New Prevailing Wage Rule Will Impact Construction Industry

The U.S. Department of Labor made big news on Aug. 8 when it finalized a new wage calculation rule. It benefits construction workers on federally funded projects and is likely the most substantial overhaul to Davis-Bacon Act prevailing wage requirements in decades.

Understanding the Davis-Bacon Act

According to the Davis-Bacon and Related Acts, adopted in 1950, the DOL has the authority to determine the prevailing wage, issue and manage regulations for federal agencies that fund projects, and enforce Davis-Bacon standards. The Davis-Bacon Act applies to contractors and subcontractors working on construction contracts budgeted at more than $2,000 that are assisted or fully funded by a federal contract to build, repair or alter public works and buildings. Under the Davis-Bacon Act, contractors and subcontractors are required to pay their contracted mechanics and laborers at least the local prevailing wage, which the DOL sets.

The Previous Standard

In the event that there is no single prevailing wage for the majority of workers in a specific classification in a given area, the DOL has been using a weighted average for determining the prevailing wage. With that method, the total wages for a specific classification of workers in an area were divided by the number of workers. That average was considered the prevailing wage.

What the New Rule States

Based on the new standard, if there is no single prevailing wage for most workers, the prevailing wage for federal construction projects can be determined according to the 30% rule, which represents the wages paid to at least 30% of workers with a specific classification and within a particular locale.

The Intent Behind the Rule

Vice President Kamala Harris spoke about the new rule. She pointed out the standard had not been updated in 40 years, since the Reagan administration made an adjustment in 1983. Harris said that “these workers deserve our recognition and appreciation and they deserve something more. They deserve a raise. … Many workers are paid much less than they deserve, much less than the value of their work … in some cases by thousands of dollars a year, and that is wrong and completely unacceptable.”

The Anticipated Impact

The change from a weighted average to the 30% rule will markedly increase prevailing wage standards. It will impact approximately 1.2 million construction workers performing on construction projects worth some $200 billion each year.

The 30% rule will take effect 60 days after publication in the Federal Register. In many regards, it reverts to the prevailing wage standard applied between 1935 and 1983. In addition, the rule includes periodic updates of prevailing wages when they are out of date, utilizing larger geographic areas and broader data ranges. It also includes a provision to protect workers from retaliation if they question payment practices or raise concerns about employer actions.

The responses to the new rule are expectedly mixed. Union representatives praised the action for addressing unfair payment rates and supporting the construction industry. In contrast, some conservative lawmakers argued that the new standard would leverage union wage rates too much. In addition, Associated Builders and Contractors has indicated it will take legal action in opposition to the rule.

Ben Brubeck, ABC vice president of regulatory, labor and state affairs, argued that the new rule is “unnecessary, costly and burdensome.” He labeled it a “handout to organized labor on the backs of taxpayers, small businesses and the free market.”

Final Thoughts

There is no doubt that this new prevailing wage rule will have a massive impact on the construction industry. While workers will benefit from higher incomes, contractors could face challenges in complying with the new standards.