How to price prevailing wage jobs
Build every labor rate from the wage determination: base rate plus the fringe you cannot cover with existing benefit credits, then add payroll burden, overtime on the base rate, and the admin time for certified payroll. Your normal shop rates do not apply.
To price a prevailing wage job, start with the wage determination in the bid documents. For each classification you will use, the minimum cost per hour is the base rate plus the fringe amount. Figure how much of the fringe your existing benefit plans can cover after annualization, pay the rest in cash, then add payroll taxes, workers' comp, and insurance on top. Price overtime at 1.5 times the base rate plus the straight fringe, and add office time for weekly certified payroll. That gives you a real labor rate, which is usually well above what you charge on private work.
The rules below come from the federal Davis-Bacon regulations. State prevailing wage laws work similarly in many places but have their own details, so check your state's prevailing wage page (for example, California) or agency before bidding a state-funded job.
How prevailing wage obligations are met
Under 29 CFR 5.31, you meet the wage determination by paying the base rate in cash plus fringe benefits through bona fide plans, by paying the whole amount in cash, or by a combination. The regulation's own example uses a laborer rate of $21.93 base plus $6.27 fringe: pay $21.93 and contribute $6.27 to plans, or pay $28.60 in cash, or mix the two. All three cost the same minimum. The difference shows up in payroll taxes and overtime.
| Method | Cash wage per hour | Plan contributions per hour | Total |
|---|---|---|---|
| Base in cash, fringe to plans | $21.93 | $6.27 | $28.60 |
| All cash | $28.60 | $0.00 | $28.60 |
| Combination | $24.93 | $3.67 | $28.60 |
How to build a prevailing wage labor rate in 6 steps
1. Pick the right determination and classifications
Use the determination and modification incorporated in the bid documents, for the county where the work is performed. Match each task to a classification based on the work actually performed, not the worker's title. See how to find the right Davis-Bacon wage determination.
2. Figure your annualized fringe credit
Under 29 CFR 5.25(c), you generally must annualize benefit contributions: divide the total yearly cost of the benefit by total hours worked on all work, private and prevailing wage, to get the hourly credit. You cannot load a whole year of health premiums onto prevailing wage hours. Contributions to some defined contribution pension plans can be excepted when the plan meets the rule's conditions. How to calculate fringe benefit credits goes deeper.
3. Pay the shortfall in cash
Required fringe minus your annualized credit equals the cash fringe you owe per hour. That cash goes on the paycheck.
4. Add burden on the cash wage
Payroll taxes, workers' comp, and liability premiums generally scale with wages, so a higher cash wage raises burden. Ask your CPA and insurance agent how cash paid in lieu of fringe is treated for taxes and premium in your state, then apply it. See how to calculate labor burden.
5. Price overtime correctly
Under 29 CFR 5.32, fringe benefits, including cash paid in place of fringe, are excluded when computing the regular rate for overtime. Overtime is figured on the basic hourly rate, which cannot be less than the determination's base rate. On federal contracts with the overtime clause, hours over 40 in a workweek need time and a half (FAR 52.222-4). So an overtime hour costs 1.5 times the base rate plus the straight fringe, not 1.5 times the total package.
6. Add the compliance cost
Workers must be paid at least once a week (29 CFR 5.5), and certified payrolls go in weekly. Budget office hours for payroll preparation, collecting sub payrolls, and closeout. On a long job, that is real money.
Worked example: pricing an electrician rate
Say the wage determination for inside wireman is $38.50 base plus $14.20 fringe. (These numbers are an illustration, not a real determination.) The contractor pays $7,800 a year toward each electrician's health plan and nothing else. A typical electrician works 2,000 hours a year across all jobs.
| Line | Per hour |
|---|---|
| Base rate (from determination) | $38.50 |
| Required fringe | $14.20 |
| Annualized health credit ($7,800 / 2,000 hours) | $3.90 |
| Cash fringe owed ($14.20 minus $3.90) | $10.30 |
| Cash wage on paycheck ($38.50 + $10.30) | $48.80 |
| Burden at an assumed 22 percent of cash wage | $10.74 |
| Health plan cost | $3.90 |
| Loaded straight-time cost | $63.44 |
Run the overtime hour the same way. The cash wage becomes $48.80 plus $19.25, or $68.05. Burden at the same assumed 22 percent is $14.97, and the health cost stays $3.90, for a loaded overtime cost of about $86.92. Notice the fringe is not multiplied. Pricing overtime at 1.5 times the full $52.70 package would add cost you never pay and could price you out of the job.
An overtime hour adds half the base rate, $19.25, to the cash wage, plus burden on that extra amount. If the estimate has 3,400 electrician hours with 300 of them on overtime, the labor line is built from those two rates, not from the company's usual private-work loaded cost of, say, $55. On this job, using that private-work cost would have left about $8.44 an hour, roughly $28,700, out of the bid.
Pricing subcontractors and apprentices
Every sub on the job owes the same determination rates for the work its people perform. When you level sub bids, ask each one which determination and classifications it priced. A sub who quoted its private rates will either come back for more money or cut corners on payroll, and the prime is answerable for lower-tier compliance on federal work.
Apprentice rates can lower your labor cost, but only under the program and ratio rules that apply, and only for workers who qualify. Price apprentices only when you know you meet those rules; see apprentice rules on prevailing wage projects.
Mistakes that lose money on prevailing wage bids
- Pricing from your private rate sheet instead of the determination.
- Taking full fringe credit for health premiums without annualizing.
- Calculating overtime on base plus fringe, which overprices, or on a rate below the determination base, which underpays.
- Using laborer rates for work that belongs to a skilled classification.
- Forgetting the office cost of weekly certified payroll and sub payroll collection.
- Ignoring scheduled rate increases in the determination for a long job.
Templates, terms, and tools that help
Use the construction estimate template with separate prevailing wage labor lines, and track hours with the construction timesheet template so classifications match payroll. Related terms: fringe benefits, fringe benefit credit, and labor burden.
Smart Business Automator stores wage rates and fringe treatment per job and prepares certified payroll from the same time entries, so the rate you bid is the rate you pay and report. See certified payroll automation.
Frequently asked questions
Can I pay the fringe in cash instead of benefits?
Yes. 29 CFR 5.31 allows paying the fringe amount in cash, through bona fide benefit plans, or a combination, as long as the total meets the wage determination.
Is overtime calculated on the fringe on prevailing wage jobs?
No. Under 29 CFR 5.32, fringe benefits and cash paid in place of them are excluded from the regular rate for overtime. Overtime is calculated on the basic hourly rate, which cannot be below the determination's base rate.
What does annualization mean for fringe credit?
Under 29 CFR 5.25(c), you divide the yearly cost of a benefit by all hours worked, private and prevailing wage, to get the hourly credit. Some defined contribution pension contributions can be excepted if the rule's conditions are met.
Do state prevailing wage jobs use the same rules?
Not always. Many states have their own prevailing wage laws, rate schedules, and fringe rules. Check the state agency and the bid documents for state-funded work.
Sources
- eCFR: 29 CFR 5.31, Meeting wage determination obligations
- eCFR: 29 CFR 5.25, Rate of contribution or cost for fringe benefits
- eCFR: 29 CFR 5.32, Overtime payments
- eCFR: 29 CFR 5.5, Contract provisions and related matters
- eCFR: FAR 52.222-4, Contract Work Hours and Safety Standards, Overtime Compensation
- eCFR: FAR 52.222-11, Subcontracts (Labor Standards)
