The most effective prevailing wage laws include a number of core elements. Provided below are guidance and examples of existing best practices to help state and local policymakers design prevailing wage laws that extend coverage broadly and include robust standards. As noted above, best practices must be modeled to accommodate the laws of any particular jurisdiction.
Include a strong purpose statement to ensure that government spending does not drive down labor market standards
The purpose of prevailing wage laws is to ensure that the government purchases high-quality goods and services that provide good value for taxpayers and do not drive down labor market standards. In this way, these standards protect workers from unfair exploitation; provide high-quality, high-road contractors with fair opportunities to bid on government projects;15 and, by increasing workforce stability, improve the overall quality and efficiency of contracts.16 State and local policymakers advancing these reforms should include these justifications in legislative purpose statements in order to provide direction to officials administering the law as well as courts that might review legislative intent if the law is subject to legal challenge.
Strong purpose statements describe the harms of low wages as well as how labor standards ensure efficient procurement that provides a good value to taxpayers and protects employers from unfair competition. For example, New Jersey’s prevailing wage law for building services workers states:
It is declared to be the public policy of this State to establish prevailing wage levels for the employees of contractors and subcontractors furnishing building services for any property or premises owned or leased by the State in order to safeguard the efficiency and general wellbeing of those employees and to protect them and their employers from the effects of serious and unfair competition based on low wage levels which are detrimental to efficiency and well-being.17
Similarly, Minnesota’s construction prevailing wage law maintains that
[i]t is in the public interest that public buildings and other public works be constructed and maintained by the best means and highest quality of labor reasonably available and that persons working on public works be compensated according to the real value of the services they perform.18
The city of Los Angeles’ airport living wage ordinance could also serve as model language for a prevailing wage law justification because it highlights the connection between employee compensation and turnover:
Inadequate compensation of these employees adversely impacts the performance by the City’s lessee or licensee and thereby hinders the opportunity for success of City operations. … The minimal compensation tends to inhibit the quantity and quality of services rendered by those employees to the City and to the public. Underpaying employees in this way fosters high turnover, absenteeism and lackluster performance. Conversely, adequate compensation promotes amelioration of these undesirable conditions.19
In short, purpose statements should highlight how prevailing wages and benefits help workers, taxpayers, and government alike.20
Cover workers across sectors and funding streams
While numerous cities and states have adopted prevailing wage laws, many apply only to public works projects or cover only direct contracts but exclude from coverage loans, grants, tax incentives, and other types of public support for private companies. As a result, many employers that receive government support are not subject to these wage requirements. Therefore, policymakers should enact and update prevailing wage laws to cover all types of government spending that creates private sector jobs and workers whose jobs are funded in whole or in part by state or local spending. There are a number of steps that policymakers can take to help expand the scope of coverage, as detailed below.
First, lawmakers should expand prevailing wage laws—which traditionally cover construction projects—to more industries and types of work. Increasingly, governments are extending prevailing wage mandates to service work.21 For example, existing laws cover custodial staff, unarmed security guards, airport workers, food service workers, and temporary office service workers.22 New York and New Jersey, in particular, have numerous state and local laws that set standards for building service workers.23 In addition, governments should consider attaching wage requirements to ongoing maintenance and repairs on major public works projects.24
While there are specific nuances to crafting construction and service sector prevailing wage laws (as discussed in more detail in the following sections), too often legislators advocate and advance narrowly crafted reforms, seeing themselves as champions for a specific set of workers rather than a champion for the expansive use of standards to uphold efficient and economical spending and raise standards for workers broadly. By expanding these laws to cover more construction and service sector work, lawmakers can broaden the coalition of supporters and ensure that the laws support high standards across the government.
Second, prevailing wage laws can and should cover spending across all government agencies25 and financing mechanisms, including direct contracts, grants, loans, tax incentives, and other types of public support for private companies such as lease agreements, loan guarantees, and transfers of state land.26 Some construction prevailing wage laws have gone quite far in covering a range of government financial assistance. The New Jersey Economic Development Authority, for instance, requires prevailing wages for
workers employed in the performance of any construction … undertaken in connection with Authority financial assistance or any of its projects … or undertaken to fulfill any condition of receiving Authority financial assistance, including the performance of any contract to construct, renovate or otherwise prepare a facility for operations which are necessary for the receipt of Authority financial assistance.27
“Authority financial assistance” means any loan, loan guarantee, grant, incentive, tax exemption or other financial assistance that is approved, funded, authorized, administered or provided by the Authority to any entity and is provided before, during or after completion of a project … that enables the entity to engage in a construction contract.28
As another example, the city of Portland, Maine, requires firms employed in the construction phase of tax increment financing-assisted projects to pay the higher of the prevailing wage and the city minimum wage.29 The state of New York also has an expansive definition for what constitutes public support.30
In the service sector, prevailing wage standards are often applied to direct government contracts and subcontracts for work at properties owned or leased by the municipality or state.31 Innovative policymakers should also attach these standards to a wide range of other taxpayer-supported work. For example, Bergen County, New Jersey’s prevailing wage law applies to “[a]ll contracts … for the performance of any kind of building service work in buildings owned or leased or otherwise utilized by the County that is paid for by voucher, grant or otherwise”32 as well as all contractors receiving economic development financial assistance. The law goes on to broadly define “economic development financial assistance” as
assistance with an anticipated total value of at least one million dollars that is provided in whole or in part by the County to a business organization for the improvement of development of real property, economic development, job retention and growth, or other similar purposes. Financial assistance includes, but it’s not limited to cash payments or grants, bond financing, tax exemptions, tax increment financing, filing fee waivers, energy cost reductions, environmental remediation costs, write-downs in the market value of building, land, or leases, or the cost of capital improvements related to real property that, under ordinary circumstances, the County would not pay for.33
Third, policymakers should structure laws so that standards kick in when any government funds are involved, even if the project is not led by a state agency. Maine, for example, recently amended its laws to require prevailing wages on all construction projects “funded in whole or in part by state funds and for which the contract amounts to $50,000 or more.”34
Fourth, where possible, policymakers should extend existing laws to cover more political subdivisions as well as quasi-public entities. Some state laws require that projects by local jurisdictions and school districts be covered.35 In addition, prevailing wage laws have covered public utilities,36 public-private partnerships, universities, and port authorities.37
Finally, it is important that prevailing wage requirements flow down through funding to prevent employers from contracting out work in order to avoid wage requirements. Prevailing wage laws should apply to any subcontractors. In addition, service sector prevailing wages have been extended to cover tenants of funding recipients.38 This ensures that even if a funding recipient leases out their property, building service workers at that property will still be covered by standards. Moreover, many states should take corrective action to reverse loopholes found in laws enacted during the past century which allow contractors to pay workers with disabilities subminimum wages. For example, Connecticut has taken steps to ensure that all workers, regardless of their disability status, are covered by prevailing wages.39
Adopt wage-setting requirements that uphold market standards
Governments have some discretion when it comes to specific strategies for setting wage rates. Jurisdictions use a variety of methods to determine market wage and benefit rates, including surveys and reference to local collective bargaining agreements (CBAs). Strong wage-setting mechanisms can ensure that government contracting does not erode standards in the private sector or undercut standards reached through collective bargaining. Indeed, prevailing wage laws tend to be important for protecting market rates in areas where a significant portion of the workers belong to unions.
State construction prevailing wage laws commonly calculate compensation based on the most frequently occurring rate in an industry, known as the modal rate. For example, the state of Minnesota calculates its construction prevailing wage rate based on the “actual wage rates paid to largest number of workers within each labor classification reported in the statewide survey.”40 Illinois’ prevailing wage law—which considers rates for work performed under CBAs in the locality, provided that the agreements cover at least 30 percent of workers—is another good model.41 New Jersey and Washington state also look directly at CBAs in setting standards for construction contracts.42
Incentives to undercut market wages can be even higher among low-road contractors in the service sector, where labor costs account for a large portion of total contract costs; market wages are lower; and contracts typically fund long-term work rather than temporary construction projects. To generate the strongest wages possible, employers in the service sector should pay their employees the higher of the prevailing wage or the living wage, as is mandated in New York City’s building service prevailing wage law.43 By including such a minimum wage floor, policymakers can help ensure that laws raise standards above poverty levels even in particularly low-wage and nonunion industries.44
In addition, the strongest service sector prevailing wage laws ensure that prevailing wage rates don’t undercut markets where a large portion of workers are organized under a CBA. For example, Connecticut’s wage-setting process looks at the largest statewide CBA, provided that the contract covers at least 500 employees.45
Bergen County, New Jersey’s prevailing wage for building service workers also provides a useful model for several of the above concepts by calling for the higher of either the prevailing wage or a percentage above the federal minimum wage. Note that, given that state minimum wages are often higher than the federal minimum wage, an even better practice would be to use a percentage of the statewide rate:
For the purposes of this section, “standard hourly rate of pay” other than for armed guards and armed watchpersons shall be 150% of the current federal minimum wage … or the hourly rate of pay for work performed within the County under the Collective Bargaining Agreement covering the largest number of hourly non-supervisory employees employed within Bergen county in the relevant classification, provided the Collective Bargaining Agreement covers no less than two hundred (200) employees in the classification, or the hourly rate paid to workers in the relevant classification under a preceding contract, whichever is higher.46
On long-term service contracts, it is particularly important that employers receiving public funds are required to pay the current wage rate—rather than the rate in effect at the time the contract was made—and prevailing wage laws should provide for routine annual adjustments to the standard rate of pay and benefits to account for changes in labor costs and the cost of living.47 Policymakers can also require bidders to submit specific price breakdowns as a way to ensure that their estimated labor costs appropriately account for wages and payroll taxes.48 In addition, policymakers could make state agencies responsible for any increase in labor costs over the life of the contract, as is the case in Connecticut.49
Finally, prevailing wages should not be used to interfere with the right of workers to collectively bargain.50 For instance, service employers at work sites where there is already a CBA in place should be required to pay the higher of the negotiated CBA wage and benefits rates or the prevailing rate.51
Ensure employers provide decent benefits
Prevailing wage laws typically go beyond setting minimum wages and also establish fringe benefit contribution requirements. In most instances, cities and states require covered employers to provide a certain amount toward an employee benefits plan or a cash equivalent. In addition, policymakers increasingly require covered employers to separately provide essential benefits such as paid leave.
Prevailing wage laws set minimum contribution levels that cover a range of fringe benefits, including health care and paid time off.52 not include workers compensation or other legally mandated insurance, nor [should] it include the value of any benefit for which an employee is eligible, but for which no payment is actually made by a contractor to the employee or to any other party on the employee’s behalf because the employee either does not actually utilize or does to elect to receive the benefit for any reason.” Bergen County, New Jersey, Ordinance No. 14-07, §5.10(n). ] California, for example, includes “employer payments of health and welfare, pension, holidays, sick leave, vacation, apprenticeship or other training programs” as part of its prevailing wage definition.53
Prevailing wage laws commonly set total compensation rates that allow employees to meet supplement requirements through Employee Retirement Income Security Act (ERISA) plans, non-ERISA plans, or cash. Typically, prevailing wage laws provide employers with three options for furnishing these benefits: 1) in the form of bona fide health and other benefits valued at the required hourly supplement amount; 2) through a mixture of bona fide benefits and cash; or 3) entirely in cash.54
In addition, some jurisdictions separate out paid leave from health insurance and other benefits to prevent the former from eating up the entire benefits supplement.55 Paid leave can include paid vacation, paid holidays, and paid personal or sick days.56
Like wages, employers at work sites where there is already a CBA in place should be required to provide workers benefits at negotiated levels, and fringe benefits should be adjusted on an annual basis to account for changes in the cost of living.57
Hudson County, New Jersey’s service sector sets the hourly supplemental benefits rate equal to the greatest of the following:
1. The monetary value of the health and other benefits (not including paid leave) provided by the Collective Bargaining Agreement covering the largest number of hourly, non-supervisory employees employed within Hudson county in the relevant classification, provided the Collective Bargaining Agreement covers no less than two hundred (200) employees in the classification;
2. health and other benefits (not including paid leave) provided by the employer for each employee within ninety (90) days of hiring or pay to the service worker of an hourly stipend equal to twenty percent (20%) of the standard hourly rate of pay (the “Hourly Benefit Supplement”); or
3. the monetary value of the health and other benefits (not including paid leave) provided under a preceding qualified contract. The cost to the employer of “standard benefits” shall be equal to or greater than the Hourly Benefit Supplement. In the event that the premium costs per service worker are less than the Hourly Benefit Supplement then in addition to any other benefits or payments made to a service worker the vendor, contractor, or subcontractor shall pay the service worker on an hourly basis the difference between the Hourly Benefit Supplement and the amount paid for the benefits.58
Increase access to construction industry jobs through apprenticeship
Registered apprenticeships are important tools for structuring training and upholding market wages and safety standards in a number of industries, especially construction.59 While construction industry jobs are temporary, registered apprenticeship’s nationally recognized credentials allow construction workers to demonstrate skill level and move smoothly between employers while ensuring companies access a continuous supply of qualified workers.
Encouraging the use of registered apprentices with government spending helps provide a skilled workforce for government projects. Additionally, when paired with targeted hire programs, registered apprenticeships can result in local residents from disadvantaged communities having access to construction careers.
Typically, prevailing wage laws permit registered apprentices to be paid at a percentage of the total pay for journeypersons and require employers who wish to take advantage of the lower rate to submit proof of the workers’ apprenticeship registration to ensure the program is high quality. See, for example, Washington state’s public works law:
Apprentice workers employed upon public works projects for whom an apprenticeship agreement has been registered and approved with the state apprenticeship council … must be paid at least the prevailing hourly rate for an apprentice of that trade. Any worker for whom an apprenticeship agreement has not been registered and approved by the state apprenticeship council shall be considered to be a fully qualified journey level worker, and, therefore, shall be paid at the prevailing hourly rate for journey level workers.60
In addition, states can help expand the use of apprenticeship by requiring that a significant portion of the work on publicly supported construction projects be performed by participants in a federal or state registered apprenticeship program. A number of states already use these types of apprenticeship utilization rates. For example, Washington state requires that no less than 15 percent of the labor hours on large state public works projects be performed by apprentices,61 and Nevada requires that apprentices supply 10 percent of labor hours for vertical construction.62
In order to achieve the widest talent pool and the most effective and productive workforce possible, lawmakers can also incorporate targeted hire requirements.63 Targeted hire policies can help ensure that historically disadvantaged groups of workers—which could include women, people of color, and the formerly incarcerated—are able to access publicly supported jobs.64 For example, the city of San Francisco requires local residents to complete 50 percent of its apprenticeship hours and has partnered with business, labor, and community groups to create an 18-week preapprenticeship program.65 Construction projects by the Los Angeles County Metropolitan Transportation Authority require that 20 percent of workers be apprentices and that 10 percent be “disadvantaged residents.”66 In designing prevailing wage laws, states and cities may consider pairing them with laws establishing targeted hire requirements.
Stabilize service sector jobs when contracts are rebid
State and local policymakers must also take steps to prevent the diminution of standards when service sector contracts are rebid. This means requiring that any follow-on contractors maintain the existing onsite workforce as well as uphold wage and benefit rates that are at least as high as those mandated in the previous public contract. These principles are critical in the service sector because workforces tend to be tied to a job site for an extended period.
These protections for subsequent contracts reflect governments’ interest in maintaining a stable workforce and preventing turnover of experienced workers as a result of changes in contracts. By reducing worker turnover, the government can support a more experienced workforce, which has benefits for service quality as well as safety and security. Moreover, these protections help prevent low-road contractors from beating out their competition on the basis of submarket wages and benefits.67
Prevailing wage laws should mandate that when such a contract expires, any follow-on contractor shall retain employees formerly employed by the terminated contractor or subcontractor. Should the new contractor determine that fewer employees are required to perform the new contract, it should retain employees by seniority within the job classification.68 See, for example, Connecticut’s prevailing wage statute:
(h) Where a required employer is awarded a contract to perform services that are substantially the same as services that have been rendered under a predecessor contract, such required employer shall retain, for a period of ninety days, all employees who had been employed by the predecessor to perform services under such predecessor contract, except that the successor contract need not retain employees who worked less than fifteen hours per week or who had been employed at the site for less than sixty days. During such ninety-day period, the successor contract shall not discharge without just cause an employee retained pursuant to this subsection. If the performance of an employee retained pursuant to this subsection or section 4a-82 is satisfactory during the ninety-day period, the successor contractor shall offer the employee continued employment for the duration of the successor contract under the terms and conditions established by the successor contractor, or as required by law.69
In addition, prevailing wage laws should require employers to comply with the wage, benefit, and paid leave requirements of the prior contract, where they are higher. Hudson County’s prevailing wage law does this by requiring that employers pay the higher of a percentage of the minimum wage, the prevailing wage rate, or “the hourly rate paid to workers in the relevant classification under a preceding contract.”70
Taken together, the provisions help ensure that follow-on bidders are not able to win contracts by reducing previous wages and benefits and thereby undercutting high-road companies in order win a contract.
Guarantee robust mechanisms for enforcement
Wage theft—where employers pay workers less than the law requires—is a widespread and serious issue for many contract workers.71 In order to ensure that worker protections are effective, prevailing wage laws must guarantee robust government enforcement, strong individual rights to action, and partnerships with worker advocates to ensure that victims of wage theft know their rights and are willing to come forward.72
Policymakers can give inspectors the tools they need to investigate potential violations by requiring companies to provide certified payroll;73 allow site access;74 and post notices to keep workers informed of their rights.75 Moreover, as discussed in endnote 48, requiring government agencies to evaluate bidders based on their detailed price breakdowns can ensure that estimated labor costs appropriately account for wages and help prevent violations after the fact.
Employers found to intentionally, willfully, or repeatedly violate prevailing wage provisions should face penalties76 and potentially debarment, which would prevent them from receiving contracts and other types of government funding for a specified period of time, depending on the severity of the violation. For example, New York state labor law prohibits contractors that have been debarred for prevailing wage violations from bidding or being awarded building service contracts for a period of five years.77 Principals, affiliates, successors, and assignees of contractors or subcontractors found to have intentionally violated provisions would also be ineligible for new contracts or funding during that time.78 These laws should also prohibit employers from retaliating against workers for filing complaints,79 and employers who do should face additional penalties.80
Hawaii’s construction prevailing wage law is one of the strongest on enforcement. It includes financial penalties that vary based on the number of violations81 as well as immediate suspension of violators:
(a) The director shall suspend a person or firm as follows:
(1) For a first or second violation, if a person or firm fails to pay wages found due, any penalty assessed, or both, the person or firm shall be immediately suspended from doing any work on any public work of a governmental contracting agency until all wages and penalties are paid in full;
(2) For a third violation, the suspension shall be as prescribed in section 104-24(c); provided that, if the person or firm continues to violate this chapter or fails to pay wages found due or any penalty assessed, or both, then the person or firm shall immediately be suspended from doing any work on any public work of a governmental contracting agency for a mandatory three-year period. If after the three-year suspension period the wages found due or penalties assessed are still unpaid, the suspension shall remain in force until payment is made in full; or
(3) For falsification of records, or for delay or interference with an investigation pursuant to section 104-22, the person or firm shall be immediately suspended for a period of three years.
(b) The director shall immediately notify the governmental contracting agency, comptroller, the auditor or director of finance of the county, and in the case of a suspended subcontractor, the general contractor of any suspension order.
(c) No contract shall be awarded to the person or firm so suspended or to any firm, corporation, partnership, or association in which the person or firm has an interest, direct or indirect, until three years have elapsed from the date of suspension, unless the period of suspension is reduced as herein provided. Any contract awarded in violation of this subsection shall be void.82
However, government action alone is not enough. Prevailing wage laws should also provide workers with a private right of action, so that they can bring suit for violating prevailing wage laws and recover lost wages and benefits as well as attorney’s fees. 83
For example, Hudson County, New Jersey’s prevailing wage ordinance includes a right of action for covered employees:
[Violation of this provision] shall constitute a breach of contract, and such provision shall be considered to be a contract for the benefit of the workers, laborers and mechanics upon which such laborers, workers and mechanics shall have the right to maintain action for the difference between the standard compensation and the rates of pay, benefits, and paid leave actually received by them. The laborers, workers and mechanics may be awarded appropriate remedies including, but not limited to, back pay, benefits, attorney’s fees, and costs.84
In addition, New York and California allow workers to bring “third party beneficiary” suits against companies that violate their contract with the state by paying less than the prevailing wage and to recover owed wages and remedies on behalf of themselves and other workers.85 Third-party beneficiary rights are important because they allow workers to bring a private suit against employers that fail to pay prevailing wages.
Finally, it is also essential that state labor agencies have adequate resources and staff to carry out the necessary enforcement efforts. Policymakers should provide enforcement agencies with robust funding. Furthermore, the most successful models create a role for worker organizations to help educate workers on their rights and confirm compliance.86
Evidence suggests that co-enforcement initiatives have been effective in improving compliance and enforcement.87 The longest-running co-enforcement program in the country is in Los Angeles County, where the unified school district partners with trade unions to help enforce the prevailing wage laws on district projects. Volunteers trained through the Los Angeles Joint Labor Compliance Monitoring Program are authorized to inspect work sites and talk to workers about compliance.88 Multnomah County, Oregon, is currently piloting a similar program on public works construction sites.89 Seattle and San Francisco also have partnered with community organizations to enforce labor standards laws, helping to ensure workers know their rights and feel comfortable coming forward.90 Lawmakers could strengthen prevailing wage laws by including statutory requirements that state and local labor agencies establish co-enforcement programs with unions and other community organizations to monitor compliance.