Federal single audit issues involving wage rate requirements are on the rise; here's what you need to know
Dec 13, 2023
As we performed federal single audits this year, a common issue arose – a lack of compliance with federal wage rate requirements. Much of the issue stems from local governments that managed federally funded construction projects for the first time but did not provide enough training to their staff on federal wage rate requirements.
Prevailing wage laws establish a minimum hourly wage for laborers and mechanics. They prevent companies from underpaying their laborers and mechanics, in order to gain an advantage over their competitors and underbid them.
You must comply with state law for construction of public works projects, but you may need to comply with federal requirements too – and they are not exactly the same. While it is ultimately up to you to understand any federal award requirements and comply with them, we’ve outlined some of the key aspects of state and federal wage rate requirements below.
State wage rate requirements: contract clause and required forms
You must incorporate a prevailing wage clause into every construction, reconstruction, maintenance or repair contract, no matter the project size (RCW 39.12.030). You must include the necessary language in full — simply referencing the website for the Washington State Department of Labor and Industries (L&I) is not sufficient.
In addition, state law requires all contractors and subcontractors to submit certification forms to L&I for every public works project. The first form states they intend to pay prevailing wages, and the second is an affidavit of wages paid. You can look up submitted forms on L&I’s website.
Your responsibility, as the awarding agency, is to verify that contractors and subcontractors submit the respective forms before you pay them for work performed or release retainage (RCW 39.12.040). You don’t need to worry about keeping paper copies of these forms. You only need to demonstrate that you accessed the L&I website and verified the contractor submitted the forms before releasing the respective payments.
State law also requires each contractor and subcontractor to submit weekly certified payroll records to L&I at least once per month (RCW 39.12.120). The agency requests local governments:
- Review the certified payroll records to ensure contractors and subcontractors report all appropriate laborers and mechanics. One significant risk is that the contractor misclassified workers, applying a lower wage rate than they were due. For example, if you have an electrical project, does the contractor report journey level electricians?
- Notify L&I if the contractor is not submitting certified payroll reports as expected
Federal requirement: the federal contract clause
If you use federal awards on a public works project exceeding $2,000, then you’ll likely be required to comply with the Davis-Bacon Act and related acts comprising the federal labor standards. If you are unsure whether your federal program requires compliance with the federal labor standards, then review your award information and check with your awarding agency. The federal labor standards are incorporated into 29 CFR §5, and referenced in the Uniform Guidance (2 CFR §200.327, which refers to further details in Appendix II).
If you are required to comply with the federal labor standards, then you must include a copy of the current prevailing wage determination issued by the U.S. Department of Labor in each solicitation. You must also include the entire language of 29 CFR §5.5 in your contract. In addition, you must require the contractor and lower tier subcontractors to pay the higher of state or federal wage rates to laborers and mechanics, as published by L&I and the U.S. Department of Labor. That’s because federal requirements stipulate that you, as the federal award recipient, must comply with the most demanding of any local, state, or federal requirements when using federal money on a project.
Federal requirement: weekly certified payrolls
When you use federal funds on a construction project exceeding $2,000, you are responsible for making sure that contractors and their subcontractors submit certified payroll reports to you weekly, for each week worked.
You are also responsible for reviewing the weekly certified payroll reports. Your review should ensure the contractor and subcontractors paid laborers and mechanics at least the wage rate and fringe benefits contained in the contract wage determination for the classification of work they performed on the job site. Be sure to document your review and retain copies of all submitted certified payroll reports in your recordkeeping system.
You are also required to periodically interview the laborers and mechanics on site to ensure the work they perform and the wage rate they claim to be paid is consistent with the information reported by their employer, as per the certified payroll reports. The interviewer must be unaffiliated with the contractor and on site regularly.
If you hire a contracted project manager, then you should know that compliance with wage rate requirements is ultimately your responsibility. The project manager can help you with compliance, but you must monitor them closely to ensure it is being done properly.
If you do not comply with state or federal prevailing wage requirements, you may put your government at risk for paying additional wages to laborers. In addition, you may jeopardize your ability to secure future federal awards. We recommend that you take the time to understand these requirements, and pursue additional training where needed.
- U.S. Department of Labor offers live prevailing wage trainings and recorded webinars
- U.S. Department of Labor offers a recorded workshop about noncompliance monitoring (the workshop on how to identify noncompliance, particularly willful noncompliance, runs 33:00-58:00).
- Our Office offers federal compliance training twice per year; see the Washington Finance Officers Association non-conference training schedule.
- Other organizations also offer training, such as Government Finance Officers Association, American Institute of Certified Public Accountants, and the National Grants Management Association.
Would you like more help?
While your grantor is the best source for information about a federal program, you can also submit technical questions about federal awards to our HelpDesk in the client portal.
If you have other questions, comments or suggestions, feel free to email us at Center@sao.wa.gov.