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New Prevailing Wage Requirements in Ohio
On September 28, 2007, the Ohio Department of Commerce, Bureau of Wage and Hour issued a press release imposing new restrictions on Merit Shop Contractors who perform public work subject to the requirements of Ohio’s Prevailing Wage Law. This decision adversely affects contractors who have prevailing wage pension plans which only require pension contributions for public projects.Ohio’s Prevailing Wage Law, among other requirements, requires non-union contractors to pay the equivalent of “union wages” when performing work on construction projects receiving public funding. Employers who provide bona-fide fringe benefits to employees may take an hourly credit to reduce the amount to the total wage package owed for each hour worked by the employee on the public project.
The Department of Commerce’s new requirements are effective January 1, 2008, and substantially affect the way some contractors take an hourly fringe benefit credit by making irrevocable employer contributions to employee pension plans while performing prevailing wage work. The Department of Commerce will now take into consideration all hours worked by the employee throughout the year on both public and private projects in order to calculate the allowable fringe benefit credit a contractor is entitled to take for employer pension contributions to prevailing wage-only pension plans. “Annualizing” contributions made by the employer over all hours worked will substantially reduce the hourly credit an employer will be allowed to take on the prevailing wage project. The divisor for the amounts contributed to these pension plans will be the employee’s actual hours worked throughout the year on all projects, if properly documented, or 2,080 hours.
The decision by the Ohio Department of Commerce will put merit shop contractors at a competitive disadvantage when bidding future public work subject to Ohio’s Prevailing Wage Law. Unless the contractor is willing to contribute the same amounts to the employer-sponsored pension plans on both public and private work, the contractor will have to make up the remaining prevailing wage package in cash, significantly increasing the cost of workers’ compensation insurance, federal and state payroll taxes, and unemployment insurance. While union contractors will only have to pay taxes on the base rate of pay listed in the prevailing wage rate schedule, non-union contractors will have to pay taxes on the base rate of pay as well as on the additional cash fringe. Under the Federal Davis-Bacon prevailing wage law, contributions to prevailing wage-only pension plans are allowed so long as the contributions are made to individual employee accounts, are 100% vested, and have no restrictions to impede the employees’ access to his funds. The Department of Commerce’s position regarding prevailing wage pension plans is a departure for this well established precedent.
After January 1, 2008, the Department of Commerce will assess underpayments and penalties for employer pension contributions to prevailing wage pension plans that are not calculated as described above.
Contractors with prevailing wage pension plans are encouraged to contact Alan Ross or Nick Nykulak at RBS with all questions and concerns arising from these new requirements.