Tag Archives: Illinois Department of Labor

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.

Illinois’ Prevailing Wage Law: Beware… That First Notice of Violation Can Come Back to Haunt You!

A Growing Trend: Using a 1st Notice of Prevailing Wage Violation Against a Contractor—The Shame of It All and What Contractors Can Do to “Right the Ship”

 Contributed by Jeffrey A. Risch

Having handled hundreds of prevailing wage disputes, the IDOL is the only entity that can lawfully determine whether a contractor is in violation of the IPWA. 820 ILCS 130/11(a) et. seq. Under the IPWA, only the Director for the Illinois Department of Labor is authorized to issue a “Notice of First Violation” of the Prevailing Wage Act to a contractor. 820 ILCS 130/11a. This Notice of First Violation should encompass any and all events that occurred prior to the time of issuance. 56 Ill. Adm. Code 100.24. Per the IPWA, a contractor has no ability to respond, dispute or defend against a Notice of First Violation. 56 III. Adm. Code 100.5, 100.24, 100.26. It is not until the Director for the IDOL issues a “Notice of Second Violation” that a contractor may request a hearing at the department, in order to respond to the charges and defend itself against any claim of violations of the Prevailing Wage Act. 820 ILCS 130/11a; 56 III. Adm. Code 100.5, 100.26.

Only after a Notice of Second Violation is sent to a contractor and a hearing is held, if necessary, can the IDOL make a determination that a contractor is debarred or prevented from participating in a public contract because of violations of the Prevailing Wage Act. 820 ILCS 130/11a; 56 III. Adm. Code 100.5, 100.24, 100.26.

In deciding that the act has been violated and that the issuance of a formal notice of violation is required, the Director of Labor shall base the decision on one or any combination of the following reasons (as per the Illinois Administrative Labor Code):

 – The severity of the violations. The Director will consider the following:

  • The amount of wages that are determined to be underpaid pursuant to the act.
  • The activity or conduct complained of violates the requirements of the statute and was not merely a technical, non-substantive error. Examples of a technical error include, but are not limited to, mathematical error, bookkeeping error, transposition of numbers, or computer or programming error.

 – The nature and duration of the present violations as well as prior history of the contractor or the subcontractor related to the act. The prior history considered cannot exceed seven years before the date of the second notice of violation.

 – Whether the contractor or subcontractor filed certified payroll records with the public body in charge of the project; whether the contractor or subcontractor has kept the payroll records and accurate records for 5 years; whether the contractor or subcontractor produced certified payroll records in accordance with Section 5 of the act.

 – Whether the contractor or subcontractor has violated any other provision of the act.

Despite this authority, many local public bodies throughout Illinois are being influenced by certain third parties. These public bodies are being told that that they must reject bids or terminate contracts with any contractor who has any prevailing wage discrepancies, even when the contractor is the “lowest responsible bidder.” These public bodies are using “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 throughout Illinois are ignoring their obligations under applicable “lowest responsible bidder” statutes, making arbitrary decision beyond their statutory authority, and depriving contractors of fair due process under the law.

Conclusion

Contractors must know their rights! Although public bodies have an enormous amount of discretion in ascertaining the “lowest responsible bidder,” they cannot make arbitrary decisions in contradiction to applicable law. Contractors should never be discouraged from submitting bids despite what certain public bodies are saying. 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, often the public body simply needs clarity concerning the misinformation it had received. This clarity can usually be achieved through simple letter writing or other more informal channels.

Contractors Beware: Strict Amendments to the Illinois Employee Classification Act

Contributed by Jonathon Hoag

House Bills 923 and 2649 were signed into law amending the Illinois Employee Classification Act (IECA), effective January 1, 2014.  The IECA sets forth strict requirements in order to lawfully classify individuals as independent contractors within the construction industry (defined very broadly by the act).  The IECA has been amended to give the Illinois Department of Labor more oversight and authority to enforce this act.  The recent amendments mandate that (1) contractors follow annual reporting requirements when contracting with an individual, sole proprietor, or partnership to perform construction services; (2) add individual liability; and (3) change the department’s method for enforcing the act (i.e. easing enforcement).

Beginning January 1, 2014, contractors that make payments to an individual, sole proprietor, or partnership for construction services must report contact and payment information to the Illinois Department of Labor by January 31 following the taxable year in which payment was made.  The department intends to closely monitor the use of (non-employee) sole proprietors and partnerships in the construction industry.  Contractors that fail to submit required reports are subject to penalties and debarment.

In addition, officers and agents of contractors who knowingly permit the contractor to violate the IECA, or are otherwise considered an employer under the act, are subject to individual liability.  This provision does not apply to contractors primarily engaged in the sale of tangible personal property or doing work for a business primarily engaged in the sale of tangible personal property.

Lastly, the enforcement procedure was drastically amended so that now alleged violations will be prosecuted by the Illinois Department of Labor through an administrative hearing, subject to administrative review in the courts.  Currently, the Illinois Department of Labor’s administrative findings have no significant weight and violations must be proved by the Attorney General in the circuit court.  This change to the enforcement procedure will give the Illinois Department of Labor substantial control and power in how this act is enforced. 

Interestingly, contractors in compliance with the responsible bidder requirements set forth in the Illinois Procurement Code are exempt from these statutory amendments.  There are a number of requirements under the responsible bidder provision of the Illinois Procurement Code, but the one of most significance is the requirement that contractors have an apprenticeship program approved by the U.S. Department of Labor to cover each craft of work performed on the job.  There has been a concerted effort to broaden the application of the responsible bidder requirements to contractors throughout Illinois, and it appears the strategy will be to give contractors who satisfy the responsible bidder requirements special treatment under other Illinois laws.

Unions Continue to Reshape Illinois Prevailing Wage Law: New Radical Changes for 2013/2014

Contributed by Jeffrey Risch

Since 2002, Illinois’ prevailing wage law has been the target for labor unions in seeking to expand the law’s scope and application.  As a management-side labor and employment attorney dedicated to a broad spectrum of workplace laws and regulation for both union and non-union employers, I can’t think of any law that has been modified and amended more often.  Nearly every legislative session in Springfield results in some sort of revision to the Illinois Prevailing Wage Act (IPWA).  Even without legislative changes, absent a court order or thoughtful strategic push back, the Illinois Department of Labor (IDOL) has and continues to come up with new administrative interpretations while enforcing the law at an all-time high (good, bad or indifferent).  Such changes and developments have caused a great deal of confusion, uncertainty and turmoil amongst responsible contractors and public representatives. 

The latest developments involve HB 922 and HB3223

HB 922, sponsored by Rep. Frances Hurley (D-Chicago) and Sen. Linda Holmes (D-Aurora), requires construction contractors to retain records under the Illinois Prevailing Wage Act for five years from the date of the last payment received under the contract (instead of the current three years) and extends the right to bring legal action to a clear period of no less than five years.

HB 3223, sponsored by Rep. Dan Beiser (D-Alton) and Sen. Mike Frerichs (D-Champaign), expands various Illinois Prevailing Wage reporting requirements, particularly against non-union contractors. Non-union contractors will now be forced to disclose fringe benefit plan documents and information under more government control and scrutiny. Also, applicable to both union and non-union contractors is a new provision requiring contractors to report net pay which means the potential public disclosure of a worker’s personal payroll deductions.  Both bills passed both chambers and await the Governor’s signature.

Unfortunately, these legislative changes will undoubtedly lead to unprecedented regulation, decreased competition in the public bidding process and increased taxpayer costs in maintaining, constructing and repairing our roads, schools, bridges and general public infrastructure.

Wake Up Public Bodies and Contractors! Do Not Fall for this Illinois Prevailing Wage Act Trap

Contributed by Jeff Risch

Having handled hundreds of prevailing wage matters and controversies over the years, here’s something I will never understand… Why on earth would a unit of local or state government (aka a “public body”) contractually require compliance with Illinois’ prevailing wage law in circumstances where the Illinois Prevailing Wage Act (IPWA) would not apply?  Quite candidly, it’s an entire waste of resources while breeding unnecessary conflict. 

To appreciate the message delivered here, one must recognize the simple truth that there are exemptions from obligations arising under the IPWA — even when such work is performed on a “public works” construction project. One can look no further than the plain language of the IPWA itself to find expressed exemptions. Specifically, under 820 ILCS 130/3, the IPWA expressly exempts the transportation by the sellers and suppliers of materials or equipment or the manufacture or processing of said materials or equipment in the execution of any public works construction contract. There are also certain exemptions that may apply for work of a purely administrative or supervisory nature. Additionally, there are some exemptions applicable to a bona fide owner/operator, bona fide business owner and bona fide sole proprietor that may apply to a particular set of circumstances. The specifics as to available exemptions are so incredibly nuanced that I cannot possibly provide an ironclad list (nor would I want to through this public forum). However, the undeniable truth is that a “one-size fits all” contract notice used by more and more public bodies throughout Illinois does not recognize exemptions from the IPWA requirements. To be more precise, the Illinois Department of Labor (IDOL) has published its own MODEL CONTRACT LANGUAGE that it recommends as an example of a written statement/notification that public bodies may wish to include in their contracts, purchase orders or advertisement for bids in order to provide required notice under the IPWA.  More and more public bodies are adopting this language and in doing so are unnecessarily applying the IPWA to work otherwise exempt. The IDOL’s “model notice” is as follows:

This contract calls for the construction of a “public work,” within the meaning of the Illinois Prevailing Wage Act, 820 ILCS 130/.01 et seq. (“the Act”). The Act requires contractors and subcontractors to pay laborers, workers and mechanics performing services on public works projects no less than the “prevailing rate of wages” (hourly cash wages plus fringe benefits) in the county where the work is performed. For information regarding current prevailing wage rates, please refer to the Illinois Department of Labor’s website at: http://www.state.il.us/agency/idol/rates/rates.HTM. All contractors and subcontractors rendering services under this contract must comply with all requirements of the Act, including but not limited to, all wage, notice and record keeping duties.

In light of recent amendments to the law, all public bodies and upper tier contractors should be sensitive to the requirement that they must notify all contractors and lower tiered contractors of obligations under the IPWA. However, and this is my point, there are critically important words not included in the above mentioned “model notice” — these words may include:  AS APPLICABLE and/or UNLESS OTHERWISE EXEMPT and/or ONLY TO THE EXTENT AS REQUIRED BY LAW. 

Since some work performed on “public works” construction projects is exempt from the requirements under the IPWA, it is only logical to premise any notification of prevailing wage obligations with some expressed limitations. By routinely inserting the IDOL’s “model notice” into “public works” contracts, the IDOL’s prevailing wage enforcement agents will inevitably use (and have used) the written contract as a vehicle to apply the IPWA to otherwise exempt work.