Category Archives: Prevailing Wage

IDOL on the PROWL: Looking At Non-Union Contractors to Debar for Technical Violations of the Illinois Prevailing Wage Act

Contributed By Jeff Risch and Peter Hansen, May 7, 2021

hand signing contract on white paper

Contractors beware – the Illinois Department of Labor (IDOL) has ramped up audits of contractors as labor unions and related organizations flood the IDOL with “complaints. Remember, under the Illinois Prevailing Wage Act (IPWA), a prevailing wage “complaint” need not be verified or even submitted to the IDOL under penalty of perjury. The IDOL will investigate each and every “complaint” regardless of merit and, while historically the main focus of the IDOL was to ensure proper and full payment of the actual prevailing wage, it is now seeking to issue violations and debar contractors for technical violations (i.e. failure to post rates or provide written notice to contractors or lower tiered contracts).

Typically, debarment from contracting for public works (for up to 4 years) occurs only after the IDOL issues two distinct formal written notices of IPWA violations to a contractor within 5 years. Until recently, the IDOL considered the severity of the violation, the contractor’s history, and whether the contractor generally complied with other IPWA obligations before issuing a violation notice. The IDOL is now moving towards a philosophy of issuing a formal notice of violation for technical violations – especially when it comes to non-union contractors.

The IDOL’s increased activity is exceptionally troubling for all contractors given the IPWA’s broad definition of “violation” under its Administrative Rules. Pursuant to the IDOL’s prevailing wage rules, a violation occurs whenever the IDOL determines that the contractor:
• failed to pay the prevailing wage to one or more employees performing work covered under a public works contract;
• failed to keep, produce, or submit accurate records demonstrating compliance with the IPWA;
• refused to comply with the certified payroll filing obligations (this now requires the use of the IDOL’s own online electronic portal system);
• refused to allow the IDOL’s access to inspect the contractor’s records;
• failed to insert a written stipulation that prevailing wage rates be paid into each subcontract and into the project specifications;
• failed to obtain a bond guaranteeing performance of the prevailing wage clause (when required by the public body to do so); or
• failed to post or communicate to the workers the applicable prevailing wage rates on the public works project site.

There’s clearly a lot of room for the IDOL to issue violation notices for technical violations that have nothing to do with the actual payment of the prevailing wage to the worker. The IPWA arguably has the most complex and administratively burdensome laws in the country. That’s on purpose!

All contractors must be acutely aware of the IDOL’s increased audit activity – and unprecedented scrutiny. And, in light of Springfield’s allegiance to organized labor these days, non-union contractors are in particular need to be doing everything possible to make certain they are complying with the IPWA’s technical requirements, beyond the payment of the actual prevailing wage.

Construction Contractors Beware: Think Twice Before Paying Prevailing Wage Assessments!

Construction hat and gavel.

Contributed by Jeff Risch, April 2, 2021, www.illinoisprevailingwage.com

Big Labor continues to use local, state and federal prevailing wage laws to target contractors they have a “beef” with.  Since most prevailing wage audits are triggered by a complaint (including 3rd party complaints), trade unions and certain union-friendly organizations can easily turn in a contractor with the general assertion that the contractor is not complying with applicable prevailing wage law. While contractors and merit shop trade associations could do likewise, they typically don’t for obvious business reasons.  Having concentrated my practice on assisting contractors with prevailing wage disputes throughout the U.S., this trend not only continues but is ramping up in recent months.  While contractors who intentionally cheat the system and ignore their legal obligations should get what they rightly deserve, many contractors are facing audit assessments that are simply  off or incorrect.  Paying a disputed assessment in the hope of not upsetting the government agency or believing that cooperation will bring you favor is arguably one of the worst things a contractor can do these days; failing to properly document your disputes with any assessment that you believe has been issued in error could be the 2nd worst thing.

In short, I am now seeing more and more audit findings that are just flat out wrong, in whole or in relevant part.  Additionally, it is often the case that even if the ultimate assessment is correct, the discrepancy is based on a clerical mistake, an unintentional accounting or reporting error or a case of disputed worker classification.  However, many general contractors and 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. By rejecting bids or terminating contracts with non-debarred contractors who are simply fighting the good fight with prevailing wage issues, these general contractors and public bodies are depriving contractors of fair due process, stifling competitive bidding and ignoring their obligations to the taxpayer.

In these times, 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 to follow with an eye on growing prevailing wage enforcement:

  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 local/state prevailing wage law);
  2. Ensure your business is complying with all applicable prevailing wage obligations for every worker, every day, every week, every job — not simply paying the correct rates but also keeping and maintaining detailed and accurate time and payroll records;
  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 will 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.

PREVAILING WAGE REMINDER: Local, State and Federal Prevailing Wage Obligations Vary Greatly

Contributed by Jeffrey A. Risch, February 25, 2021 – www.illinoisprevailingwage.com

Contractors, developers, architects, owners, project managers and even public bodies often ask the same obvious question when dealing with any type of prevailing wage ordinance or law, “what are my obligations?”  While everyone involved in public construction projects want to comply with prevailing wage mandates, more often than not those involved in such projects are either oblivious to their responsibilities or are mistaken in their belief as to such responsibilities. This is not surprising in light of the great variance in prevailing wage laws, related rules and interpretations of such rules and laws on a local, state and federal level.  It’s unfortunate that there is no set standard or guidebook on the subject. And, that’s the point of this alert! 

What a GC or subcontractor must do under California’s prevailing wage law is entirely different with respect to Illinois law. Likewise, what a developer or owner needs to ensure on a prevailing wage project under Ohio law is different than pursuant to New York mandates. There are also great variations in the types of forms required (including the certified transcript of payroll), written notifications and/or legal disclaimers, contract provisions, wage and fringe benefit responsibilities, actual rate determinations per trade and area, potential liabilities and actual compliance standards. These variations are controlled on a local and state level where prevailing wage requirements still exist.  For a summary of where state prevailing wage mandates still are in play, the U.S. Department of Labor’s quick summary is quite helpful:

Of course, federal prevailing laws (aka Davis Bacon & Related Acts – “DBRA”) must also be recognized.  While the general procedures and processes on federal DBRA projects are the same, what a particular federal contracting or financing agency will require can differ from agency to agency. 

With the above in mind, there are 7 basic rules for anyone dealing with construction projects that are financed, owned, controlled or benefiting (in whole or in part) a local, state or federal government agency or body:

  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 the Illinois Prevailing Wage Act);
  2. Ensure your business is complying with all applicable prevailing wage obligations for every worker, every day, every week, every job and utilize the certified transcript of payroll form required by the government agency or body at issue (i.e. don’t use the DBRA CTP form for local or state projects);
  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 (note: you may have to do this yourself by letter to the auditor or agency at issue);
  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;
  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 business relationships;
  6. Review your purchase orders, bid specifications and contracts to incorporate necessary prevailing wage notice obligations as well as certain disclaimers to ensure proper and/or mandatory notice obligations are in place; and
  7. Don’t rely entirely on a governmental agency’s internal staff or published FAQ’s or interpretive guidance on prevailing wage obligations — some are flat-out wrong and some don’t necessarily supply the most accurate information needed.

Prevailing wage audit and enforcement is becoming increasingly aggressive throughout much of the United States.  Any individual, business, contractor, developer, owner, architect, project manager or public body not intimately familiar and comfortable with applicable prevailing wage obligations is playing a dangerous game that could have a serious short and long term financial impact. 

Illinois Department of Labor Launches Prevailing Wage Electronic Database – April 1, 2020

Contributed by Jeff Risch, April 13, 2020

Back in early 2019, one of the very first actions taken by the new administration in Illinois was to amend the Illinois Prevailing Wage Act (IPWA).  While many changes took effect in 2019, one material change was set to become effective April 1, 2020. This change requires all contractors to submit their monthly certified transcript of payroll via the Illinois Department of Labor’s electronic database. To be clear, the Certified Transcript of Payroll submission under Illinois’ Prevailing Wage Act is now electronic and should be utilized by all contractors beginning with the April 15, 2020 submission for March 2020 work. 

The relevant changes to the IPWA are included here:


820 ILCS 130/5

After the activation of the database created under Section 5.1, the Department of Labor rather than the public body in charge of the project shall keep the records and maintain the database. The records submitted . . . . shall be considered public records, except an employee’s address, telephone number, social security number, race, ethnicity, and gender, and made available in accordance with the Freedom of Information Act.

820 ILCS 130/5.1

Electronic database. The Department shall develop and maintain an electronic database capable of accepting and retaining certified payrolls submitted under this Act no later than April 1, 2020. The database shall accept certified payroll forms provided by the Department that are fillable and designed to accept electronic signatures.

The IDOL’s online portal can be found on the Illinois Department of Labor website.  

While some local units of government or certain government employees may not be familiar with this new change, contractors of all shapes and sizes performing prevailing wage work pursuant to the IPWA must be intimately familiar with this new administrative mandate. All such contractors must register an account (an Illinois Public ID Account) through the IDOL’s portal as soon as possible. You must have your own Illinois Public ID Account in order to submit the electronic transcript. 

The exact impact of this is to be determined. However, it should be rather obvious that this new maneuver will provide the IDOL instant access to all certified transcripts of payroll for any and all prevailing wage projects taken place throughout Illinois. Such changes provide the IDOL instantaneous information that may have taken days and weeks under prior practice; making investigation and enforcement easier and more prevalent in the future. As such, it is more critical than ever to make certain each and every certified transcript of payroll is prepared flawlessly.

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.