying, or construction clean-up work for a public works contract of $1,000 or more. These public works projects must be paid with public funds.
How It Is Determined
While the law itself might seem self-explanatory, the actual rates at which workers must be paid according to the prevailing rate of wages is a little more confusing. This is because the prevailing wage varies by labor class, type of project, and the geographic location of the project. They can also change throughout the year. California’s prevailing wage can be determined in these ways:
Rates Can Be Found Within The Public Works Manual
You can find the up-to-date established prevailing wages in California's Public Works Manual. Here, you'll be able to look up specific rates corresponding to the types of work performed by individual workers.
Rates Are Determined By The Department Of Industrial Relations
Prevailing wages in California are regularly updated, so check periodically to make sure you're in compliance when paying your laborers. They are determined by the director of the California Department of Industrial Relations (DIR), who analyzes different areas of the state twice a year to determine a uniform prevailing per diem rate.
If the prevailing wages being evaluated don't match up with the rates that are actually prevailing in the locality being evaluated, the director will perform further research into the type of work in question by obtaining data from local labor organizations, employer associations, and employers. The rate the director then establishes cannot be less than the "actually prevailing" rate. The rate is updated on February 22 and August 22 of every year.
Basic Hourly Rate
California law requires that employers pay their employees the basic hourly rate as the minimum hourly wage for all hours worked.
Total Rate Including Fringe Benefits
General determinations also include the total hourly rate, which includes not just the basic hourly rate, but also any additional compensation for employer payments. This can include health insurance, pension, vacation time, and other fringe benefits. You have the option to pay fringe benefits as part of your employee's wages, or obtain an offset for the actual cost of the benefit you're providing that was paid into a health, vacation, pension, or fringe benefit plan. Whatever you choose to do, the total compensation you pay to your employee must match the total hourly wage that was established.
Public Works Projects
You will be responsible for adhering to the prevailing wage rates established and updated by the DIR if you employ any workers to execute any contracts for public work. Public works is defined by the state's labor code as constructions, installations, repairs, alterations, or demolitions performed under contract and paid for either in part or in full by public funds. Prevailing wage rates also apply to privately funded public improvements that are constructed to satisfy regulatory improvements.
There are a few exceptions to California's prevailing wage laws. The following are some of the main exceptions to be aware of:
Volunteers are workers who are performing work for civic, humanitarian, or charitable reasons who do not expect any kind of promise or compensation in return. Volunteer work can only be classified as such if they are doing it for a public agency or corporation that is qualified as a tax-exempt organization under the IRS code.
Charter cities are cities in which the governing system is defined by their own charter document and not by general law. California's prevailing wage laws do not apply to work performed in charter cities.
California's prevailing wage laws are for state projects only. This means that they do not apply to federal projects. Obtain a copy of the federal laws in place that govern wages paid to employees working on federal projects.
Impact On Employers
If your company is under contract for public works, then you must register with the DIR on a yearly basis between July 1 and June 30. It costs $400 to register, although this fee may change over time. There are a number of requirements that you will need to meet in order to register, such as:
- You must have workers' compensation insurance
- You can only use registered public works contractors as subcontractors
- You have all the required California state board licenses
- You do not owe any delinquent unpaid wages to your employees
- You do not owe any penalties to any enforcement agency
- You are not in prior violation of registration requirements
- You are not under federal or state debarment
If you don't register with the DIR, then you will not be allowed to bid on or work on public contracts. You can also be removed from any current public works projects that you're on. If you have a single violation in one year, then you will be fined $2,000 along with the standard registration fee. If you forgot to renew your registration, you'll have a 90-day grace period although it will cost an additional $400 to register on top of the standard fee. If you have two or more violations within a one-year period, then you will lose the ability to work on or bid on public works projects for up to one year at a time.
California's overtime laws still apply to prevailing wage rates. This means that you will need to pay overtime based on prevailing wage rates in the following circumstances:
- Workers must be paid the overtimeprevailing wage rate for every hour worked past eight hours in a single workday.
- Workers must be paid the overtime prevailing wage rate for every additional hour worked past 40 hours in a single workweek.
- Workers must be paid the double time prevailing wage rate for every additional hour worked past 12 hours in a single workday.
- Workers must be paid the double time prevailing wage rate for every additional hour worked past the eighth hour on the seventh consecutive day worked in a single workweek.
Additionally, workers being paid a prevailing wage must be paid overtime on weekends and on recognized legal holidays no matter how many hours they worked during the week. The overtime and double time rates for prevailing wage are not always exactly 1.5 times and double the regular prevailing wage rate. You will need to look up the overtime and double time rates just like you did the regular prevailing wage rate.
State law requires that you maintain accurate payroll records that include the names of your employees, their addresses, their social security numbers, their work classifications, the number of regular and overtime hours they worked, and the actual wages that you paid them. You will be required to certify these records by written declarations that the information is correct and true (under the penalty of perjury). If you do not keep accurate payroll records, you will be subject to criminal prosecution.
Penalties For Non-Compliance
If you are found to have violated prevailing wage laws, you will be required to pay your employees back wages. You also may be fined a significant civil penalty of up to $200 per unpaid worker and per day. If you're found to have willfully violated wage laws, you could be hit with misdemeanor charges. Finally, your business will be vulnerable to potential lawsuits filed by second-place bidders. They can assume that you were awarded the winning bid as a direct result of your unfair wage practices.
If you plan on bidding on any public works projects in California then it's incredibly important that you understand the state's prevailing wage laws. If you don't register with the DIR and you don't pay your employees the proper prevailing wage rates, you could experience stiff penalties.