Prevailing wage is the minimum hourly rate plus fringe benefits that contractors must pay workers on certain public construction projects. The rates are set by trade classification and geographic location, intended to prevent government contracts from undercutting local wage standards.

The federal Davis-Bacon Act requires prevailing wages on federal construction contracts over $2,000. This includes projects like federal buildings, military installations, and infrastructure projects with federal funding. If you’re working on a federal job anywhere in the country, Davis-Bacon applies.

Arizona doesn’t have a state prevailing wage law. It was repealed in 1984. This means contractors and home services businesses working on Arizona state or local public projects aren’t subject to prevailing wage requirements. However, federal projects and federally funded work in Arizona still trigger Davis-Bacon requirements. If federal money is involved, the rules apply regardless of the state.

The rates vary by trade and area. A plumber in Phoenix has a different prevailing wage than an electrician in the same county, and both differ from the same trades in Tucson or Flagstaff. You can look up current rates on SAM.gov or the Department of Labor’s wage determination database before bidding on any covered project. Using outdated rates or the wrong classification is a compliance problem.

Fringe benefits are part of the total compensation. Prevailing wage includes both a basic hourly rate and a fringe benefit rate. You can provide actual benefits like health insurance and retirement contributions, or pay the fringe portion as additional cash wages. Either way, you must document how you’re meeting the total compensation requirement.

Certified payroll reporting is mandatory on Davis-Bacon projects. You submit weekly reports showing each worker’s name, classification, hours worked, wages paid, and deductions. Someone with authority has to sign off that the information is accurate. Misclassifications or errors can trigger investigations.

The recordkeeping requirements are where things get complicated. You need to track hours by worker and by trade classification, not just by project. If a laborer does some work that qualifies as a different trade, those hours need to be classified at the appropriate rate. Running multiple prevailing wage jobs means tracking time by project and classification simultaneously. This is where having organized small business bookkeeping services becomes essential rather than optional.

Penalties for non-compliance include back wages owed to workers, contract termination, and potential debarment from future federal contracts. Getting it wrong costs more than just money. It can cost you the ability to bid on federal work for years.

If you’re bidding on federal construction projects, factor prevailing wage into your labor estimates from the start. The labor cost will be higher than typical private work. Build that into your bid rather than discovering the margin hit after you’ve already won the contract.