Chapter 8: Employment Practices, Section 1: Labor Compliance
- 8-101 General
- 8-102 Labor Compliance Responsibilities
- 8-102A Resident Engineer
- 8-102B District Labor Compliance Office
- 8-102C Contractor
- 8-103 Certified Payroll Requirements
- 8-103A Review of Payrolls
- 8-103B Wage Calculation Methods
- 8-103C Discrepant, Delinquent, or Inadequate Payrolls
- 8-103C (1) Discrepant Payrolls
- 8-103C (2) Delinquent or Inadequate Payrolls
- 8-103C (3) Payment Withholds for Missing or Inadequate Payrolls
- 8-103C (4) Refusal to Provide Payrolls
- 8-103C (5) Correlation of Payrolls and Change Order Bills
- 8-103C (6) Deducting Payment for Violations
- 8-103C (7) Payroll Documents Outstanding at the Time of Contract Acceptance
- 8-103D Review of Owner-Operator Listing
- 8-104 Covered and Non-Covered Employment
- 8-104A Materials Sites
- 8-104B Materials Plants
- 8-104C Equipment Furnished by Equipment Rental Firms
- 8-104D Equipment Furnished by Owner-Operators
- 8-104E Repair of Equipment
- 8-104F Work Performed by Vendors, Suppliers, and Fabricators
- 8-104G Work Performed by Specialists
- 8-104H Engineering Consultants, Materials Testers, and Land Surveyors
- 8-105 Classification of Labor and Wage Rate Determinations
- 8-106 Labor Compliance Case Write-Ups
- 8-107 Debarment of Contractors
- 8-108 Summary of Labor Compliance Law, Act, and Statute
Section 1 Labor Compliance
This section presents the guidelines for administering the labor compliance provisions of the contract. These guidelines apply to all projects, whether state or federally funded. The California Labor Code; the Code of Federal Regulations, Title 29, Part 5 (29 CFR Part 5); regulations of the Federal Highway Administration (FHWA); the California Code of Regulations; and the U.S. Department of Labor provide the basis for contract administration protocol and the statutory authority to enforce labor compliance contract provisions.
State and federal laws require contractors working on public works contracts to pay prevailing wages to their employees. Prevailing wages are predetermined hourly rates for each craft that are set by both the California Department of Industrial Relations and the U.S. Department of Labor. In addition, these laws set guidelines for the following:
- Length or shifts of workday
- Substantiation of wages
- Fringe benefits paid
- Covered work (work done under contract and paid for in whole or in part out of public funds, thus requiring the payment of prevailing wages) and non-covered work
The Federal-aid Highway Acts of 1956 and 1968 provide an active program to ensure that laborers and mechanics employed on federal-aid projects are paid at wage rates generally prevailing for the same type of work on similar construction in the immediate locality. The federal wage rate determinations are included in the contract.
The California Labor Code provides that the California Department of Industrial Relations determine and publish the general prevailing wage rates and that those rates be referenced in the contract.
The Division of Construction, Labor Compliance Unit, establishes policy and procedure for FHWA-delegated labor compliance responsibilities and for the California Department of Industrial Relations-approved Caltrans labor compliance program.
Districts are responsible for safety on Caltrans construction projects.
The responsibilities and procedures when administering the contract’s labor requirements are described as follows:
At the project level, the resident engineer is responsible for enforcing the labor requirements that are in the contract. To fulfill this responsibility, the resident engineer and support staff must have an adequate working knowledge of the contract labor requirements.
Early surveillance and detection of labor compliance violations are preferable to conducting belated investigations and implementing formal enforcement actions. The resident engineer brings labor compliance issues to the attention of the contractor and the district labor compliance office immediately upon detection. Resolve minor issues, such as clerical errors or inadvertent acts, at the project level. If the issue is not resolved in a timely manner, base the decision to withhold funds on the recommendation of the district labor compliance office. If the contractor provides evidence of full restitution, promptly return the withheld funds to the contractor.
When the contractor knowingly violates labor law or refuses to comply with the contract labor requirements, consider these actions willful in nature. Willful violations include fraud; wage kickback schemes; or falsifying certified payrolls, fringe benefit statements, evidentiary source documents, or daily extra work bills. These violations require that the district labor compliance office conduct a full investigation and report the findings to the resident engineer and the Division of Construction, Labor Compliance Unit.
The resident engineer’s specific responsibilities are:
- Ensure that labor compliance, equal employment opportunity (EEO), and disadvantaged business enterprise (DBE) or disabled veteran business enterprise (DVBE) requirements are discussed at the preconstruction conference. Request that district labor compliance staff attend and communicate these topics. Labor compliance staff will provide a standard checklist covering the topics. File a copy of the signed checklist in the project records.
- Forward all labor compliance, EEO, DBE, and DVBE documents submitted by the prime contractor or any subcontractor to the district labor compliance office.
- Refer all employee complaints regarding EEO or wage underpayments to the district labor compliance office.
- Verify that required posters are properly displayed at the job site. A checklist of posters is available on the labor compliance website at:
- Notify the district labor compliance office of all contractor and subcontractor activity during the week.
- After receiving recommendations from the district labor compliance office, authorize deductions from progress payments for labor compliance, EEO, DBE, and DVBE violations.
- Document the presence of contractor employees and owner-operators at the job site on the assistant resident engineer’s daily report. Minimally, this documentation must include the following information:
- Contract number
- Name of contractor with name of employee or owner-operator
- Hours worked per employee or owner-operator
- Classification of employees
- Items of work with description and operated equipment with name of operator and name of operator’s employer
- Confirm that names of employees, wage rates, and hours listed on change order bills match information listed on the contractor’s certified payrolls.
- Ensure that Caltrans personnel properly record charges for labor compliance activities. Details are available from the district labor compliance office and the Caltrans Coding Manual.
- Conduct employee interviews and transmit to the district labor compliance office fully completed interview forms. For more information about these interviews and forms, refer to Section 8-102A (3), “Interviews With Contractor Personnel,” below.
The contract requires the contractor to allow authorized Caltrans personnel to interview contractor employees during working hours.
Record employee interviews on Form CEM-2504, “Employee Interview: Labor Compliance/EEO” or Form CEM-2504 (Spanish), “Entrevista de Empleado: Cumplimiento Laboral/IOE,” if applicable. The employee interview is used by the district labor compliance office to check the validity of information shown on the certified payroll records. The employee is asked questions regarding wage rates, hours of work, and type of work performed. When an interview indicates a reporting deficiency such as a lack of knowledge of classification or rate of pay or labor violation such as nonpayment of overtime, notify the district labor compliance office, which will conduct a full investigation.
Conduct interviews at the rate of two employees per contract, per month, including at least one interview from the prime contractor and each subcontractor until such time as the contract is accepted or that all employees on the project have been interviewed. A variety of crafts and trades should be interviewed. The number of interviews taken must constitute a representative sample of workers employed on the project.
In the case of a small contractor having two or three employees on the project for several months, do not continue taking interviews once all the contractor’s staff have been interviewed. Contact the district labor compliance office to confirm the contractor is fully compliant with the labor requirements of the contract and no additional interviews of the contractor’s staff are necessary. If the resident engineer chooses to suspend further interview activity, document the decision in the project records and notify the district labor compliance office.
During the interviews, assure the interviewees that their statements, whether oral or written, will be confidential. Interview employees individually and away from supervisory personnel and other contractor staff. Do not disclose to the employer the identity of the employee without the employee’s consent.
In addition to conducting contractor employee interviews, interview truck and equipment operators designated as “owner-operator” to determine the correctness of this classification. Interview at least one equipment owner-operator and a sampling of truck owner-operators to adequately determine owner-operator status. Factors that establish the validity of the “owner-operator” classification are described below in Section 8-103D (2), “Payrolls and Listings Involving Owner-Operator.”
The district labor compliance office administers labor compliance policy and procedures by assisting resident engineers in the enforcement of the labor requirements in the contract.
Under the general direction of the district construction deputy director, the district labor compliance manager has immediate charge of the district labor compliance office and must directly supervise and train labor compliance staff administering and monitoring labor compliance and other related contractual obligations. Further, the district labor compliance manager must make sure that employees use proper charging practices when performing labor compliance activities.
The administration and monitoring of labor compliance provisions extends to state and federal highway construction projects.
The district labor compliance office is charged with specific responsibilities for assisting the resident engineer in administering contracts, including:
- Attend the preconstruction conference. Discuss the labor compliance, DBE or DVBE, EEO, and subcontracting provisions of the contract.
- Provide appropriate labor compliance training for district project personnel.
- Review employee interviews and cross-check wage rates and classifications against certified payrolls.
- Assist resident engineers with the required process for Title VI and Title VII complaints. For detailed information on the complaint process, refer to Section 8-2, “Equal Employment Opportunity,” of this manual.
- Review and confirm all contractor certified payroll records according to current labor compliance program policy located at:
- When necessary, recommend to the resident engineer that funds be withheld from progress payments made to the contractor for missing or inadequate certified payroll records or established violations.
- To verify the accuracy of payrolls, review source documents at the contractor’s office and collect evidence.
- When wage underpayments have occurred, prepare labor compliance violation cases and submit them to the Division of Construction, Labor Compliance Unit, for approval. Upon review and approval, the unit will submit the case to the California Department of Industrial Relations for state labor code violations. For federal code violations, cases are approved by Caltrans and sent to the Federal Highway Administration as a notice only. A copy of either type of case must be retained in the project records.
- If the contractor appeals the findings and final recommendations of a labor compliance violation case, represent the district during the administrative hearing process or during court proceedings.
The prime contractor is responsible for labor compliance for its own company as well as all subcontractors and owner-operators. In this section, the term “subcontractor” applies to all subcontractors (approved or not) employed by the prime contractor and all lower-tier subcontractors who perform “covered” employment as described in Section 8-104, “Covered and Non-Covered Employment,” of this manual. On federal contracts, the prime contractor must insert the labor regulations in all subcontracts and, in turn, subcontractors must include these regulations in all lower-tier subcontracts. Contract labor requirements apply the same standard of performance to prime contractors and subcontractors as expected of all other requirements of the contract. For noncompliance with contract labor requirements, Caltrans has statutory authority to withhold payment to the prime contractor for back wages and penalties.
A payroll is a record of all payments a contractor made to employees working on the project. A certified payroll is one that contains the written declaration required in Section 7-1.02K(3) “Certified Payroll Records (Labor Code §1776),” of the Standard Specifications.
Subcontractors must submit to the prime contractor all certified payrolls, owner- operator listings, and statements of compliance. In turn, the prime contractor must submit these documents to the district labor compliance office by the 15th day of each month for the previous month. The payrolls can be submitted on the state-furnished Form CEM-2502, “Contractor or Subcontractor Payroll,” or any alternate form that includes a statement of compliance with wording identical to that on Form CEM-2503, “Statement of Compliance.” For every person employed at the job site who performed a part of the work, the following information must be contained on the certified payroll form:
- The employee’s full name, address, and social security number.
- The employee’s classification, including craft, group, and level of expertise. The labor classification used must be descriptive of the work actually performed and match the nomenclature used in the prevailing wage decisions.
- The employee’s straight time and overtime hourly wage rate.
- The daily and weekly hours worked in each classification, including actual overtime hours worked. Add any premium for overtime hours worked to the rate of pay, not the reported number of hours worked.
- The gross wages, itemized deductions, withholdings, and net wages paid.
Payrolls must conform to federal and state labor laws. The resident engineer will use the payrolls to verify extra work bills. The labor compliance office will conduct the payroll review using the following information and processes.
Contractors must use Form CEM-2501, “Fringe Benefit Statement,” or equivalent to indicate payment of fringe benefits as a supplement to the certified payroll. A fringe benefit statement is a breakdown of benefits in addition to hourly wage rates that the contractor pays on behalf of the employee. Typical fringe benefits include vacation, health benefits, pension plans, and training funds listed in the prevailing wage rates. The fringe benefit statement should also indicate to whom the fringe benefits have been paid, such as a union trust fund or as a cash payment made directly to the employee.
When a project is located in a geographic area designated as a subsistence area, contractors are required to make travel, subsistence, or zone payments to their employees in accordance with the current requirements on file with the California Department of Industrial Relations. Subsistence is to be paid as a lump sum daily payment or as an increased hourly wage rate, depending on the craft, classification, and approved agreements.
Each workday is limited and restricted to 8 hours during any one calendar day, for which the employee is entitled to be paid at the proper prevailing straight-time rate.
Using assistant resident engineers’ daily reports, district labor compliance staff confirm that the payroll reflects the labor used and the hours worked for each day of work at the job site, including weekends and holidays; that the method of reporting hours is accurate; that the actual number of hours worked is clear; and the rate of pay can be readily determined.
The prevailing hourly wage rate is composed of the basic hourly wage rate plus fringe benefits. When state and federal wage rates differ, the contractor is required to pay the higher of the two. On federally funded projects, if payment is made at an hourly rate in excess of the prevailing rate, this hourly rate, less fringe benefit payments, is the basic hourly rate for computing overtime compensation.
After an employee works 8 hours in a calendar day, and 40 hours in a calendar week, the employee is entitled to be paid at the proper prevailing overtime rate, but not less than one and one-half times the basic wage rate plus fringe benefits. Work performed on Saturday and Sunday generally must be paid at premium rates of pay at time and a half and double time, respectively. For exemptions to this rule, contact the district labor compliance staff. The federal wage decisions do not differentiate between weekday rates of pay and Saturday or Sunday rates of pay; however, all hours worked over 40 in a work week must be paid at the overtime rate of pay.
Resident engineers are responsible for tracking apprentices used on the contract and recording that information in daily reports. District labor compliance staff will verify that apprentice classifications are correctly identified on certified payroll records and that the type of work and ratio of apprentices to journeyman meet the requirements of the apprenticeship agreement on file with the Division of Apprenticeship Standards. A disproportionate employment of apprentices to journeymen could indicate that some of the apprentices are working outside the limits of their classification. When this occurs, excess apprentices must be paid at the journeyman rate. Additionally, labor compliance staff will verify that apprentices are registered in appropriate state and/or federal programs.
Payroll deductions should have a complete, clear, and concise breakdown. The contractor may not combine payroll deductions on the payroll form without proper identification unless an attachment specifies supplemental data with the purpose and amount of each deduction.
All deductions must comply with the Federal Code of Regulations, Title 29, Part 3, (29 CFR 3), “Copeland ‘Anti-Kickback’ Act.” Additional regulatory language can be found in the California Labor Code Sections 213 and 224.
Various calculation methods are used to verify the accuracy of certified payrolls. Following are examples of methods commonly used by contractors. Payrolls are acceptable if they are prepared in accordance with either of the methods shown below. These examples illustrate a situation where an employee worked 10 hours on a given day, overtime premium of one and one-half times the basic hourly rate of $14.00 per hour, $2.00 per hour subsistence, and with fringe benefits amounting to $6.00 per hour.
Method One: Basic reported hours of work
8 hours @ $22.00/hour = $176.00
($14.00 + $2.00 + $6.00) = $22.00/hour
2 hours @ $29.00/hour = $58.00
[($14.00 X 1.5) + $2.00 + $6.00] = $29.00/hour
Subsistence and fringe benefits are not paid at overtime rates.
Total Pay for the day = $234.00
Method Two: Adjusted rate of pay
10 hours @ $22.00/hour = $220.00
($14.00 + $2.00 + $6.00) = $22.00/hour
2 hours @ $7.00/hour = $ 14.00
($14.00 ÷ 2) = $7.00/hour
This is the difference between straight-time and overtime pay for hours in excess of 8 hours - subsistence and fringe benefits are not paid at overtime rates.
Total Pay for the day = $234.00
This section covers procedures for payroll discrepancies, delinquencies, and inadequacies. The contractor must timely submit payrolls and accompanying statements of compliance in accordance with Section 7-1.02K(3), “Certified Payroll Records (Labor Code § 1776),” of the Standard Specifications.
When discrepancies are found during payroll review and confirmation, the following actions must be taken:
The district labor compliance office must request that the contractor submit a supplemental payroll correcting the discrepancy. Under no circumstances should the incorrect or incomplete certified payrolls be returned to the contractor for revision. However, the contractor may make corrections to certified payrolls if those corrections are written in ink and the contractor initials each correction in the presence of Caltrans personnel. Proof of wage restitution for all affected employees must be provided and can be in the form of canceled checks, copied both front and back.
To ensure that payroll discrepancies are corrected, the district labor compliance office- will use a tabulation or summary sheet to record discrepancies and to note when and how each error was corrected.
If payrolls and statements of compliance have not been received for all weeks that the contractor or subcontractors worked on the project, consider the payrolls delinquent. If payrolls and statements of compliance received are incomplete, consider the records inadequate. The labor compliance officer must notify the resident engineer and the contractor which certified payroll documents are missing or inadequate.
The resident engineer must withhold monies due to the contractor on the monthly progress payment in accordance with Section 7-1.02K(3), “Certified Payroll Records (Labor Code § 1776),” of the Standard Specifications. Make withholds separately for each payment period in which a new delinquency or inadequacy appears. When all delinquencies or inadequacies for a period have been corrected, release the withhold covering that period on the next progress payment. Withholds can only be taken once and do not compound on each monthly estimate. District labor compliance offices will advise the resident engineer when funds should be withheld or returned during a payment period. The recommended withhold is up to 10 percent of the payment, a minimum of $1,000 and a maximum of $10,000.
The following examples illustrate the process for taking and releasing withholds on the monthly progress payment.
Example 8-1.1. Progress Payment 1:
Progress Payment 1 has a value of $9,500.
Value of the withhold is 10 percent of $9,500 or $950.
Therefore, the resident engineer must withhold the minimum amount of $1,000.
Example 8-1.2. Progress Payment 2:
Progress Payment 2 has a value of $49,000.
One or more pay documents are still delinquent under a previous month’s withhold plus one or more new delinquencies for this period.
Value of the withhold is 10 percent of $49,000 or $4,900. Last month’s withhold was $1,000. Therefore, the resident engineer should have a withhold of $4,900 from the current progress payments and is still withholding $1,000 from the previous month’s payment for a total of $5,900 withheld from contractor payments for labor compliance issues.
Example 8-1.3. Progress Payment 3:
The delinquencies are all cleared up for the previous months, but new delinquencies have originated during this period. Payment three has a value of $55,000.
Value of the withhold is 10 percent of $55,000 or $5,500. Total withhold for this pay period is $5,500.
The resident engineer should return $5,900 to the contractor for the current progress payment. Since the current withhold is $5,500, the contractor will only see a return of $400 in the pay documents.
Example 8-1.4. Progress Payment 4:
The contractor has not corrected the problems with the payrolls in question during Progress Payment 3. No new delinquencies have occurred. No additional withhold is warranted. Make no change to the amount of money previously withheld from the contractor, and continue to hold $5,500.
Example 8-1.5. Progress Payment 5:
Progress Payment 5 is for a total of $120,000. The contractor has a carryover withhold from progress payment four of $5,500.
There are new payroll delinquencies for this pay period. The value of the current deduction is 10 percent of $120,000 or $12,000. However the maximum allowable withhold for missing labor compliance documents is $10,000 per pay estimate. Withhold $10,000 from the current estimate.
The total value for labor compliance delinquencies is $10,000+$5,500 from Progress Payment 3 to equal $15,500 in total withholds.
If the prime contractor refuses to submit certified payrolls, in accordance with Section 7- 1.02K(3), “Certified Payroll Records (Labor Code § 1776),” of the Standard Specifications, the district labor compliance office will notify the contractor by certified mail that payrolls have not been received. The letter advises the contractor that they are in violation of the contract, and that if payrolls are not submitted within 10 days of receipt of this letter, penalties will be assessed in accordance with California Labor Code Section 1776(h) in the amount of $25.00 per worker for each calendar day the payroll has not been submitted for contracts advertised prior to January 1, 2012, and $100 per worker on or after January 1, 2012. This type of penalty must be pre-approved by the California Department of Industrial Relations prior to deducting any funds from the contractor. The district labor compliance office will notify the resident engineer when it is appropriate to deduct the funds for missing certified payroll records. Process an administrative deduction in the full amount of labor compliance penalties on a monthly basis. These deductions are penalties and are not refundable to the contractor, regardless of the method used to obtain the payrolls.
Resident engineers compare the labor charged by the contractor for change order work with the corresponding payrolls. The certified payrolls and fringe benefit statements serve as source documents for approval of every change order bill. The change order bill must show the identical labor classifications, hours worked, and wage rates, including fringe benefits, that are shown on the certified payroll documents. Notify the labor compliance office immediately of any discrepancy on the payroll records. Do not approve payment of the change order bill until the discrepancy is corrected or it is determined by the labor compliance office to be a labor compliance violation, not a change order overcharge.
When contractors do not comply with the district labor compliance office’s request for correction of discrepancies, missing certified payroll records, or correction of inadequate certified payroll records, the issues become violations and are compiled into a wage case. The district labor compliance office must conduct a full investigation of the facts and circumstances of the case. The facts of the case will determine whether the wage violation was a good faith mistake or a willful violation. Based on the determination, the district labor compliance manager recommends a penalty amount to be assessed against the contractor in accordance with the provisions of the contract and the California Labor Code. The Division of Construction, Labor Compliance Unit, will review the case and inform the district labor compliance office when it is appropriate to withhold funds for violations and associated penalties. The Division of Accounting, Disbursing Office, will withhold the full amount of the violation equaling the state and federal penalties and the amount of wage underpayments. When the Division of Accounting, Disbursing Office, has placed a hold on the contractor’s funds, the district will be notified when to release any associated withholds for labor compliance violations.
When there are outstanding payroll documents, take an “Other Outstanding Documents” deduction from payment after contract acceptance, as covered in Section 5-103F (1c), “Deductions,” of this manual.
Contractors are required to list all owner-operators used on covered work and certify owner-operator status by providing at least the following information:
- Operator name.
- Business address of the owner-operator.
- The owner-operator’s social security number.
- The equipment license number. If the equipment is used off-highway, the contractor must provide a complete description and include the dates it was operated on the project.
- Operator labor classification.
- Hours worked by the owner-operator as reported on a daily basis.
- Combined hourly rental rate and labor rate paid for the owner-operated equipment.
- Gross estimate or actual payments earned.
This information must be provided by the contractor on Form CEM-2505, “Owner-Operator Listing,” supplied by Caltrans. Certification will be accepted only from the contractor employing the owner-operator. It is not appropriate to accept certified payrolls or an owner-operator listing directly from the owner-operator unless that owner-operator is a licensed contractor and an approved subcontractor or recognized lower tier subcontractor.
From the information shown in the payroll, determine the hourly wage rate due by deducting the prevailing equipment rental rate for the area from the gross hourly rate shown on the owner-operator listing. The contract rental rate (without markup) may be used as a guide. Since this may not be the local prevailing rate, it may be necessary to canvass local rental agencies or other sources to determine the actual prevailing equipment rental rate.
Compare the resulting hourly wage rate to the applicable basic wage plus fringe benefits to determine compliance.
Use the following requirements to differentiate an owner-operator from a contractor’s employee:
- If review of payroll records show that deductions for social security taxes or state unemployment insurance taxes are withheld for the owner-operator, it is an indication that the operator is an employee rather than an independent contractor.
- An employee interview can be taken from the owner-operator on Form CEM-2504, “Employee Interview: Labor Compliance/EEO” or Form CEM-2504 (Spanish), “Entrevista de Empleado: Cumplimiento Laboral/IOE,” if applicable. If it is apparent that an owner-operator is in fact an employee, then all of the information required by interview Form CEM-2504, including the equal employment opportunity portion, is to be filled out completely and brought to the attention of the district labor compliance office.
- The operator should be the registered owner of the vehicle to be considered an owner-operator. The name of the driver should match the name of the registered owner on the Department of Motor Vehicles (DMV) registration.
- If the legal owner is a firm or corporation, and the firm or corporation name is shown on the vehicle registration slip, request that the driver furnish evidence that they are leasing or purchasing the vehicle. It is common for the name of the finance or leasing company to be listed on the registration. If the owner-operator is leasing or financing the vehicle, then the operator should be able to furnish such evidence. If the owner-operator is unable to substantiate purchase or lease of the equipment, the resident engineer should disallow use of the owner-operator classification for this truck and contact the labor compliance office.
- Insurance for the vehicle should be carried in the driver’s name. Further checking is required if the name on the policy does not match the name of the driver.
- The California identification (CA) number issued by the California Highway Patrol (CHP) should be in the driver’s name. If the name on the CA number doesn’t match the name of the driver, further investigation is warranted.
If the ownership of a vehicle cannot be determined from the insurance, registration, or title, forward the license number or a CA number to the district labor compliance office. The district labor compliance office will send information to the Division of Construction, Labor Compliance Unit, to be run through DMV or CHP Motor Carrier Permit Division record check.
If the owner-operator is leasing or financing the equipment, the operator should be able to furnish such evidence. If the owner-operator is unable to substantiate that they are purchasing or leasing the equipment, the district labor compliance office should disallow use of the owner-operator classification for this piece of equipment. The contractor must establish proof of ownership in cases where there is doubt as to the validity of the owner-operator designation. If difficulty is encountered in determining truck ownership, all pertinent data should be submitted to the Division of Construction, Labor Compliance Unit.
Caltrans is responsible for enforcement of both federal and state labor compliance requirements for all contracts it advertises and awards. The California Labor Code requires that all public works projects are subject to the payment of prevailing wages for the immediate geographic area in and adjacent to the project.
Every laborer or mechanic employed at the job site who performs a part of the contract work is subject to the labor provisions of the contract. The laborer or mechanic may be either an employee of the prime contractor, an employee of an approved or listed subcontractor, or some other person or firm who furnishes on-site labor, including specialists, sole owners, partners, corporate officers, and rental companies furnishing equipment with an operator.
The terms “job site” or “site of the work” as applied to labor compliance are not limited to the actual geographic location or limits of the project. In addition, these terms include any location or facility established for the sole or primary purpose of contributing to the specific project. Typical examples of these types of locations or facilities include materials sites, processing plants, fabrication yards, garages, or staging sites set up for the exclusive or nearly exclusive furtherance of work required by the project. Essential criteria for job site or off-site work is whether these facilities have been operating on a commercial basis for a period of at least 2 months prior to the award of the contract or whether that site performs a commercially useful function exclusively for this project.
Employees working at a job site or site of work are covered by the prevailing wage law and the provisions of the specific contract. The interpretation of covered work can change often with new legislation, coverage determinations issued by the California Department of Industrial Relations, federal all-agency memorandums, and court decisions forming case law. When the distinction between covered and non-covered employment is not clear, the matter should be referred to the district labor compliance manager for evaluation.
For labor compliance purposes, materials sites used exclusively for the project are considered as being on site. Employees at these sites must be paid prevailing wages. Factors that determine coverage of materials sites include:
- The commercial or noncommercial nature of the operation
- The amount of contractor or supplier control of the site
- The exclusiveness of the materials site to the project
- The location of the materials site relative to the project limits
- Which party has control of the materials loading operation
Typical situations for coverage determinations favoring the payment of prevailing wages include:
- A commercial source outside the project limits where the prime contractor loads a trucking company’s trucks
- An imported borrow pit, located outside the project limits, used exclusively by the contractor for a specific project
- A pit established exclusively for a project to supply materials
In all three of the above cases the work is covered and prevailing wages are required.
If material is delivered to the project site by the prime contractor or any on-site subcontractor’s employees, the hauling will be covered under prevailing wage requirements. If material is delivered from a commercial establishment by a third-party or independent hauler, prevailing wages are not required to be paid as long as the establishment meets the following criteria:
- The establishment must be in the business of selling supplies to the public.
- The establishment cannot have been opened specifically for the contract.
- The plant cannot be located at the site of work.
- The materials delivered from the plant cannot be immediately incorporated into the project with no re-handling out of the flow of construction.
Roadside production of materials produced by other than the contractor’s forces is considered “subcontracted” with respect to the contract labor requirements.
Materials, including aggregates, produced with any kind of portable, semi-portable, temporary crushing, screening, proportioning, batching, or mixing plant are considered to have originated at a materials plant.
When a materials plant has been established or reopened exclusively or nearly exclusively for the purpose of supplying materials to a specific contractor for specific projects, and when these plants are not generally operated commercially, they are considered to be a site of the work and, therefore, covered for the payment of prevailing wages. Work involved in the establishment, reopening, and general operation of such plants will also likely be covered. Use the following guidelines to determine if a plant is commercial and, therefore, not covered:
- The operator has obtained a permit to operate as a commercial plant.
- A business license has been obtained for the operation of the plant.
- A public weighmaster operates scales at the materials plant.
- The contractor provides proof of sales to other agencies or individuals.
- The plant is in operation before the project begins and remains in operation after the project is completed.
The prime contractor must demonstrate that the primary purpose of this materials plant is for general commercial operations. The contractor must provide proof that more than token sales have originated at this material plant.
Equipment is often rented or leased by contractors from established commercial equipment rental firms. The prevailing wage provisions of the contract do not cover drop off, pick up, and incidental repair of this equipment. When rented equipment used in the work, including extra work, is operated and maintained by employees of the equipment rental firm, the equipment rental firm is considered to be a “subcontractor” with respect to labor compliance. The employees of the rental firm are, in this situation, covered by the labor compliance requirements of the contract.
Owner-operators of general construction equipment such as graders, cranes, or excavators are considered covered by state and federal prevailing wage requirements. The hiring contractor must list them on Form CEM-2505, “Owner-Operator Listing.” The owner-operator must be paid at least the minimum prevailing wage rate in effect for the type of equipment operated. On federally funded contracts, the Form CEM-2505 must also include the rate for the equipment rental.
General repair of equipment used on the job site or located at the site of work, including installing, overhauling, assembling, repairing, reconditioning, or other work on machinery, equipment, or tools used in or upon the work, are covered by prevailing wage requirements. Established, independent commercial repair shops that have been in business prior to the award of the contract are not covered. Mechanics and other employees working on such machinery, equipment, or tools are covered by the contract labor provisions. Such employees must be listed on the contractor’s or subcontractor’s certified payroll records.
Suppliers and fabricators of materials who are not subcontractors and who do no work at the job site other than delivering materials are not subject to the contract labor requirements. However, a supplier or fabricator is a subcontractor subject to the labor provisions for that portion of the work performed at the job site. For instance:
- Shop work during fabrication of structural steel is not subject to the contract labor requirements. The contract labor provisions cover any structural steel work performed subsequent to delivery of material to the job site even though shop personnel may perform it. This includes repair of damaged or defective work, as well as normal installation or erection.
- Oil spreading by employees of asphalt suppliers is subject in certain conditions:
- Only the time spent on site spreading the material is covered work. Standby time is not.
- When using a federal classification, coverage will apply only when the employee, during one workweek, has spent at least 20 percent of the total time worked spreading material on the specific project. Once a particular employee qualifies for coverage, all the actual spreading time that week is retroactively covered. Staggering employees to avoid coverage is permissible.
- Treat spreading of pavement reinforcing fabric in the same way that oil spreading work is treated.
At the job site, installation of any manufactured product, such as mechanical and electrical equipment, bridge deck expansion and bearing assemblies, sign frames, precast or precast-prestressed concrete beams, and all similar fabricated items are covered work and subject to the contract labor provisions.
An independent firm that furnishes a special service or performs work of a specialized nature is considered to be a “subcontractor” with respect to the labor provisions.
Work performed by specialty firms is subject to all contract labor requirements, regardless of the nature of the work, service, or method of payment.
All firms that furnish engineering services at the job site, such as construction inspection, materials testing, and land surveying, regardless of whether that firm is hired by the contractor or Caltrans, are subject to California Labor Code prevailing wage requirements. The payment of prevailing wage rates is mandatory.
Labor standards require the proper classification and payment of workers for the work they actually perform. To meet these standards, the contractor and persons or firms performing the work on the project must:
- Use only the classification listed in the wage determination decision or prevailing wage rate determination applicable to the contract.
- Use classifications that describe the work being performed. For example, if carpenters are used to place reinforcing steel, they should be shown as “ironworkers” and paid accordingly.
- Maintain an accurate record of the time spent in each work classification, and show this time by means of separate entries in the payroll records and on the certified payroll.
A single worker may perform many different tasks covered by more than one craft or classification during the course of a single day. In this situation, the contractor may break up the work into the different classification and pay accordingly or it may pay the worker the highest applicable wage rate for the entire day. If the highest wage rate is paid for the entire day, separate entries in the payroll records are not required.
Since most construction work is performed by recognized craft classifications, prevailing practice in the industry and union rules will usually determine the proper classification. Workers must be classified and paid according to the work they actually perform, regardless of union affiliation, other titles, or designations.
Occasionally, the wage rate may not be provided in the federal wage determinations for a particular labor classification. When this occurs, the workers should be reclassified, if possible, to a comparable classification. If it is not possible to reclassify the work, contact the district labor compliance office and request that a wage classification be determined. A wage survey, collective bargaining agreements, local prevailing practice, and the contractor’s previous experience with similar work will be considered in reaching this determination.
To request wage rate determinations on federal-aid contracts, the district labor compliance office uses federal form SF 308, “Request for Wage Determination and Response to Request.” To request federal wage rates, consult the Division of Construction, Labor Compliance Unit.
In no case may a construction contract be considered effectively amended until a response has been received from the U.S. Department of Labor indicating approval of the proposed classification or reclassification requests.
In most cases, the wage rates as determined by the California Department of Industrial Relations and the U.S. Department of Labor will be the same for any given labor classification. If there is a difference between Department of Labor wage rates and California Department of Industrial Relations wage rates for similar classifications of labor, the contractor must pay the higher wage rate.
When there is an error in the published rate, the district should notify the Division of Construction, Labor Compliance Unit. They will contact the California Department of Industrial Relations or the Department of Labor, depending on which agency’s rate is in error.
The state general prevailing wage rates contain most crafts and classifications of workers required on Caltrans projects. Occasionally, however, a unique labor classification may be anticipated for future state-funded major construction projects or for minor or miscellaneous service contracts, but is not listed in the general prevailing wage rates. In this situation, the district labor compliance office must obtain a special wage determination from the California Department of Industrial Relations.
To initiate the request, the district labor compliance office prepares a memorandum to the Division of Construction, Labor Compliance Unit, describing the following:
- Job duties and the nature of the work
- The locality (county) where the work is to be performed
- The anticipated advertisement and award dates
- A list of contractors or employers, including complete addresses and telephone numbers, who perform work of a similar nature within the same geographical area
- The most recent determination number of any prior requests
The Division of Construction, Labor Compliance Unit, will forward the request to the California Department of Industrial Relations, Office of Policy, Research, and Legislation, which will prepare a special wage determination and send it back to the Division of Construction, Labor Compliance Unit. The Division of Construction, Labor Compliance Unit, will send the special wage determination by cover memo to all district labor compliance offices for appropriate handling or future reference.
In case of a jurisdictional dispute, such as a dispute between cement masons and operating engineers, a nonsignatory contractor may pay either wage rate, as long as it is recognized by the California Department of Industrial Relations.
As a general rule, when administering the prevailing wage requirements, those employees whose work is supervisory or nonmanual in nature are not considered as laborers or mechanics. However, just because an employee is paid a salary or is called a foreman does not mean that the person is not a laborer or mechanic.
If a supervisor, regularly and for a substantial period of time, performs journeyman work, then that supervisor is subject to the prevailing wage requirements of the contract.
If the time that the supervisor performs the work of a journeyman is negligible and does not establish a definite pattern, that supervisor’s entire employment should be considered supervisory and not subject to prevailing wage requirements.
A corporation is a single legal entity represented by the corporate officers acting pursuant to the corporate bylaws and applicable state law.
Any corporate officer who works on a project as a laborer or mechanic, regardless of an employment relationship to the corporation, must be paid not less than the prevailing hourly wage rates established for the type of work performed.
The only exception is when corporate officers act in a supervisory capacity and do not perform the function of a worker or laborer.
The California Labor Code limits payment of apprentice wage rates to persons registered as apprentices in an apprenticeship training program approved by the California Department of Industrial Relations, Division of Apprenticeship Standards (DAS).
An apprentice who is not so registered is not “properly indentured” within the meaning of the term as it is used in the California Labor Code and the Standard Specifications. Under the provisions of the contract, a nonindentured apprentice is not considered to be an apprentice and must be paid the journeyman wage rate for their classification.
For each project, the contractor is required to furnish evidence of its apprentices’ registration. This evidence must be on Form DAS 1, “Apprentice Agreement,” or a letter giving notice of registration from the DAS. Either Form DAS 1 or a letter from the DAS is acceptable evidence of apprentice registration. District labor compliance staff may also identify apprenticeship status through the DAS online registration database located at:
If an apprentice is scheduled to work on the project before the contractor receives evidence of registration, the district labor compliance office must contact the DAS office and confirm proper registration.
This procedure will expedite the verification of apprentices but does not preclude the obligation of the contractor to supply written evidence of the apprentice’s registration and to satisfy the state requirements and California Labor Code Section 1777.5 for apprentices employed at public works.
In addition to evidence of registration in its program, the contractor is required to use the appropriate apprentice-journeyman ratios and wage rate percentages, as addressed in state prevailing wage determinations and contractor’s union agreements.
California Labor Code Section 1777.5 requires the contractor to contribute the training fund portion of the fringe benefit to the appropriate apprentice trust fund or to the DAS, California Apprenticeship Council.
On federal-aid projects, the prime contractor and subcontractor must furnish evidence of federal registration for apprentices performing work on the contract. Federal registration must be provided on Department of Labor form ETA 671, “Program Registration and Apprenticeship Agreement,” or identified in a letter from the U.S. Office of Apprenticeship providing notice of registration. Form ETA 671 will provide the wage schedule for each registered apprentice.
Some federal-aid projects will contain a requirement for a minimum number of apprentices that must be used on the project. Contractors must provide the resident engineer with a plan identifying the specific training program to be used and how the contractor will achieve the number of apprentices to be used before work begins on the project. For more information, refer to Section 8-208, “Contracts Containing ‘Federal Requirements Training Special Provision,’ ” of this manual.
Contractors or subcontractors who are engaged in more than one Caltrans construction project at a time may use the same employees on two or more projects during a given work week. Separate certified payrolls must be provided for individual contracts.
After investigating the facts and determining that an apparent labor compliance violation has occurred, the district labor compliance office will determine the amount of penalty assessment and wage restitution due from the contractor. The district labor compliance manager must document findings on Forms CEM-2506, “Labor Compliance - Wage Violation,” and CEM-2507, “Labor Violation: Case Summary.” Use Form CEM-2506 to record applicable data for each worker who was underpaid on a Caltrans contract. Use Form CEM-2507 to summarize the data on the CEM-2506 and to provide a chronological record of the case. State labor compliance violation cases must be documented to include:
- A description of the facts and evidence collected to build the labor compliance violation case
- A spreadsheet showing a summary of wages and penalties due each employee
- Evidence provided by and statements made by the contractor
- An analysis of the facts
- A case history
- Recommendations to the California Department of Industrial Relations
Forms CEM-2506 and CEM-2507 are sufficient documentation for assessing penalties and withholding back wages due employees for federal wage case violations.
When forwarding cases to the Division of Construction, Labor Compliance Unit, with the district’s recommendations, attach the following to a cover letter:
- Forms CEM-2506 and CEM-2507
- Form CEM-2508, “Contractor Payroll Source Document Audit Summary”
- Form CEM-2509, “Checklist—Source Document Audit”
- A case history
- Applicable correspondence with the contractor
Legal authority to withhold funds from the contractor for labor compliance violations is provided by California Code of Regulations, Title 8, Sections 16410–16414.
Caltrans must provide written notice to the contractor and to any affected subcontractor of the withholding or forfeiture. The notice must contain the following information:
- The amount to be withheld or forfeited.
- A short statement of the factual basis as to why the funds are to be withheld or forfeited. Include the computation of any wages found to be due and the computation of any penalties assessed under California Labor Code Section 1775.
- Notice of the right to request a hearing and the manner and time within which a hearing must be requested.
- Notice that penalties can be recovered by the prime contractor from an offending subcontractor.
- The notice must be sent by certified mail to the last known address of the contractor and the offending subcontractor.
- Once the notice has been provided to the contractor and offending subcontractor, Caltrans will withhold enough money to cover wage restitution and penalties as stated in the notice.
The California Department of Industrial Relations, Division of Labor Standards Enforcement, (DLSE) has the authority to debar contractors from bidding on public works projects. Caltrans, through its approved labor compliance program, does not directly investigate the contractor for debarment; however, Caltrans can prepare a written complaint requesting the debarment of a contractor. This complaint is forwarded to the California Department of Industrial Relations for a final debarment determination. Anyone may file a debarment complaint, including an individual party.
A debarment order may be taken against a contractor or any subcontractor. The intent of the law is to debar and prevent contractors who have committed any violation with the intent to defraud or have committed more than one willful violation within a 3-year period from bidding on public works projects.
The requirements and procedures for debarment can be found in Section 1777.1 of the California Labor Code. Additional legal authority to debar contractors can be found in Title 8, “Industrial Relations,” of the California Code of Regulations.
The district labor compliance office may request the Division of Construction, Labor Compliance Unit, to file a complaint for Caltrans with the California Department of Industrial Relations, Division of Labor Standards Enforcement. The following information must be provided:
- An individual case summary of all district labor compliance enforcement actions
- A summary of prevailing wage cases filed against the contractor
- Dollar amount of all withholds taken and penalties assessed
- Status of whether the cases were approved by the State Labor Commissioner’s office
Each district labor compliance office will maintain a “Caltrans labor compliance debarment log” showing the dates of complaint preparation, when forwarded to the Division of Construction, Labor Compliance Unit, and when sent to the California Department of Industrial Relations for a final decision.
The investigation and final determination for debarment rests solely with the California Department of Industrial Relations legal office and the Division of Labor Standards Enforcement. Final determinations will be forwarded to the complainant and the awarding body.
Suspension and debarment apply to all federal-aid highway construction projects and are discretionary administrative actions taken to protect the federal government by excluding persons from participation in the federal assistance programs.
A suspension and debarment action assures that the federal government does not conduct business with a person who has an unsatisfactory record of integrity and business ethics. The suspension and debarment actions are administered government wide; consequently, a person excluded by one federal agency is excluded from doing business with any federal agency.
This section provides an overview and content summary of labor compliance law, acts, and statutes.
- Full wages earned must be paid.
- Deductions from wages must be authorized.
- Proper payroll records must be kept for a period of 3 years after contract completion.
- Statements of compliance must be submitted weekly by the prime contractor and all persons or firms performing work on the contract.
- Wages paid to laborers and mechanics must not be less than the predetermined hourly rates (including fringe benefits) shown in the appropriate wage schedule.
- Laborers and mechanics must be properly classified and paid according to the work actually performed.
- Laborers and mechanics must be paid at least once a week.
- The prevailing wage schedule, including fringe benefits and supplements (which can be the one printed in the contract proposal), and the minimum wage poster must be posted in a prominent place at the project site.
- Forty hours is the standard workweek. Any work over this limit must be compensated at no less than one and one-half times the basic hourly wage rate paid.
- The contractor is liable to employees for unpaid wages.
- The contractor is liable to the federal government for liquidated damages of $10 per day per worker for each violation of the provisions of this act.
- In the event of violations of the provisions of this act, the state may withhold from the progress pay estimate sufficient money to guarantee unpaid wages and liquidated damages.
- Intentional violations are a federal misdemeanor ($1,000 fine, 6 months’ imprisonment, or both.)
- The making or use of false statements is a felony ($10,000 fine, 5 years’ imprisonment, or both).
- The false statement poster shall be posted at one or more places where it is readily available to all personnel concerned with the project.
Following are some of the more frequently cited California Labor Code sections:
Sections 213 and 224 disallow a contractor from withholding funds improperly and requires employee authorization to withhold portions of the employee’s wages.
Section 1725.5 requires a contractor to register with the California Department of Industrial Relations to qualify to bid and be listed on a bid proposal.
Section 1729 holds the subcontractor liable for failure to comply with the prevailing wage requirements.
Section 1742 allows the contractor to pursue a hearing on a determination of a willful wage violation case through the California Department of Industrial Relations.
Section 1771.1 prohibits a contractor or subcontractor from qualifying to bid or be listed on a bid proposal and contract for public works if not registered with the California Department of Industrial Relations. This requirement applies to bid proposals submitted on or after March 1, 2015, and any contract for public works entered into on or after April 1, 2015.
Section 1771.3 pertains to the State Public Works Enforcement Fund that serves to monitor and enforce the public works requirements.
Section 1771.4 calls for bids and contract documents to specify that projects are subject to compliance monitoring and enforcement by Caltrans’ Labor Compliance Program.
Section 1771.5 provides for approval of the Caltrans labor compliance program and excludes from the prevailing wage requirements construction work with a value of $25,000 or less; and alteration, demolition, repair, or maintenance projects with a value of $15,000 or less.
Section 1774 requires all workers be paid not less than the specified prevailing wage rate.
Section 1775 requires that penalties be assessed against the contractor for failure to pay employees prevailing wages.
Section 1776 requires the contractor and subcontractor to keep accurate records of wages paid, specifies which persons and under what circumstances these records may be inspected, and provides penalties for failure to comply.
Section 1777.5 pertains to apprenticeship standards and ratios, and nondiscrimination.
Section 1778 prohibits misuse of another person’s wages. This is the only section of the labor code that can result in a felony conviction.
Section 1779 prohibits the charging of a fee for employing a person on public works projects.
Section 1780 prohibits a fee for placing an order for employment on public works.
Section 1810 defines 8 hours as a legal day’s work.
Section 1811 restricts work to 8 hours per day and 40 hours per calendar week without overtime compensation.
Section 1812 requires the contractor to keep accurate records of hours worked and have records available for inspection by the awarding body.
Section 1813 provides penalties for violations of provisions of Sections 1810-1815 by any contractor.
Section 1814 provides that persons violating provisions of Sections 1810-1815 are guilty of a misdemeanor.
Section 1815 provides overtime payment at one and one-half times the basic rate of pay for hours worked in excess of 8 hours per day and 40 hours per calendar week.
Section 2750.5 provides that a worker is presumed to be an employee unless proved to be an independent contractor.
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