What is Prevailing Wage?
The minimum hourly wage rate required for workers on government-funded construction projects, as determined by the Department of Labor or state agencies.
Definition
Prevailing wage is the minimum hourly compensation — including wages and approved benefits — that must be paid to workers on government-funded construction and public works projects. The concept was established by the Davis-Bacon Act of 1931, which mandated that contractors on federal building projects pay local wage rates to prevent undercutting of labor standards. Prevailing wage rates are determined by the U.S. Department of Labor (for federal projects) or by state labor departments (for state-funded projects), based on surveys of wages and benefits paid to workers in the same trade within the project's geographic locality.
How Prevailing Wage Rates Are Determined
The Department of Labor surveys employers in a specific geographic area to determine the wages and benefits most commonly paid to workers in each construction craft or trade. The rate is calculated as the weighted average of wages in the area, with "prevailing" typically meaning the rate paid to at least 50% of workers in that classification. The prevailing wage rate includes both the basic hourly wage and the "fringe benefit" rate, which covers health insurance, retirement contributions, and other benefits. Contractors must provide documentation showing that both wages and benefits meet or exceed the prevailing rate.
Prevailing Wage vs. Fair Labor Standards
Prevailing wage is distinct from the federal minimum wage or state minimum wage. The prevailing wage rate for a skilled trade on a government project is typically significantly higher than the minimum wage — often $30–$70 per hour or more depending on the trade and location. Additionally, the Davis-Bacon Act and related state prevailing wage laws are triggered by the source of project funding (government money), not by the size of the employer. Even small contractors working as subcontractors on large government projects must comply with prevailing wage requirements.
Certified Payroll Requirements
Contractors and subcontractors on prevailing wage projects must submit certified payroll reports weekly. These reports document: the name, address, and social security number of each worker; each worker's classification (electrician, carpenter, laborer, etc.); the hours worked each day and for the week; the hourly rate of pay (base wage); the fringe benefit rate and total benefits paid or contributed; and the total wages paid for the week. Certified payrolls must be submitted to the contracting agency and made available to workers upon request. Misclassifying workers or underreporting hours on certified payroll is a serious compliance violation.
Prevailing Wage for Subcontractors
If you are a subcontractor working on a prevailing wage project, the prevailing wage requirement flows down to you even if your contract is with the general contractor rather than directly with the government. The prime contractor is responsible for ensuring that all subcontractors on the project comply with prevailing wage laws. Subcontractors must: register with the Department of Labor's LCATOR system to verify wage determinations; pay the appropriate prevailing wage rate for each worker classification; submit certified payrolls to the prime contractor weekly; and maintain detailed records of wages, benefits, and hours worked for at least three years after project completion.