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Spring is in the Air But So Are Prevailing Wage Audits: Make Sure Your Company is in Compliance!

May 2013

By: Sean F. Darke, Esq.

Every spring, Illinois companies stop and enjoy the blooming flowers, the fresh cut grass, and sun's warmth - but only for a second as spring also brings an increase in Illinois Department of Labor prevailing wage audits. So as we begin to enjoy the smells of spring, take a moment to make sure your company is in compliance.

Starting about seven months ago, the Illinois Department of Labor began to implement a new policy, or at the very least, threaten a new policy. The new policy is when a company receives an audit letter from the Illinois Department of Labor; if the company does not respond, the Illinois Department of Labor will issue a first violation. This is very important, because if the company gets a second violation, then they will be debarred from performing any public work covered by the Illinois Prevailing Wage Act. Prior to this change, the Illinois Department of Labor would forward the matter to the Illinois Attorney General who would issue a subpoena against the company to provide the audit documents. But now, by eliminating that step, the Illinois Department of Labor places a huge burden on the company, by issuing a first violation. Now when the Illinois Department of Labor sends a second audit letter for a different project, the company must be in compliance or will face a second violation. And then debarment. This is why it is imperative that companies be in compliance with the Illinois Prevailing Wage Act. Here is an overview of the Illinois Prevailing Wage Act to make sure you are in compliance.

The Act's Coverage

The Prevailing Wage Act applies to laborers, mechanics, electricians, drivers, and other workers employed in any "public work" by any public body and to anyone under contract for "public works." As defined, "public works" means all fixed work constructed or demolished by any public body, or paid for wholly or in part out of public funds.

The public works definition provides two separate avenues a construction project can fall under the Act's coverage. First, a public body (the state, state agencies, counties, cities, towns, villages, school districts, municipalities, institutions supported in whole or part with state funds, etc.) can solicit companies to perform a construction/demolition project. For example, if the City of Naperville solicits bids for the re-roofing of one of its junior high schools, the Act would cover the project. Second, if the project is paid for, in whole or part, with public funds (e.g. state money) then it is covered under the Act even though the work is not solicited by a public body. For example, if the owners of the Chicago Cubs were able to finance a portion of a project to revamp the area around Wrigley Field using state bonds, the Act would cover the project and the workers would need to be paid the prevailing wage rates.

Prevailing Wage Rate Determination

If an employer's project is covered by the Act, the employer must determine the appropriate prevailing wage rate. The first step in determining the appropriate prevailing wage rate for the work performed on a covered project is to establish which county the work will be performed in. Once the county is identified, an employer can then go to the Department's website and download the prevailing wage rates for that county. [1]

With the rates in hand, the next step involves determining under which classification the employees working on the public works project fall. While the determination of some classifications will be fairly obvious (e.g. a worker performing electrician work will be classified as an electrician), the determination of others may be more difficult. If an employer has questions regarding the proper classification for its employees, it can either call or write to the Department and request the Department provide clarification given the work that will be performed by the employees.

Finally, after the proper classification is determined, an employer must determine what the proper prevailing wage rate is. It is important to note that the prevailing wage rate has multiple components which include the base rate and various fringe benefit rates. For example, the prevailing wage rate for an electrician consists of a base rate of $40.40/hour, a health and welfare rate of $13.83/hour, a pension rate of $7.92/hour, and a training rate of $0.75/hour for a total prevailing wage rate of $62.90/hour. An employer that provides fringe benefits to its employees (e.g. provides or pays a portion of employees' health insurance premiums, pays into employees' 401(k) plans, pays for employees' training) can credit its payments for the fringe benefits against the fringe benefits rates when calculating the prevailing wage rate.

Additional Requirements

The Prevailing Wage Act includes a couple of additional requirements that will affect employers. One requirement is the notice requirement. The Act requires the public body, any contractor, and any subcontractor that in turn subcontracts to another company, to provide written notice that not less than the prevailing rate of wages shall be paid to all laborers, workers, and mechanics performing work on the project. As discussed further below, failure to provide this required notice could result in liability for penalties resulting from an employer failing to pay the prevailing wage rate for work its employees perform on the project.

Another requirement requires any contractor and each subcontractor that participates in public works to keep certified payroll records for all employees employed on the project. Aside from filing these records with the public body in charge of the project on a monthly basis, the certified payroll records must be kept for a period of 3 years and will be specifically requested by the Department if it decides to engage in an investigation of the project.

Penalties for Violations of the Act

As part of its enforcement function, the Department is responsible for investigating potential violations of the Prevailing Wage Act. When the Department determines that an employer has paid less than the prevailing wage rate to its employees for work performed on a public works project, it will send notice to the employer requesting back wages and penalties.

Under the Act, if an employer pays less than the prevailing wage rate, the employer is liable for the underpaid amount regardless of whether or not the employer received notice that the project was a prevailing wage project. Aside from paying the underpaid amount, the employer might also be liable for an additional penalty depending on whether they received the required notice. For a first violation, assuming the employer received adequate notice and failed to pay the prevailing wage rate, then the employer would be responsible for paying a 20% penalty (payable to the Department), a 2% penalty for each month that the underpaid amount remains unpaid, and the underpaid amount. For a second violation, the penalties increase to 50% and 5%, respectively. If the employer is not provided with adequate notice, then the subcontractor, contractor, or public body that failed to provide adequate notice will be liable for the additional penalties (but not for the underpaid amount which must be paid by the employer).

Businesses must pay special attention to any work that is being performed for a public body or with public funds. It's not enough to say "I didn't know." If your business performs construction work for a public body or uses public funds, conduct an audit of your payroll today, otherwise, you may be the target of an IDOL audit and have no one to blame, but yourself.

Questions? Call Attorney Sean F. Darke of Wessels Sherman's Chicago, IL office at (312) 629-9300 or email him at [email protected].