Tag Archives: Prevailing wage

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.

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.

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.

House Republicans Push Back on Davis-Bacon Prevailing Wage Expansion

Contributed by Jonathon Hoag

On July 11, 2013, House Republican Committee leaders sent a letter to the U.S. Department of Labor (DOL) requesting it explain why it issued guidance to cover land & field surveyors under federal prevailing wage law (i.e. Davis-Bacon Act).  This type of work has historically been excluded from prevailing wage requirements as preconstruction work.  In fact, a wage determination in accordance with the Davis-Bacon Act currently does not exist for this type of work.  However, the DOL, under extreme pressure from the International Union of Operating Engineers (IUOE), changed its position to include this type of work as covered by the Davis-Bacon Act.  The DOL knows that it has not recognized this work under prevailing wage law and does not have a wage determination applicable to this work, but it has requested that contractors pay survey crews the applicable wage for the classification of work that most closely matches the work performed.  The July 11, 2013 letter to the DOL points out that this abrupt change could have significant impact on contractors and it was made with little notice or justification. 

The House Republican Committee leaders have asserted that this type of change should only be made after the DOL goes through a transparent rulemaking procedure.  These House Committee leaders have requested numerous documents from the DOL that purportedly support the change and illustrate the involvement of organized union.  Only time will tell if this push back will have any impact on the DOL’s efforts to expand the prevailing wage law requirements.

Illinois contractors are very accustomed to this type of abrupt change in state prevailing wage law.  The aspect that is undoubtedly transparent is that organized labor is on a mission to widen the net with respect to the type of work covered by prevailing wage laws.  Contractors should be prepared for more arbitrary expansion to prevailing wage laws at the state and federal level.

Illinois Employment Law Update – Fall 2012

Contributed by Jeff Risch

As the Chair of the Illinois Chamber’s Employment Law & Litigation Committee, I want to make certain that our readers receive the latest changes and updates courtesy of Springfield.  Be assured that our labor group continues to be on the frontline on key local, state and federal workplace regulation. 

Social Networking Limits (HB 3782):  This measure provides that it is unlawful for an employer to request a password or other account information in order to access an employee’s or prospective employee’s social networking website.  HB 3782 allows for employers to maintain lawful workplace policies regarding internet use, social networking site use and electronic mail use.  This legislation allows employers to obtain information about an employee or prospective employee in the public domain.  Governor Quinn has signed this legislation as Public Act (PA) 97-875.  It is effective January 1, 2013.

Equal Pay Act – Individual Liability (SB 2847):  As amended, individual liability under the Equal Pay Act occurs when the employer knowingly and willfully evades the payment of a final award or final judgment under the Act.  Effective on January 1, 2013, the Governor signed as PA 97-903.

Service Members Protections (SB3287):  This measure creates the Illinois Service Member Civil Relief Act which provides certain legal protections afforded to service members (and family members where specified) are subject to stated provisions of law. Amends the Illinois Administrative Procedure Act to set forth a provision concerning stays of contested case hearings for service members.  Amends the Illinois Human Rights Act to provide that a violation of specified provisions regarding legal protections for military personnel constitutes a civil rights violation under the Illinois Human Rights Act.  This is now PA 97-913, with an effective date of January 1, 2013.

Employment Discrimination (HB 3915):  Changes the term “handicapped” under the Illinois Human Rights Act to “disability”.  NOTE: We can expect that the ADA (as amended) will continue to be relied on as highly persuasive authority in interpreting employers’ obligations related to disability protections under the IHRA. Governor Quinn signed as PA 97-877 with an August 2, 2012 effective date.

Prevailing Wage Notice (HB5212):  Provides that a public body or other entity shall notify contractors and subcontractors of changes in prevailing wage rates.  However, the notification requirement will be met by including in the contract that the prevailing rate is established by the Department of Labor and available on the IDOL website — shifting the responsibility yet again on the contractor and small business owner.  Effective January 1, 2013 as PA 97-964.

UI Administrative Changes (HB 5632):  Has been signed into law as PA 97-791 and goes into effect January 1, 2013.  The new law cleans up obsolete language and makes other non-substantive changes.  It requires payments be made to the Department of Employment Security instead of the Director.  It addresses several federal conformity issues including:

  1. Illinois law now provides for a monetary penalty for individuals who fraudulently obtain UI benefits that are greater than 15 percent of the amount that was fraudulently obtained.
  1. Illinois law now requires an employer account to be charged for benefits that were incorrectly paid if the incorrect payment was the result of the employer (or employer’s agent) failing to timely respond to information requests from the state UI agency and the employer (or agent) has established a pattern of failing to timely respond.
  1. Illinois law now requires employers to report to the state new hire directory the names of all employees rehired after having been separated for at least 60 days.