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Prevailing wages: Definition, regulations + when they apply


What are prevailing wages? Minimum wage rates that the Department of Labor (DOL) sets for workers on public works projects and government contracts, ensuring fair pay based on local labor market conditions. California, Alaska, and New York are among the 27 states with prevailing wage laws.


As a small business owner, staying on top of wage laws can be overwhelming—especially when it comes to prevailing wages. These are government-mandated rates for specific jobs in industries like construction, manufacturing, and public works. 

If your business takes on public contracts or projects in regulated sectors, you’ve likely wondered how to ensure you’re paying your workers the right amount.

Getting it wrong could mean costly fines or delays, not to mention frustrated employees. This article will help you understand what prevailing rates are, how they are determined, and the steps you can take to stay compliant.

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How prevailing wages are determined

Prevailing wage rates are often determined by the government to ensure workers on public projects receive fair pay. 

Here's an overview of the process:

The National Prevailing Wage Center (NPWC) determines wage rates for various job types based on location, industry, and project type. It regularly updates these figures, allowing contractors to access accurate information when bidding on public contracts.

Each state has specific wage rate schedules that outline the minimum hourly rate for different roles, such as electricians or plumbers. These schedules are often required under federal payroll laws, ensuring that companies pay workers fairly on government contracts.

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Key authorities and regulations for prevailing wages

Staying compliant with prevailing wage laws means understanding the key regulations and regulatory bodies that impact your business. The US Department of Labor oversees the enforcement of prevailing rate laws, ensuring contractors pay workers according to set standards for each pay period on federally funded projects.

Main regulatory requirements for federal contracts include:

  1. Davis-Bacon and Related Acts (DBRA): The Davis-Bacon Act requires contractors working on federal construction projects to pay no less than the region’s prevailing wage. The DBRA expands these requirements to most public works, ensuring workers receive fair wages.
  2. Service Contract Act (SCA): The Service Contract Act mandates that employees on federal service contracts, from janitorial services to IT, are paid no less than the prevailing wage set for their job roles and location.
  3. Immigration and Nationality Act (INA): Under the INA, employers hiring foreign workers on visas like H-1B must pay them at least the prevailing wage to ensure fair treatment and avoid paying a non-prevailing wage.

To simplify compliance even easier, using payroll software with advanced payroll capabilities can streamline the process. Tools like QuickBooks Payroll allow you to automatically calculate and pay prevailing wages, manage online 1099 filing, and ensure you're always up-to-date with the latest wage requirements. 


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Regularly review the prevailing wage determinations and regulations for your area and ensure that your payroll practices are in compliance to avoid penalties and maintain a fair workplace.


Prevailing wages across contracts and programs

Prevailing wages can differ based on the nature of the work or the type of contract involved. Whether your business is involved in federal projects, state-level contracts, or hiring through visa programs, understanding the wage requirements is essential to staying compliant.

A chart illustrating prevailing wage standards

Government contracting

For businesses involved in government contracting, prevailing wage rates apply to most public works projects funded by federal or state agencies. Contractors must pay workers according to the prevailing wage schedules for their region and job classification, ensuring compliance with certified payroll requirements. Failure to follow these regulations could lead to contract disputes or penalties. 

Employment-based visa programs

When hiring foreign workers through employment-based visa programs, such as H-1B visas, you must pay wages that match the prevailing rates in the specific industry and location. This prevents wage discrepancies and ensures both US and foreign workers receive fair treatment.

Federal contracts

For federal contracts, prevailing wage rates are governed by acts like the Davis-Bacon Act. Contractors must ensure they pay the required wages on federally funded projects, helping manage labor costs and avoid increased payroll expenses while keeping their business compliant.


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Keep track of your earnings throughout your career and periodically check your Social Security statement online to ensure your records are accurate and you're earning the proper credits for future benefits.


Employer responsibilities for prevailing wages 

Understanding your responsibilities regarding prevailing wages helps with compliance and maintaining a fair workplace. Employers must adhere to specific laws and regulations to avoid potential issues, including being accused of accrued payroll violations: 

  • Specific laws and regulations: Familiarize yourself with federal and state laws governing prevailing wages, such as the Davis-Bacon Act and the Service Contract Act.
  • Local prevailing wage determinations: Make sure you understand and comply with local wage determinations specific to your project location.
  • Penalties for noncompliance: Understand the consequences of noncompliance, which can include fines, contract termination, and legal action.
  • Compliance requirements: Maintain accurate payroll records and submit certified payroll reports as the law requires.
  • Alternative wage sources: Check out recognized wage surveys or data sources to ensure accurate wage determinations.
  • Avoiding adverse effects on US workers: Make sure hiring practices don’t negatively impact local workers’ wages or employment opportunities.
  • Employee classification: Properly classify employees to avoid misclassification issues that could lead to compliance problems.
A list of employer responsibilities for prevailing wages

Prevailing wage vs. minimum wage

Understanding the distinction between prevailing wages and minimum wage ensures compliance with labor laws. Also, knowing when to apply prevailing wage versus minimum wage can prevent costly legal penalties and fines. 

Key differences

  • Minimum wage is the lowest hourly wage employers can legally pay their workers, as set by federal or state laws. The federal minimum wage for eligible nonexempt employees is $7.25 per hour as of 2024. But in many states like Alaska ($11.73 per hour), the basic minimum rate is higher than the rate set by federal laws.
  • Prevailing wages are the average wage paid to workers in a specific occupation within a local area. This rate encompasses hourly wages, benefits, and overtime typically received by most workers in that occupation. It represents the minimum compensation that employers must provide to workers on public works projects funded by state or federal dollars. 

When each applies

  • Minimum wage: Applies to most private sector employees and ensures all workers receive at least a basic level of compensation for their labor. Employers must comply with minimum wage laws regardless of the type of project.
  • Prevailing wages: Apply primarily to government contracting and public works projects. Contractors must adhere to prevailing wage laws to avoid potential payroll liabilities and legal issues.

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Twenty-seven states have prevailing wage laws, including California, Alaska, New York, and Texas. Meanwhile, Alabama, Louisiana, North Dakota, South Dakota, and Idaho do not enforce these regulations.


How to request a prevailing wage determination (PWD)

Requesting a prevailing wage is a great way to ensure compliance in prevailing wage states. It involves formally asking a government agency to establish the appropriate wage rates for specific job classifications in a designated area. Here’s what you need to know:

  • You’ll need to file Form ETA-9141: This form requests a wage determination for specific job classifications in a given location, ensuring that you pay workers according to the established standards.
  • Use FLAG for electronic submissions: The Foreign Labor Application Gateway (FLAG) is the online portal where you can electronically submit Form ETA-9141 and other required documents. This streamlined process helps you efficiently submit required forms, ensuring timely responses and reducing paperwork.
  • Safe-harbor status can simplify payroll: To minimize compliance risks, some contractors can apply for safe-harbor status. This allows you to rely on wage determinations from previous contracts when bidding on new projects, helping maintain consistency in wage practices and simplify payroll calculations, whether you’re considering gross pay or net pay.
  • The OFLC Wage Search helps access prevailing wage data: OFLC is an online tool provided by the US Department of Labor's Office of Foreign Labor Certification (OFLC). It allows employers and other stakeholders to access prevailing wage data for various occupations and locations in the United States. However, this tool is primarily used for immigration purposes.
A list of steps for requesting a prevailing wage determination

Next steps for streamlining your payroll process

Streamlining your payroll process is essential for compliance with prevailing wages and managing potential small business minimum wage hikes effectively. Start by evaluating your current payroll system and identifying any areas for improvement, such as automating payroll calculations and keeping up with regulatory changes. 

Consider utilizing payroll software like QuickBooks Payroll to manage employee classifications, submit certified payroll reports, and easily maintain accurate records. 

QuickBooks Online Payroll & Contractor Payments: Money movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services, subject to eligibility criteria, credit and application approval. For more information about Intuit Payments Inc.’s money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses

Frequently asked questions about prevailing wages


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