Prevailing wage and certified payroll by state

0:00 Disclaimer. This podcast is for informational and educational purposes only and is not legal, financial or professional advice. All right. Glad we got that out of the way. Yeah, definitely. So welcome everyone to today's deep dive. Usually when a ticking clock is keeping a construction contractor awake at night, it's, you know, something physical. Oh, absolutely. Like a concrete pour that's curing too fast. Right. Exactly. Or like a crane rental that expires on Friday. But right now, there is this invisible legislative clock ticking down. And it is loud. It really is. It's sending shockwaves through the entire New York public construction sector. Because on May 28th, 2026. A massive lawsuit was filed by a coalition of construction industry groups. They're basically scrambling to halt this sweeping new law. Yeah,

0:47 a massive expansion to the prevailing wage law that takes effect in just a few weeks, June 18, 2026. Which is right around the corner. Right. And the implications are so severe that contractors are legitimately questioning how they're even going to price out their summer backlog. I mean, the panic we're seeing across the industry right now is entirely justified. And actually, speaking of getting ahead of complex changes, I should quickly mention that we're accepting beta testers for new Smart Business Automator features. Sign up at smartbusinessautomator .com. Beta testers get first access to new features and updates before public rollout. Which is super timely, honestly, given the massive compliance headache we're about to talk about. Yeah, exactly. So, okay, our mission today is to unpack this June 18 expansion. To really understand why the industry

1:33 is sounding the alarm, we first have to look at what the law used to be. Right, right. Contractors operating in New York, they know prevailing wage inside and out. It's the baseline wage rate, including specific fringe benefits mandated for public works projects. Like schools, roads, municipal buildings, that kind of stuff. Exactly. But historically, that mandate had a very strict physical boundary. The fence line of the job site. Yes, the fence line. If a worker was physically inside that fence, swinging a hammer, pouring foundation, welding steel, they got the prevailing wage. Okay, let's unpack this with an analogy. In the past, the prevailing wage only applied to the stage, right, like the actual construction site. But now, with this June 18 expansion, it applies to the prop shops, too. the offsite facilities

2:21 building the materials before they ever reach the site. That is a perfect way to put it. The new law completely obliterates that fence line. It now legally covers workers at offsite fabrication facilities. Wow. So how much of a logistical leap is it to suddenly track offsite workers? It's massive. If a worker is building a custom component for a New York project, but they're in a factory hundreds of miles away, they're suddenly pulled under this prevailing wage umbrella. Just because of where the material is going. Exactly. Jurisdiction is no longer tied to where the worker is standing. It's tied to the final destination of the material. I mean, let's ground this in a real -world scenario, because custom components, that sounds a bit tricky. It is. Like, if I needed standard 2x4s in the past, I bought commodity lumber. No prevailing wage.

3:08 Right. Commodities are different. But modern construction has shifted so heavily toward modularity to save time. So I'm not always buying raw lumber. I'm ordering prefabricated, custom -engineered roof truss systems. Say, from a facility in Pennsylvania? Yeah. To be shipped to a school project in Albany. Well, under the old rules, the prevailing wage only kicked in for the crew in Albany hoisting those trusses into place. Right. Under the new rules. The workers inside that Pennsylvania factory, the ones cutting and assembling those specific trusses, are now subject to New York prevailing wage rates. For the hours they spend on that specific order. Yes. You are asking a general contractor to monitor, verify, and take legal liability for the payroll of a third -party factory

3:55 that might not even be in the same time zone. Which totally explains the intense language in the May 28 lawsuit. Oh, absolutely. And, you know, we want to look at this impartially. taking sides here. But the plaintiffs, these major construction industry groups, they are not mincing words. Not at all. They are officially arguing this expansion will, and I quote, devastate New York's public construction industry. They're calling the requirements functionally unfeasible. And the legal mechanism they're using to fight this is actually fascinating. Yeah. Yeah. They aren't just complaining to a judge that the new rule is annoying. They're making a constitutional argument. rooted in the Dormant Commerce Clause. Right, exactly. The plaintiffs argue that the law unfairly targets out -of -state fabricators specifically to benefit New York -based shops.

4:43 Okay, let's look at the mechanics of that. Say you run a fabrication shop in rural Ohio. Your competitive advantage is your local economic reality, right? Right, your cost of living is lower. Yeah, facility overhead is lower, so your standard local wages are lower than what someone would pay a worker living in, say, Manhattan. But by forcing that Ohio manufacturer to suddenly adopt New York prevailing wage rates for a specific batch of materials, the plaintiffs are arguing the state is creating an undue burden on interstate commerce. It's like they're building an economic wall around New York. That's the argument. It artificially inflates the out -of -state shop's costs, so suddenly a local New York shop looks much more competitive on paper. So let me ask you this. Is this a feature or a bug of the new

5:29 law? Like, did lawmakers write this deliberately to act as a form of protectionism, or did they just fail to understand how multi -state supply chains actually work? Well, the courts will have to untangle the legislative intent, and that is notoriously difficult. Yeah, I bet. Lawmakers frequently state their goal is just to protect labor standards, you know, ensuring public money isn't driving down wages anywhere in the supply chain. Sure, which makes sense on the surface. But the plaintiff's counter that the actual mechanism deployed crosses the line into unconstitutional economic protectionism. But for a contractor navigating this today, this theoretical debate doesn't really matter, does it? Not at all. It takes a backseat to a very immediate, very dangerous dilemma. The calendar. Yep. June 18 is arriving,

6:15 whether the judge is ready or not. So what does a contractor do right now? Do you wait for a court ruling, like hoping for an injunction to pause the law, or do you just overhaul your entire business model today? Hoping for a last -minute legal injunction is a massive gamble. Right. It could bankrupt a firm. Injunctions require a judge to agree that irreparable harm will occur if the law isn't lost, which is a really high legal bar. So if June 18 hits, the law goes live and you're just waiting to see what happens. The penalties are catastrophic. Massive fines, contract breaches, withheld payments. You could even be debarred from bidding on future public works. Wow. So preparation for June 18 is mandatory. There's no waiting around. None. You have to be ready. And getting ready means facing the stark financial reality of this expansion. Which

7:01 brings us to the math. The math is sobering. It really is. We actually pulled data sourced directly from Smart Business Automator's market intelligence report, and the numbers are staggering. Yeah, they project a 40 to 60 percent above market wage differential for fabrication labor under the new rules. Okay, here's where it gets really interesting. Imagine pricing out a car, right? You lock in your budget, and suddenly you find out the engine you're buying from three states away. Just jumped 60 % in cost. Yeah. How do you even absorb that? Well, think about how that 40 to 60 % gap actually manifests inside a factory. Right. Let's go back to that Pennsylvania shop. Okay, let's say their standard wage for a skilled fabricator is $25 or $30 an hour. which is highly

7:48 competitive for their local market. Now they take an order for a New York public works project. Suddenly, for the 20 hours a specific worker spends on that New York order, the shop has to pay them an $85 an hour total package. Wow. $85 an hour? Yeah, to meet the prevailing wage, including specific fringe benefits. That creates absolute chaos inside the factory. Complete chaos. I mean, you have two fabricators standing right next to each other on the floor. One is welding a beam for a commercial building in Ohio, making $30 an hour. The other is welding a beam for a New York school, making $85 an hour. The internal pay structure of that facility just collapsed. Which means a lot of these out -of -state fabricators are just going to say no. Exactly. They are simply going to refuse to take New York Public Works

8:33 orders. They won't want the headache. And the ones that do take the orders? They're going to pass that massive 60 % labor cost spike directly back to the general contractor. Ouch. So contractors have to adjust their bid pricing immediately. Immediately. But the true nightmare scenario is for contracts that are already in the middle of procurement. Oh, man. Like you submit a highly competitive bid in March based on normal market rates. Right. The agency takes months to review it. The award isn't scheduled until July. And the June 18 law triggers right in the middle. You are suddenly locked into a bid that is financially underwater before you even break ground. Contractors in that specific window are navigating a minefield right now. I can imagine. They're having to consult legal counsel to determine if they can formally

9:20 withdraw and resubmit their bids without forfeiting their bid bonds. Which is messy. Extremely. Others are looking at mechanisms to claim a material change in law, trying to force the public entity to adjust the pricing post award. It's a very adversarial reality. And absorbing these costs is really only half the battle. The administrative burden is the other half. Oh, absolutely. It's a complete operational overhaul. So let's run through this. We have a strict to -do list. Basically, a seven -step survival guide for June 18th. Let's do it. Number one, supply chain audits. Right. The era of just ordering custom structural steel and not asking questions is over. You need to map out exactly where off -site fabrication is happening for every single component. Right. Finding the origin facility. Yeah. And distinguishing

10:06 if it's a commodity or custom fabrication. Exactly. Which leads to number two, the paperwork mountain. Certified payroll from those fabricators. And certified payroll is not just an invoice. It's a highly specific, legally sworn document. Detailing the exact hours, labor classifications, fringe benefits, all of it. Getting a third -party manufacturer who's never dealt with this to properly submit these weekly is an enormous, frictional drag. Definitely. Number three, subcontract language updates. You need legal armor. A standard purchase order won't protect you if that Ohio shop submits fraudulent payroll. You need legally binding, flow -down clauses explicitly mandating compliance and strict indemnification. Because if the state

10:51 audits the project, the general contractor is usually the one on the hook, right? Almost always. You need mechanisms to push that liability back down the chain. Okay, number four, bid repricing. We just talked about that. Updating the math for that 40 to 60 percent differential. Yep, essential. Number five, legal counsel. Getting professional advice on navigating this shift, especially for those mid -procurement bids. Number six. Compliance tracking. Setting up systems to monitor this ongoing. Because doing it manually is a guaranteed failure. And finally, number seven, owner notification. Communicating these incoming cost spikes upward to the local school board or department of transportation. They have to be formally notified about the financial and scheduling impacts. Okay, so looking at all seven of these. Tracking compliance on your own job

11:37 site is hard enough. Right. How does a contractor realistically track the certified payroll of a fabricator they've never met in a facility three states away? Well, let's look at a complex scenario because the line between commodity and custom is blurry. Okay, let's hear it. What if you buy a standard mass -produced steel I -beam from Michigan? It's a commodity. Okay. But your design requires them to make one single custom weld. or drill a specific pattern of holes just for your project before shipping. Does that one custom action... trigger prevailing wage for the whole facility? That ambiguity is the danger zone. The Department of Labor guidelines are incredibly dense. Trying to manage that manually with spreadsheets and sticky notes, reminding

12:23 a plant manager in Michigan to send payroll for three hours of drilling. Sounds impossible. The risk of human error is 100%. So manual tracking is dead. It has to be. That's why software automation shifts from a luxury to an absolute necessity. Right, which is why tools like Smart Business Automator are so critical now. it becomes mandatory infrastructure. A system like Smart Business Automator tracks those shifting out of state effective dates. automatically. Oh, that's incredibly helpful. Yeah. It generates compliance calendars tailored to these convoluted supply chains and flags missing certified payrolls before they trigger a state audit. So it basically removes the administrative guesswork. Exactly. In a process where a single oversight can cost tens of thousands in fines, it provides the visibility required

13:09 to prove to the state that you're actually monitoring your downstream suppliers. And that visibility is going to be crucial long after June 18th. Because while New York is the epicenter today, this isn't just a New York problem, is it? Not at all. It's a preview of a national trend. So we're on a national expansion watch. We are. According to the Broader Market Intelligence report, states like California, New Jersey, and Illinois are monitoring New York's rollout with intense interest. Why those states specifically? They have similar legislative environments. High union density, robust prevailing wage frameworks already in place, and a political appetite to enforce labor standards. So if New York survives the May 28 lawsuit, it makes this work. Those states are highly likely to adopt their own,

13:54 nearly identical versions in coming legislative sessions. Wow. So what does this all mean for the listener? I mean, it means if you build the infrastructure to handle this. off -site compliance in New York. Now, you're actually future -proofing your business. That is the golden rule going forward. Tracking labor classifications across your entire supply chain is no longer just a compliance necessity. It's a competitive advantage. A massive one. Contractors operating across state lines with this automated infrastructure will bid confidently. Their competitors will either drown in paperwork or bleed profit because they failed to model that 60 % wage jump. It really separates the forward -looking operator from the ones just winging it. Definitely. And as we wrap up, I want to leave you with a broader philosophical question to mull over. Lay it on

14:40 us. If prevailing wage now extends to off -site fabrication, where does the definition of construction actually end and manufacturing begin? Oh, wow. That is a blurry line. Right. As supply chains get more complex and modular, that blurry line is going to be the next great legal battleground. Is a factory building modular hospital rooms? A manufacturer selling a product? Or a construction subcontractor working under a roof instead of the sky? Precisely. Something to really think about. Well, that brings us to the end of our deep dive today. Thank you so much for joining us as we unpack the New York prevailing wage expansion and the shockwaves hitting the industry. It's going to be a wild summer. It really is. If you found this breakdown valuable, please make sure to like, share, comment, and subscribe

15:26 from wherever you are listening so you never miss an update on the forces shaping your business. See you next time.