Employer May Not Count Discretionary Payments to Employees as Prevailing Wage

posted by Michael R. Fortney  |  Jun 23, 2015 07:25 AM in Construction Law

Under Ohio law, employers may not count discretionary payments to employees against the prevailing wage.  Only wages that are required by agreement may be counted against the prevailing wage. In a recent Ohio case an employer tried to count discretionary wages paid to employees as part of the prevailing wage and was forced to pay employees the difference, plus a penalty and attorney’s fees. 

Prevailing wage laws are designed to prevent underpayment of employees or contractors on publicly funded construction projects. Prevailing wage laws exist at the federal and state levels. Ohio's prevailing wage law, codified at R.C. §4115, requires that anyone working on a public improvement project over a threshold amount (between $64,000 and $250,000 depending on whether the project is new construction or not) be paid the prevailing wage for the locality where the work takes place.

A prevailing wage is defined as the sum of the hourly rate of pay and any benefits or bonuses (such as insurance, vacation, pension, or others) automatically paid to the worker. The prevailing wages for each locality are set by the county and the trade unions within the county prior to accepting bids for any public works project.

Once the prevailing wage is set, any employee or contractor must be paid at least that wage for any work performed on the project. Employers may adjust the hourly wage of contractors or employees based on any contributions made on the contractor or employee's behalf that constitute a benefit or bonus, such as payments for health insurance. Thus, if a roofer's prevailing wage is $34/hour, and the employer pays $28 per hour plus an additional $240 a week for the employee's health insurance, the employer can count the $240 as part of the employee's prevailing wage in order to get up to the required $34/hour wage. 

In Sheet Metal Workers Internatl. Assn. Local Union No. 33 v. Courtad, Inc. Courtad attempted to claim vacation pay as an offset to the amount of wages it owed its employees. However, the Court found that since the vacation policy was discretionary (since the vacation time could be forfeited if not used) it was not a required payment and thus could not be counted as part of the prevailing wage. Courtad also tried to claim bonuses as part of the prevailing wage, and again the court determined that there was no enforceable requirement that Courtad pay bonuses so those bonus amounts could not be counted as part of the prevailing wage.

Courtad also attempted to include the use of a company vehicle and gasoline in the prevailing wage. However R.C. 4115.07 requires that in order for deductions such as those to be included in the prevailing wage, the agreement must be agreed to before the employment term begins. The agreement must also be approved by the public authority and be fair and reasonable. Since no agreement existed, the court held that the cost of the vehicle and gasoline could not be included in the prevailing wage.

The Court awarded the underpaid employees the balance of the prevailing wage, and assessed a penalty and attorney’s fees against the employer.

Employers who must comply with prevailing wage laws should make sure that mandatory payment obligations are included in the prevailing wage. They should also make a determination on whether to make discretionary payments to employees working on a prevailing wage job. Additionally, employers should have an employee handbook or policy that details which payments are mandatory and which are discretionary.

If you would like more information on prevailing wage issues, creating or revising a handbook, or would like to speak to an attorney about other labor and employment issues, please visit our website

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