Category Archives: Prevailing Wage

State Comptroller Wants to Enforce the Illinois Prevailing Wage Act???

Contributed by Jeffrey A. Risch – August 16, 2019 – www.illinoisprevailingwage.com

“Prevailing Wage” on white paper with pen

On August 13, 2019, Illinois Comptroller, Susana Mendoza, signed an Executive Order (EO) aimed at enforcement of the state’s prevailing wage law (aka mandatory top line union wage/benefits scale) for “construction” projects receiving state money. On the surface, one would say “hey, that’s a pretty good idea.”  But… the EO invites more questions than answers.  More importantly, it encourages organized labor to target contractors that they have disputes with (without any proof or evidence of actual non-compliance with prevailing wage law) and the Comptroller may take whatever action she wants, including withholding funds.

The EO, in relevant part, reads as follows (with questions and comments following each main point of the EO):

  • Grants and Contracts. The Illinois Office of Comptroller shall not accept the submission of any grant, contract, or any other award by the State of Illinois of any type to finance, in whole or in part, public works projects under the Rebuild Illinois program or other public works projects, unless the grant, contract, or other award includes a certification that the contractor of the public works project is in compliance with the Prevailing Wage Act (820 ILCS 130).

BUT… what does “compliance” mean?  Could the Comptroller hold up a contract if a contractor was found to have made a clerical mistake years ago on a prevailing wage project?  What if a contractor merely classified the worker as a laborer vs. an operator and was assessed by the Department of Labor for a few hundred dollars?

  • Duty to Pre-audit. The Illinois Office of Comptroller shall have the duty to pre-audit or cause to be pre-audited each grant, contract, or other award under the Rebuild Illinois program and other public works projects.

Who is going to conduct the audit? What do they know about prevailing wage? What will they be searching for? 

  • Publication. The Illinois Office of Comptroller’s official website shall provide information on grants, contracts, and other public works project awards and shall provide a Prevailing Wage Inquiry Form that allows localities, contractors, labor organizations, and other interested parties to submit inquires to the Office.

Okay… so, this function seems fairly benign.  It allows the public to view what projects are in the works. But… couple this function with the “Receipt of Inquiries” order and chaos can ensue.

  •  Receipt of Inquiries. The Illinois State Comptroller’s Prevailing Wage Enforcement Officer is designated to receive inquiries from labor organizations or other interested parties regarding the status of a public works contract or grant on file with the Illinois Office of Comptroller and compliance with the Prevailing Wage Act.

Here’s where we can see efforts by organized labor to target certain contractors that they have problems with.  Again, what does “compliance” mean?  What’s stopping anyone from making an inquiry about a contractor with absolutely no proof or evidence that there’s any non-compliance issue to begin with?  This third party inquiry piece will invite unintended (or, perhaps intended) consequences that could impede progress on a much needed construction project.

  • Review. The Illinois Office of Comptroller, through the Prevailing Wage Enforcement Officer, shall work in collaboration with the Department of Labor and other public works agencies to address inquires that require further review for potential violations of the Prevailing Wage Act.

Will the Comptroller’s Office tell the Illinois Department of Labor what to do or who to target for investigation or audit even without any proof of any non-compliance issue?  

  • Other Necessary Action. The Illinois Office of Comptroller shall undertake the appropriate action to inform all state agencies of the requirements promulgated hereunder and shall undertake all necessary action to implement and effectuate this Executive Order.

What action will the Comptroller take?  Withhold funds?  Delay progress?

Of course, time will tell what the actual impact of this EO will be on contractors and construction projects on a state level in Illinois. But, there are certainly many questions and concerns that anyone working in the construction industry should have with this type of order. Undoubtedly, if anyone is securing, financing, performing or managing public “construction” work in Illinois, an intimate understanding of all things prevailing wage is a must.

In Case it was Ever in Doubt, the Illinois Prevailing Wage Act Now Expressly Adopts UNION SCALE to Establish Prevailing Wage in the “Construction” Industry

Contributed by Jeff Risch, June 18, 2019

scale weighing money and time. financial concept. illustration in flat design on blue background

Organized labor wasted no time in securing Governor Pritzker’s signature on legislation that undoubtedly calls for the Illinois prevailing wage rate to fall in lock step with the area union contracts. Per the new law, now in effect, the prevailing rate of wages paid to individuals covered under Illinois’ prevailing wage law shall not be less than the rate that prevails for work of a similar character on public works in the locality in which the work is performed under collective bargaining agreements, or understandings between employers or employer associations and bona fide labor organizations relating to each craft or type of worker or mechanic needed to execute the contract or perform such work, and collective bargaining agreements or understandings and successor agreements — so long as said employers or members of said employer associations employ at least 30% of the laborers, workers, or mechanics in the same trade or occupation in the locality where the work is being performed. To be even clearer, the Illinois Department of Labor is the sole government entity to decide the prevailing wage rates.

Of course, contractors may legally challenge the IDOL’s determinations through what is often cited as the Section 9 Hearing process. This procedure is part of the Illinois Prevailing Wage Act. Written objections to any published rate must be timely presented (no less than 30 days following the publication by the IDOL on its website). In the event it is determined, after a written objection is filed and a hearing is held, before an Administrative Law Judge with the IDOL, that less than 30% of the laborers, workers, or mechanics in a particular trade or occupation in the locality where the work is performed receive a collectively bargained rate of wage, then the average wage paid to such laborers, workers, or mechanics in the same trade or occupation in the locality for the 12-month period preceding the Department of Labor’s annual determination shall be the prevailing rate of wage. So, in other words, the burden is squarely on the objector and the cards are clearly stacked.

Curiously, the IDOL does not adopt other aspects of the dominant area union contract for prevailing wage purposes such as: overtime rules, traveling rates or weekend/holiday scale. Accordingly, many union contractors get caught up with prevailing wage issues in Illinois.

Bottom line: Anyone who performs construction work in Illinois needs to be intimately familiar with Illinois’ prevailing wage law. It has one of the more complex and, arguably, the most overbearing prevailing wage laws in the United States. Interestingly, in recent years, more and more states are getting away from prevailing wage laws.

Prevailing Wage Law: An Effective Sword of Labor Unions to Hurt their Enemies in the Public Bid Process

Contributed by Jeffrey A. Risch, April 25, 2019 – www.illinoisprevailingwage.com

Construction hat and gavel

Having handled countless prevailing wage disputes, the local, state or federal administrative agency assigned to administer compliance (i.e. the US Department of Labor) is the only government entity that can lawfully determine whether a contractor is in violation of an applicable prevailing wage law and push for debarment.  Ultimately, a contractor who has been determined by a government agency to have violated its prevailing wage obligations (i.e. a clerical mistake, an accounting error, poor or missing paperwork) is a long way from getting on a “debarment list.” First, in order to get debarred from public work, the government is looking for willful violators with a track record of fraud and deceit. This is, of course, very rare.  Second, the contractor does enjoy fundamental due process and a chance to be fully heard prior to actual debarment. However, it’s becoming a growing trend for certain labor unions (along with their aligned third party “watch dog” groups) to file prevailing wage complaints against contractors, with who they have an issue. They may do this in order to then use the ensuing government investigation/audit to help soil the name of the contractor who has a pending low bid for a public works construction project. 

Take note, there’s no “gatekeeper” when processing such complaints. Generally, anyone can file a complaint against anyone, without limitations, and without actual evidence of any wrongdoing. And, in many jurisdictions, EVERY COMPLAINT must be investigated.

Many public bodies, especially local units of government, are being told that they must reject the bid of a contractor who has any past or pending prevailing wage complaint against it, even when the contractor is the “low bidder.” These public bodies are often being fed “bad information” — “misleading information” — “outdated information” against contractors who have every legal right to bid and perform public works projects. By rejecting bids or terminating contracts with non-debarred contractors, public bodies are depriving contractors of fair due process while ignoring their obligations to the taxpayer.

Contractors must know their rights! Although public bodies have an enormous amount of discretion in ascertaining the “lowest responsible bidder” for public construction projects, they cannot make arbitrary decisions in contradiction to applicable law. Contractors should never be discouraged from submitting bids despite what certain public bodies are being told. From experience and observation, contractors should push back. This push back can be in many forms. Although the filing of a lawsuit or motion seeking injunctive or declaratory relief is sometimes necessary (and, quite effective at times), the public body often simply needs clarity concerning the misinformation it has received. This clarity can usually be achieved through simple letter writing, establishing a dialogue, or other non-legal channels.

Contractors need to be extra cautious and careful in any and all communications with any government agency investigating prevailing wage compliance. To be clear, every complaint must be taken seriously by the contractor to ensure that the record ultimately reflects that the contractor is not only complying with its legal obligations, but also free to bid and perform public construction projects without interference.

With the above in mind, there are 5 basic rules for anyone performing public construction work:

  1. Know your legal obligations under any and every local, state or federal prevailing wage ordinance/law that applies to your business (note: what’s permissible under Federal Davis-Bacon may be unlawful under Illinois prevailing wage law);
  2. Ensure your business is complying with all applicable prevailing wage obligations for every worker, every day, every week, every job;
  3. Never allow a prevailing wage audit or investigation  to be closed or remain in limbo without some document that confirms your full compliance with your legal obligations (you may have to do this yourself);
  4. Never sign any settlement agreement concerning prevailing wage issues without first reviewing it with competent legal counsel to help ensure that no admission of liability or guilt is made and to expressly state that you are free and clear to bid and perform future public construction work; and
  5. Educate your local units of government on who you are and highlight your good name and business reputation — get to know the public officials, get involved and form relationships.

Critical Illinois Prevailing Wage Law Change Impacting Contractors

Contributed by Jeffrey A. Risch, February 26, 2019

www.illinoisprevailingwage.com

You may not remember… in 2013, then Governor Quinn signed into law an amendment to Illinois’ Prevailing Wage Act (IPWA) which sort of redefined what the PREVAILING WAGE RATE meant by adding one little word.  Effective January 1, 2014, the IPWA defined “general prevailing rate of hourly wages” as hourly cash wages plus ANNUALIZED fringe benefits.  By inserting the word ANNUALIZED, the law arguably changed. 

For years, many contractors paid the prevailing wage fringe benefits as cash sums added to the employee paycheck based on prevailing wage hours only. Some contractors established bona fide defined contribution plans that provide 100% immediate vesting of the prevailing wage fringe benefit (in whole or in part); usually in the form of health/welfare or retirement savings. The advantages for the worker are obvious. The money is solely and exclusively in the control of the worker to do with it however they deem appropriate. In exchange for such a rich and rewarding benefit, some plans specifically limit the contribution to only those hours actually worked on “public works projects” (aka prevailing wage projects).

Well… in 2013, Big Labor went to the Illinois Legislature and successfully lobbied for the addition of the term “annualized”. Therefore, effective for all work performed on January 1, 2014 and thereafter, the Illinois Department of Labor can audit fringe benefit contributions made under a defined contribution plan, or declared by a contractor in its certified transcripts of payroll, and will calculate those contributions over all hours worked in a given period of time.

To establish the proper hourly calculation for allowable fringe benefits, contractors are expected to divide the total amount they contribute to a bona fide fringe benefit plan by the total of all hours worked (including non-prevailing wage projects). According to the Illinois Department of Labor, a contractor cannot exclusively take the hours worked and contributions made on public works/prevailing wage jobs to comply with the hourly fringe benefit component.  An example used by the Illinois Department of Labor includes: If a contractor contributes $520 per month for single insurance coverage, and the employee works 2080 hours (40 x 52 weeks), then the effective annual contribution rate is determined by dividing $6,240 ($520 x 12) by 2080 which equals $3.00 per hour. If the health and welfare portion of the prevailing wage is $5.05 per hour, the contractor can take a credit of $3.00 per hour and must pay $2.05 ($5.05-$3.00) additional on the hourly base wage.  The same formula will be applied to Pension, Annuity, 401(k) plans, Training, and Vacation in some localities that are funded by the contractor.

What’s remarkable is that the annualization of fringe benefits has been part of the federal prevailing wage law under Davis-Bacon & Related Acts (DBRA) for years. However, the United States Department of Labor has always allowed contractors to pay the fringe benefit component based on prevailing wage hours worked only provided the monies went directly and immediately to the worker. The Illinois Department of Labor could adopt a similar approach. However, Big Labor will certainly do everything it can to ensure that does not happen. 

What does this actually mean?

The IPWA allows for certain fringe benefits (Health and Welfare, Pension/Annuity, US DOL Training, and Vacation in some localities) to be considered in establishing a prevailing wage rate.  The prevailing wage rate includes an HOURLY base portion and a FRINGE BENEFIT portion. Contractors may choose to pay the entire prevailing wage rate in the base hourly rate component (and not take a credit for fringe benefits paid), or they may choose to take credit for certain allowed fringe benefits.  If a contractor does not pay any allowable fringe benefit or just a portion of it, then according to the Illinois Department of Labor, the difference must be made up in the hourly base wage rate in order to comply with this ANNUALIZATION component to the law. Alternatively, all fringe benefit contributions must be determined by dividing the TOTAL fringe benefit payout with ALL HOURS worked. Therefore, the fringe benefit contribution would be diluted in proportion to the non-prevailing wage hours worked by the employee.

So… while this is yesterday’s news, the Illinois Department of Labor under Governor Rauner was not extraordinarily aggressive on this annualization issue.  However, under new leadership, contractors should recognize that the Illinois Department of Labor is actively enforcing the annualization component of the law.  And, with a 5 year statute of limitations period, bad habits established or just plain ignorance of the law that may have went unchecked under the Rauner administration will cost you if you are not fully and completely in compliance with Illinois’ annualization obligation. 

BOTTOM LINE:  If you are performing public work in Illinois, you need to intimately understand Illinois’ prevailing wage law and the many pitfalls that exist under it. The stakes for not knowing or understanding how the Illinois Department of Labor views certain issues are just too high. 

Overtime Required for Prevailing Wage Cash Fringe Benefits???

Another Attempt to Help Labor Unions

Contributed by Jonathon Hoag

Last month, we reported the recent amendment to the Illinois Prevailing Wage Act (IPWA) requiring fringe benefits to now be annualized for purpose of taking a credit for fringe benefit payments.  The Illinois Department of Labor (IDOL) recently updated its Frequently Asked Questions (FAQs) to explain how the IDOL interprets the new annualization requirement.  In the process of updating its guidance, the IDOL has expanded on how fringe benefits might affect the prevailing base hourly rate that a contractor must pay.  See https://www.illinois.gov/idol/FAQs/Pages/contractor-faq.aspx#faq9.

The IDOL now asserts that any prevailing wage fringe benefits paid in cash must be added to the base hourly rate.  There is no dispute that the IPWA requires contractors to pay the base wage in addition to fringe benefit payments.  Prior guidance from the IDOL explained the requirement as follows:

Fringe benefits or the equivalent are a part of the total prevailing wage just like the basic hourly wage rate.  To be in compliance with the Act, all components of the prevailing wage (base and fringes) must be paid by all contractors who perform regardless of their affiliation or lack of affiliation with a union.

In other words, the IDOL recognized that payment of base wages was a requirement separate and distinct from the requirement to pay fringes.  Although both components had to be paid to be in compliance, there was no requirement to add the hourly cash equivalent of fringes to the hourly base wage rate.  To be sure, IDOL’s prior examples of how to off-set fringe requirements with cash payments clearly identified the hourly cash amount required for that fringe benefit category with no reference or indication that that hourly amount was to be added to the base wage.  This made sense and was consistent with federal prevailing wage law where the regulations make it clear that cash fringe benefit payments are not subject to overtime premiums.  29 C.F.R. § 5.32.

IDOL’s revised guidance now states that any prevailing wage fringe benefits paid as an hourly cash equivalent must be added to the base hourly wage rate.  The obvious impact is that the hourly cash equivalent for fringe benefits would be subject to overtime premium calculations.  As a result, those paying cash fringe benefits will pay more when working overtime (in excess of 40 hours) in any workweek, or when working in excess of 8 hours on an IPWA job Monday through Friday, or for any and all time worked on Saturdays, Sundays or Legal Holidays.

The IDOL claims that this specific application of the IPWA applies equally to those with collective bargaining agreements and those without.  In reality, the IDOL is well aware that requiring payment into fringe benefit funds are standard provisions of collective bargaining agreements and the fringe benefit rates under the IPWA are derived directly from such collective bargaining agreements.  Payment of cash fringes is rarely, if ever, an option for those with collective bargaining agreements.  This new manner of enforcing the IPWA is just another example of how the IPWA is used and applied to give labor unions an artificial advantage when bidding public works projects.

Critical 2014 Illinois Prevailing Wage Change Impacting All Non-Union Contractors & Employees

Contributed by Jeffrey A. Risch

Effective January 1, 2014, the Illinois Prevailing Wage Act will define “general prevailing rate of hourly wages” to mean hourly cash wages plus ANNUALIZED fringe benefits.  Thanks to PA 98-482, the law will now read:  The terms “general prevailing rate of hourly wages”, “general prevailing rate of wages” or “prevailing rate of wages” when used in this Act mean the hourly cash wages plus annualized fringe benefits for training and apprenticeship programs approved by the U.S. Department of Labor, Bureau of Apprenticeship and Training, health and welfare, insurance, vacations and pensions paid generally, in the locality in which the work is being performed, to employees engaged in work of a similar character on public works.

Many non-union contractors have established bona fide defined contribution plans that provide for 100% immediate vesting of the prevailing wage fringe benefit; usually in the form of retirement savings.  The advantages for the worker are endless.  For example, the money is solely and exclusively in the control of the worker to do with it however they deem appropriate. In exchange for such a rich and rewarding benefit, some plans specifically limit the contribution to only those hours actually worked on “public works projects” (aka prevailing wage projects).

Big Labor went to the Illinois Legislature and successfully lobbied for the addition of the term “annualized”.  Therefore, effective for all worked performed on January 1, 2014 and thereafter, the Illinois Department of Labor will audit fringe benefit contributions made under a defined contribution plan and will calculate all contributions over all hours worked in a given period.

What does this mean???

The Illinois Prevailing Wage Act allows for certain fringe benefits (Health and Welfare, Pension/Annuity, US DOL Training, and Vacation in some localities) to be considered in determining the prevailing rate and be taken into account as part of the component by being an offset to the total in determining compliance with the prevailing rate. Contractors may choose to pay the entire prevailing wage determination in cash or they may choose to pay some in cash and some in allowable fringe benefits.  If a contractor does not pay any allowable fringe benefit or just a portion of it, then according to the Illinois Department of Labor the total prevailing wage hourly determination must now be made up in the base hourly wage rate in order to comply with Prevailing Wage Act (which will raise the hourly wage and therefore skew any overtime rates).

Also, to establish the proper hourly calculation for allowable fringe benefits, contractors will be expected to divide the total amount they contribute to a bona fide fringe benefit plan by the total of all hours worked.  According to the Illinois Department of Labor, a contractor cannot simply take the hours worked and contributions made on public works/prevailing wage jobs to make the hourly calculation.  An example used by the Illinois Department of Labor includes: If a contractor contributes $520 per month for single insurance coverage and the employee works 2080 hours (40 x 52 weeks) then the effective annual contribution rate is determined by dividing $6240 ($520 x 12) by 2080 which equals $3.00 per hour. If the health and welfare portion of the prevailing wage is $5.05 per hour, the contractor can take a credit of $3.00 per hour and must pay $2.05 ($5.05-$3.00) additional on the hourly base wage.  The same formula will be applied to Pension, Annuity, 401k plans, Training, and Vacation in some localities that are funded by the contractor.

Obviously, this is a critical change in the interpretation and administration of prevailing wage law in Illinois.  Contractors need to immediately review their accounting practices for Illinois prevailing wage purposes.

Surveyors and Material Testers Now Subject to Prevailing Wage Laws??? Unions Continue to Have Their Way with Prevailing Wage

Contributed by Jeffrey A. Risch

On March 22, 2013, under pressure from the International Union of Operating Engineers, the U.S. Department of Labor (DOL) published its Memorandum No. 212 on the topic of whether surveyors, survey workers and survey crew members who perform work related to federal construction projects fall under Davis-Bacon and other related acts; thereby triggering the application of federal prevailing wage law to such workers.  Despite the DOL’s explanation that it was merely clarifying and supplementing prior DOL Memorandums from the 1960’s, the March 2013 Memorandum signaled a dramatic shift in the DOL’s interpretation.  For the first time, the DOL believes that surveyors, survey workers and survey crew members who perform work on federal construction projects may be subject to federal prevailing wage law.  The emphasis is on the word “may” because attempting to interpret the meaning behind the DOL’s guidance is mind-numbing.

Memorandum No. 212, reads in relevant part:

Survey crew members who perform primarily physical and/or manual work while employed by contractors or subcontractors immediately prior to or during actual construction in direct support of construction crews, will be deemed laborers or mechanics when employed on-site of the construction work.  Also, under the U.S. Housing Act of 1937 and the Housing Act of 1949, the “development of the project” coverage test is broader and thus may allow prevailing wage to cover preliminary survey work.  The question of whether a survey worker is a laborer or mechanic is a question of fact to be interpreted by the DOL.  Additionally, the DOL goes on to remind the public that bona fide “white collar” exempt employees under the Fair Labor Standards Act 29 CFR 541 (FLSA), such as Professionals, Executives and Administrators, continue to be exempt from federal prevailing law.

http://www.dol.gov/whd/programs/dbra/Survey/AAM212.pdf

Confused yet?  Most everyone is.  And if trying to comply with federal prevailing wage changes is not hard enough, some states continue to expand the scope of their own prevailing wage laws.  For example, Illinois, by and through the Illinois Department of Labor (IDOL), has allowed the operating engineers to petition successfully for recognition of work that has historically not been covered by the Illinois Prevailing Wage Act.  Most recently, through persuasion from organized labor, the IDOL has made determinations on its own (without statutory amendments to the actual law) to include Material Testing and Surveying on Illinois construction projects.

According to the IDOL’s prevailing wage rate sheets, Material Testing is defined as:

MATERIAL TESTER I:  Hand coring and drilling for testing of materials; field inspection of uncured concrete and asphalt.

MATERIAL TESTER II:  Field inspection of welds, structural steel, fireproofing, masonry, soil, facade, reinforcing steel, formwork, cured concrete, and concrete and asphalt batch plants; adjusting proportions of bituminous mixtures.

The IDOL rate sheets now also include Survey Worker, defined as:

SURVEY WORKER – Operated survey equipment including data collectors, G.P.S. and robotic instruments, as well as conventional levels and transits.

Historically, Illinois’ prevailing wage law did not cover testing or inspection activities.  The personal and professional opinion of this writer is that the Illinois Legislature never contemplated such activities to fall under Illinois’ Prevailing Wage Act.  Furthermore, despite clarity from the U.S. DOL that “professional exempt” workers would not fall under the federal prevailing wage law, the IDOL need not adopt federal guidance with regard to Illinois’ prevailing wage law.  Unfortunately, the courts will have to intervene and provide clarity.  Until then, interested parties should work with competent legal counsel and various trade associations for insight and assistance.