The construction industry feeds a significant part of the U.S. economy, providing millions of short- and long-term jobs across the country on an annual basis. Since the passage of the Infrastructure Investment and Jobs Act in late 2021, the federal government has begun pumping the Congressionally-allocated $1.2 Trillion into transportation and infrastructure spending, with over $550 Billion allocated to new investments and programs. This federal re-investment into the construction industry, added to already-robust private construction spending, has led to increased demand for construction workers and increased risk of costly labor compliance issues. With an increase in the construction industry workforce, construction companies operating in both the public and private sectors must be cognizant of their wage payment obligations to avoid costly litigation and wage penalties. Below, PilieroMazza offers 6 tips for construction employers seeking to lay a foundation for wage-and-hour compliance.
- Employers must properly classify workers. One of the most pervasive risks for construction industry employers is worker misclassification. If a worker is correctly classified as an independent contractor, they are not subject to the Fair Labor Standards Act (FLSA) or most state wage-and-hour laws. Thus, they would generally not be entitled to recover enhanced hourly rates for overtime hours. However, if a worker is actually an employee:
a. they must be compensated in accordance with federal and state minimum wage requirements,
b. they are entitled to overtime premium pay, and
c. they may be entitled to receive other employment benefits set out under state law.
In most states, employers and employees cannot simply sign a contract that sets the workers’ classification status; rather, it is the workers’ actual working conditions that control it.
The factors to consider in determining whether a specific worker is an independent contractor or employee vary from state to state. However, for a worker to be considered an independent contractor, their work truly must be independent; for instance:
a. the worker may require a specific state construction license,
b. they must supply their own tools, and
c. they set their own hours, prices, and working conditions, among other things.
Employees typically work under the control of the company, which sets the time and place of performance and the individual’s working conditions. To avoid costly missteps in worker classification, construction companies must be aware of the specific factors courts consider in each state to determine whether a worker is an independent contractor or employee and make good faith, reasonable classification decisions.
- Employers on federal- and state-sponsored projects must comply with the Davis-Bacon Act (DBA) and/or state prevailing wage laws. Many employers assume that as long as they pay their employees in accordance with the applicable federal or state minimum wage, they are meeting their wage payment obligations. However, the federal government (for federally-funded or assisted construction projects exceeding the value of $2,000) and some states have instituted prevailing wage laws that require individuals working on those government-funded projects to be paid not less than the wages and fringe benefits “prevailing in the locality” for the same or similar work. The Department of Labor (DOL) and various state government labor agencies commission or publish surveys that establish how much each worker in each classification (e.g., welder, excavator, laborer) must be paid, and often, these agencies issue wage determinations, which are incorporated into federal and state contracts.
Prevailing wage statutes can make a huge impact on construction company budgets. For instance, the current Alabama minimum wage is equal to the federal minimum wage of $7.25 per hour. However, the prevailing wage and fringe benefits for a sheet metal mechanic performing a contract covered by the DBA may be in the neighborhood of $30. When a prevailing wage or wage determination applies to a specific worker on a specific contract, the construction company must comply with that pay scale. In addition, the DBA and many state prevailing wage statutes impose additional certification and recordkeeping obligations that must be met. Strict compliance with prevailing wage requirements is critical to construction industry performance. Violations can lead to DOL complaints and investigations, possible state wage-and-hour litigation, and even claims of contract-related fraud against the government.
- Construction companies must understand whether pre- and post-shift activities are compensable. Construction companies are particularly susceptible to committing “off-the-clock” wage-and-hour violations. Under the FLSA and most wage-and-hour regulations, an employee who drives from their home to a specific worksite is not required to be paid for their travel time to and from the site. However, if employees are required to report first to a construction yard or company headquarters with other workers, the travel time from the construction yard or company headquarters to the jobsite may be compensable to the employee. Travel between worksites during the workday is also generally compensable time. In addition, time spent checking in or checking out tools, loading trucks, receiving instructions from project managers, repairing or maintaining trucks or tools, or donning and doffing a uniform or safety equipment may be compensable regardless of where it occurs. Construction companies must monitor pre- and post-shift worker activities to determine whether the time is compensable and ensure company policies and practices reflect the requirement that workers report such time in order to avoid costly litigation.
- Overtime hours must be compensated at a statutory premium for all non-exempt employees. Many federal and state contracts, including some contracts related to construction staffing, are paid on a labor-hours or time and materials basis, i.e., the government pays for the contractor’s work based on the number of hours worked multiplied by a specific hourly rate (possibly plus the cost of materials provided). Construction contracts also may be paid on a firm-fixed or stipulated-sum basis or in accordance with a specific bid price, where the bid or price has been set in part by calculating an estimate of the labor hours needed to perform the work at a specific hourly rate.
Where a contract is for labor hours or time and materials, often the government pays for all hours worked at the same hourly rate, regardless of the number of hours a specific employee worked in a given week. For instance, a construction company may be paid the same rate for a laborer’s work whether the laborer worked 30 or 60 hours during a given week. If the construction company maintains the same payment practices as the government, it would likely run against the FLSA and state wage-and-hour laws.
These statutes require payment of a premium for overtime hours worked by non-exempt employees, i.e., any hours worked in excess of 40 hours in a given week. Nearly all construction employees are considered non-exempt, except under certain circumstances, such as some workers in certain project management roles. The required premium under federal and most state laws is 1.5 times the worker’s regular rate, although some states require 2 times the regular rate under certain circumstances (such as workdays longer than 12 hours). Construction companies must be cognizant of the specific rate required to be paid employees and ensure that those rates are reflected both in the worker’s actual pay and on the paystub or wage statement issued with the payment.
- Construction companies must remain vigilant in compliance with state and local obligations. In addition to payment obligations that exist on a federal level, state and local governments impose wage payment requirements for employees subject to those state and local laws. For example, if a construction project is performed in Maryland, Maryland law will apply in most instances, even if the construction company is based in another state or if the employee signs an employment contract that requires the application of another state’s laws to employee-related disputes. Various states have imposed workforce requirements such as mandatory rest and meal breaks, vacation and holiday pay, higher pay for work performed at different times of the day, and other compensation, all of which may impact the amounts owed by an employer to an employee. Compliance with these laws can be tricky, particularly for companies operating in different states. Construction companies must identify which laws apply in each state and to each worker and ensure that payments are made in compliance with applicable statutes and regulations.
- Understand the penalties. Finally, employers must understand the ramifications of non-compliance with classification, prevailing wage, compensable time, and other FLSA and state wage-and-hour obligations. Employees may bring litigation under the FLSA or state wage-and-hour statutes on behalf of themselves or as a collective or class action on behalf of all other similarly situated employees. In such litigation, plaintiffs can recover not only the wages they claim to be owed, but liquidated damages that could amount to many multiples of the unpaid wages, plus attorneys’ fees and various penalties. District of Columbia law, for instance, allows for recovery of up to 4 times the amount of unpaid wages. Meanwhile, companies subject to the DBA or a state prevailing wage act could face regulatory investigations, state wage-and-hour claims, and/or suspension or debarment from federal or state government contracting as a result of failure to pay the proper prevailing wage. Ultimately, a seemingly small mistake in employee pay practices can lead to significant liability.
If employers note these common issues in employee pay practices in the construction industry and create safeguards and policies to ensure proper employee compensation is provided, they will lay a foundation for compliance and limit their exposure to costly wage-and-hour litigation.
If you have questions about your payment practices, including the way you compensate construction workers, please contact the authors of this blog, Matthew Feinberg and Kirby Rousseau, or another member of PilieroMazza’s Litigation & Dispute Resolution or Labor & Employment practice groups.
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Looking for practical insights on gaining a competitive advantage through a deeper understanding of the government’s compliance requirements? Check out PilieroMazza’s podcasts “GovCon Live!” and “Clocking in with PilieroMazza.
