New York Significantly Expands Application of Prevailing Wage Requirements

On January 1, 2022, an expansion of prevailing wage law in New York will become effective.  The new law will significantly increase the universe of construction projects subject to prevailing wage requirements.

In brief, when a project is subject to prevailing wage requirements, workers must be paid set hourly wage rates and hourly benefit amounts as determined by the fiscal officer of each New York county.  These rates are substantially higher than minimum wage and also traditionally far greater than average non-union rates largely due to the added benefits amount.

Under the Budget Bill, S.7508-B A.9508-B, signed into law by former Governor Cuomo on April 3, 2020, workers must be paid prevailing wages on “covered projects,” which refer to  “construction work done under contract which is paid for in whole or in part out of public funds where the amount of all such public funds, when aggregated, is at least thirty percent of the total construction project costs” and “where such project costs are over five million.”

Previously, projects were subject to prevailing wage requirements only if a public entity was a party to a construction project and the purpose of the work was to benefit the public.

The law broadens the definition of “public funds” from the traditional definition of direct public investment.  “Paid for in whole or in part out of public funds” refers to money from the following sources:

1. “The payment of money, by a public entity, or a third party acting on behalf of and for the benefit of a public entity, directly to or on behalf of the contractor, subcontractor, developer or owner that is not subject to repayment;”
2. “The savings achieved from fees, rents, interest rates, or other loan costs, or insurance costs that are lower than market rate costs; savings from reduced taxes as a result of tax credits, tax abatements, tax exemptions or tax increment financing; savings from payments in lieu of taxes; and any other savings from reduced, waived, or forgiven costs that would have otherwise been at a higher or market rate but for the involvement of the public entity;”
3. “Money loaned by the public entity that is to be repaid on a contingent basis; or”
4. “Credits that are applied by the public entity against repayment of obligations to the public entity.”

Under the new law, the definition of “public entity” is broadened to include “the state,” “a local development corporation,” “a municipal corporation,” “an industrial development agency,” “any state, local or interstate or international authorities” and “any trust created by any such entities.”

Therefore, by broadening the scope of projects deemed to have a sufficient public connection, it is expected that more construction projects will now be subject to prevailing wage requirements.

Additionally, the law imposes new responsibilities on owners and developers regarding prevailing wage.  These responsibilities include (1) certifying under penalty of perjury that prevailing wages are required on the project; (2) retention of original payroll records after completion of the project, which will be subject to inspection by the Commissioner of Labor upon demand; and (3) compliance with the objectives and goals of the Minority- and Women-Owned Business Enterprises (MWBE) program pursuant to Executive Law Art. 15-A, and the Service-Disabled Veteran-Owned Businesses program pursuant to Executive Law Art. 17-B.

While the law requires payment of prevailing wage where “total project costs” exceed $5,000,000, it does not define “total project costs” or “construction project costs.”  Therefore, there is some uncertainty as to which costs fall into this category and accordingly which projects are subject to the prevailing wage requirements.

It should also be noted that certain construction projects are exempt from this expansion of prevailing wages including but not limited to the following:  small residential or school construction, nonprofit projects, and affordable housing developments.

To comply with this new law, parties to a construction contract should first determine if the relevant construction project is subject to the new prevailing wage requirements based on the parameters outlined above.  If so, owners and developers should ensure they follow the guidelines for certified payroll records and retention of same.