Contractor and Subcontractor’s Responsibilities on Prevailing Wage Compliance

By Melissa Liu, CPA, Harris CPAs

Since the Davis-Bacon and Related Acts came into effect decades ago, labor wages have become crucial in prime contractors’ enforcement of compliance management. Prime contractors often need to delegate their projects to subcontractors. This can make things a bit complicated as prime contractors and subcontractors will then become equally responsible in making sure that all of the workers are getting paid appropriately. Additionally, When a construction project is federally funded or part of an assisted contract, a prime contractor may be held jointly and severally liable for any violations by its subcontractors if the prime contractor is a joint employer with the subcontractors under applicable federal or state law.

Under a federally funded or assisted contract over $2,000, contractors and subcontractors must “pay their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area.” (Davis-Bacon and Related Acts per U.S. Department of Labor). Due to this law, city/county agencies and other state/local authorities are obligated to regulate Certified Payroll Reports, otherwise known as CPRs, to ensure laborers are being paid fairly. Anybody can create and submit a certified payroll report, and this is when prime contractors should step in and become a mini-compliance agency themselves, making sure that their subcontractors are compliant with local wage and hour laws.

Prime contractors often times are held liable to pay for a huge sum of back pay wages due to violations against prevailing wage claims, but these can be mitigated if prime contractors and subcontractors work together to decrease mistakes during the payroll process. Below is a list of suggestions that can help contractors stay compliant with the Davis-Bacon Act:

1. Prime contractors should act as a mini compliance agency and monitor the certified payroll reports. It is important to at least review these payroll reports submitted by subcontractors, so any minor mistakes can be caught on quicker and fixed immediately.
2. Both the prime and subcontractors should familiarize themselves with Davis-Bacon and prevailing wage laws to better understand the consequences for violations.
3. In this digital age, it’s more efficient to change the payroll process to a cloud-supported program so that prime and subcontractors can easily access the payroll reports and cut down time spent on manually entering the data. Most of the technology now is built to catch mistakes quicker or find human errors, why not implement it in the projects to make everyone’s jobs a little easier? This also allows the contractors to keep an archived records of all employee’ records and will be helpful for any agency, contractor, or auditing organizations to access when appropriate.

Lastly, communication between prime contractors and subcontractors is crucial in eliminating mistakes during the payroll processes. Both parties should be more open-minded in learning more about the prevailing wage compliance so that less mistakes will be made when reviewing the certified payroll reports.