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Prevailing Wage Investigations & the Most Common Contractor Errors

Accounting Support • Nov 25, 2020
The employer Shared Responsibility Payment is an unavoidable part of the business for contractors working on publicly-funded projects.
Prevailing Wage Investigations & the Most Common Contractor Errors

The employer Shared Responsibility Payment is an unavoidable part of the business for contractors working on publicly-funded projects. The contractors who have done everything perfectly do not need to worry. But sometimes even the most ethical contractors and subcontractors have to be prepared for the worst situations. Good preparation for unexpected situations can make the circumstances less painful. Without an ethical conscience and full cooperation, things may go in the wrong direction.

Contractors can expect these things during prevailing wage investigations.

The public entities conduct investigations to make sure that contractors meet prevailing wage statutes and labor standards. Sometimes, they also check compliance by visiting sites or contractors working on their projects. Each agency has its own procedures and specifications, and they can vary depending upon which agency is conducting them. The wage and labor Division of the US department of labor performs such reviews to uphold Davis-Bacon and related acts at the federal level.

How will contractors know if they're investigated?

As it's not any secretive scheme, contractors will easily know. The WHD will contact you to provide contractors the scope of the investigation and retrieve the basic company information. The investigation may include the inspection of the construction and record sites, and they may conduct interviews of employees. Investigators and observing documents also have the authority to conduct the interviews of employees during work hours. In case if there are any discrepancies between the employees’ submitted records and interview findings, interviews can extend.

The most common errors that contractors make during these investigations

Some common issues for starters are simple wage and Fringe calculation, missing information about payroll or employees, ruined or forgotten statement of compliance copies. The contractors creating payroll by themselves are found to make more mistakes than those using the software. In addition to these general mistakes, one of the big standouts is the misrepresentation of crafts/ trades and classifications. This issue rarely arises after walking off the investigator on the Jobsite. Some wilder things are also found at the construction site. 

The investigator will check the payroll and responsibilities of employees. Imagine if he sees a person performing sheet metal work, but the payroll report is showing he's labor. Such situations can occur as the prevailing wage rate for sheet metal workers are higher than laborer work. Besides focusing on the worker's title, investigators look for what work he is performing. It is a common issue to misrepresent crafts with differences between crafts classifications. For instance, there can be a slight difference in work outlined for different groups and can be easily overlooked. 

In addition, different jurisdictions may have different descriptions of their crafts. The operator, for instance, is called "Power Equipment Operator" in federal wage determination. While in California prevailing wage determination, an operator is called "Operating engineer.” This issue can be easily solved by writing an application to help you match the craft descriptions with other jurisdictions.

Red Flags

Besides these common errors, employers also need to avoid some other issues at any cost. These may include some special cases that just beg investigators to snoop further. One of the biggest of such issues is red flags “Ghosts.”

The situation can be any of these two examples:

  1. Workers are working on the Jobsite, but they don’t appear on the payroll.
  2. The workers documented on the payroll are not seen on the job site. Such situations alarm investigators that something’s fishy here, more so than a ghost. It insists investigators do large scale investigations. They will look for such issues in all other projects as well. 

The ratio of trainees to journeymen working on a job site can be another red flag. No doubt, there can be different requirements for jurisdictions. But if there are some journeymen for every trainee performing work, it’s a fast-track to discovering underpayments. The reason is that if a ratio is met, it can be legal to pay apprentices less than prevailing wage rates. If the ratio is not met, apprentices will get payment at journeyman rates.

If Errors Are Uncovered in the Audit

At a closing conference, the investigator will alert you of any potential violations. They will inform you of what steps need to be taken to rectify them. Employers can clarify themselves by providing documentation to refute the claim. They are also given a chance to provide evidence that the error was not willful. In case if the investigator finds out that a worker is underpaid, the employer will need to pay back-wages to the worker. If a subcontractor continues disobeying the policies, primes covering all the wages owed to the workers are legally obligated.

Is That It?

Almost all investigating organizations have the same process of handling a specific situation. But the process can sometimes be more repercussive too. If there are a large number of back-wages to be paid to workers, penalties and liquidated damages may apply. The investigators sometimes inform such issues to the employee, and sometimes they directly go to the agency.

If the investigator determines the complicit knowledge of violations or willful falsification of documents, employers may face serious issues. Such employers will be potentially debarred from further public works contracts for three to five years.

If a subcontractor has violated the policies, even primes can also debar. Therefore, it is recommended that primes: 

  1. Should choose the subcontractors wisely.
  2. Create and implement a compliance application that requires subs to create and submit certified payrolls to the prime. Before submitting the application, it would be best to double-check the app’s features for violations.

Employers should always be prepared as they can be investigated at any time. Mostly the violations occur unintentionally, and the investigators know this. No matter how expert a contractor is, he may have audits that turn up mistakes or violations. But always keep in mind that auditors and investigators are not there to throw the gavel down and dole out punishments. The main purpose of sending them to your workplace is to make things right. And you’ll realize that they mostly meet well-intentioned and prepared violations with more leniencies.

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