Doing business with the government can be lucrative, but it requires compliance with a litany of complex laws and regulations impacting your day-to-day business operations. Complying with federal prevailing wage law requirements is one of the biggest headaches for many government contractors.
The Davis-Bacon and Related Acts (DBRA)
The Davis-Bacon and Related Acts govern wages paid for federally funded construction work on public buildings and public works. On any contract over $2,000, contractors and subcontractors must pay their laborers and mechanics no less than the locally prevailing wages and fringe benefits for work on similar projects in the area. The Department of Labor sets prevailing wages for given classes of labor and types of projects by geographic area.
The original 1931 Davis-Bacon Act applied only to federal or District of Columbia contracts. Since then, Congress has passed more than 60 “Related Acts” that extend prevailing wage requirements to construction projects that receive federal funding assistance through grants, loans, loan guarantees, and insurance.
DBRA record-keeping and reporting requirements are quite stringent. Covered contractors must maintain payroll and basic records for all laborers and mechanics during the course of the work and for three years thereafter. Records to be maintained include:
- Name, address, and Social Security number of each employee
- Each employee’s work classifications
- Hourly rates of pay, including rates of contributions or costs anticipated for fringe benefits or their cash equivalents
- Daily and weekly numbers of hours worked
- Deductions made
- Actual wages paid
- If applicable, detailed information regarding various fringe benefit plans and programs, including records that show that the plan or program has been communicated in writing to the laborers and mechanics affected.
- If applicable, detailed information regarding approved apprenticeship or trainee programs
On a weekly basis, covered contractors and subcontractors must provide the federal agency a copy of all payrolls providing the information listed above for the preceding weekly payroll period. Each payroll submitted must be accompanied by a “Statement of Compliance,” which must be signed by the contractor or an authorized officer or employee who supervises the payment of wages.
Non-compliance penalties are stiff. Contractors or subcontractors found to have disregarded their obligations to employees, or to have committed aggravated or willful violations, may be subject to contract termination and debarment from future contracts for up to three years.
The McNamara-O’Hara Service Contract Act (SCA)
While the DBRA govern construction contracts, the McNamara-O’Hara Service Contract Act sets rules for service contracts. The SCA applies only to contracts awarded by the federal or District of Columbia governments. It requires contractors and subcontractors on most prime federal contracts exceeding $2,500 to pay service employees no less than the wage rates and fringe benefits found prevailing in the locality, or the rates (including prospective increases) contained in a predecessor contractor’s collective bargaining agreement. All employees must be paid fringe benefits, including a health and welfare fringe benefit currently set at $4.27 per hour. Contractors are also required to compensate employees for overtime work according to overtime pay standards of the Fair Labor Standards Act and the Contract Work Hours and Safety Standards Act.
For contracts of $2,500 or less, contractors are required to pay the federal minimum wage as set in Section 6(a)(1) of the Fair Labor Standards Act. Since July 2009, this has been set at $7.25 per hour.
The Department of Labor issues wage determinations on a contract-by-contract basis based on each worker’s employment classification. By classifying the different types of workers and their corresponding wages, the government can outline what each level and type of worker will be paid on that job. Since an individual employee may perform work in several different categories in a given day or week, however, compliance and record-keeping quickly become complicated. Employers must keep detailed records of the hours each employee works on the contract and the amounts paid under the contract. Prime contractors must ensure that all employees (including those working for subcontractors) are paid the correct wage and fringe rate as set by the contract.
Again, penalties for non-compliance are severe. Violations of the SCA may result in contract terminations and liability for any resulting costs to the government, withholding of contract payments in sufficient amounts to cover wage and fringe benefit underpayments, legal action to recover the underpayments, and debarment from future contracts for up to three years.
The Smart Fringe Solution
Complying with federal prevailing wage law requirements is complicated and time-consuming. Failing to comply can result in expensive penalties, loss of your contract, and even disbarment from bidding on other federal contracts.
That’s why Left Brain Pro is part of an alliance that developed an automated compliance tool for government contractors called SmartFringe.
Through seamless integration with your existing corporate structure, Smart Fringe can help you:
- Keep your organization in compliance with federal compensation laws
- Create accurate and consistent job classifications
- Redistribute wage discrepancies between private sector and contract prevailing wage compliance.
Smart Fringe is designed to simplify record keeping, lower administrative costs and increase profits. This accounting software suite performs a variety of roles and functions, including:
- Reduces work load on HR/Payroll
- Customizes your strategies within regulations
- Automates calculations and compliance
If you have questions about DBRA and SCA compliance or how SmartFringe can simplify this process, please give me a call at (614) 556-4415 or email firstname.lastname@example.org.