December 2, 1996
1) Letter No. LR-96-01
standards compliance requirements for self-employe laborers
and mechanics (aka Working Subcontractors)
policy on prevailing wage applicability.
and certification parameters.
of businesses working with their crews.
of power equipment.
Federal prevailing wage requirements and compliance standards for
self-employed laborers and mechanics (also referred to as "working
subcontractors") have long been a confusing and contentious area
for the Department of Labor (DOL), HUD, the Internal Revenue Service
and contractors and subcontractors.
The following policy represents an effort to provide practical guidance
for field application. The guidance more specifically concerns the
wage certification requirements for self-employed mechanics and
laborers on projects subject to Federal labor standards provisions
including Davis-Bacon and HUD-determined maintenance and nonroutine
maintenance prevailing wage rate determinations. This policy does
not attempt to establish whether working subcontractors are subject
to Federal labor standards nor whether such working subcontractors
are bona fide. The clear meaning of statutory provisions
and regulatory definitions does not require further examination
of applicability. Additionally, statutory and regulatory language
are clear that the question of whether certain self-employed laborers
and mechanics are bona fide subcontractors is not germane to the
issue of prevailing wage standard applicability.
I. HUD policy on prevailing wage applicability.
The Davis-Bacon Act (DBA), HUD program Related Acts (DBRA) concerning
the payment of prevailing wages as determined by the Secretary of
Labor, and the U.S. Housing Act of 1937 concerning the payment of
prevailing wage rates established by HUD provide that the wage protections
afforded in these statutes apply to laborers and mechanics employed
on the covered work. The DBA and DBRA implementing regulations (29
CFR Part 5) specifically stipulate that these protections are provided
regardless of any contractual relationship which may be alleged
to exist between the contractor and such laborers and mechanics.
Additionally, all laborers and mechanics must be paid unconditionally
and not less often than once per week. HUD has followed DBA/DBRA
prevailing wage parameters in its implementation, administration
and enforcement of HUD-determined maintenance and nonroutine maintenance
prevailing wage standards. (NOTE: The requirement to pay
weekly wages is not applicable to the payment of prevailing routine
maintenance wage rates related to laborers and mechanics engaged
in the operation of PHA and IHA housing developments.)
Therefore, it is HUD policy that in all cases where laborers and
mechanics are employed on Federal prevailing wage-covered construction,
maintenance and nonroutine maintenance work, laborers and mechanics
shall be entitled to compensation (in the case of Davis-Bacon wages,
weekly compensation) at wage rates not less than the prevailing
rate for the type of work they perform regardless of any contractual
relationship alleged to exist between a contractor or subcontractor
and such laborers or mechanics.
The above policy statement is not a departure from previous HUD
directives. The guidance presented below establishes uniform HUD-assisted
program contract administration and enforcement parameters for labor
standards compliance and prevailing wage certification.
II. Compliance and certification parameters.
HUD policy clearly affords prevailing wage protection for all laborers
and mechanics, regardless of contractual relationship. There is
no exception to this protection for self-employed laborers or mechanics,
including owners of businesses, sole-proprietors, partners, corporate
officers, or others. This policy in no way precludes or limits any
business or individual from participating in HUD-assisted construction,
maintenance, or nonroutine maintenance work. The
issue is not one of eligibility, whether such persons are permitted
to work on HUD-assisted projects, but of compliance standards - what
HUD will accept from contractors and subcontractors to demonstrate
that proper compliance has been achieved.
In this context, this Letter establishes a HUD administrative policy
that laborers and mechanics may not certify to the payment of their
own prevailing wages EXCEPT where the laborer or mechanic
is the owner of a business working on the site of the work with
his/her own crew. (This exception is described in detail in Paragraph
III. Owner-operators of power equipment are discussed in Paragraph
IV; Truck drivers are discussed in Paragraph V.)
The most frequent occurrence of self-employed workers on HUD-assisted
projects involves mechanic/trade classifications (i.e., not laborer
classifications). (For ease of reference, laborers and mechanics
in this context are referred to as "mechanics" and include any case
involving laborers.) These mechanics may be represented as sole-proprietors,
self-employed mechanics, partners, or corporate officers - all with
no direct employees engaged in the covered work.
Accordingly, HUD, and program participants responsible for labor
standards administration and enforcement (e.g., PHAs, IHAs, CDBG
recipients), may not accept certified payrolls reporting single
or multiple owners (e.g., partners) certifying that they have paid
to themselves the prevailing wage for their craft. For example,
a sole-proprietor may not submit a payroll reporting himself or
herself as simply "Owner" signing the certification as to his/her
own wage payment from "draws" or other payment methods. Neither
may several mechanics submit a payroll reporting themselves as "partners"
with one or more certifying as to the payment of their wages or
salaries. Such mechanics must instead be carried on the certified
payroll of the contractor or subcontractor (the "responsible employer")
for whom they are working and with whom they have executed a "contract"
In these cases, maintenance of an accurate accounting of weekly
work hours including any overtime hours for such mechanics is essential.
Whatever method of compensation computation is utilized (piecework,
weekly contract draw for performance), the amount of weekly compensation
divided by the actual hours of work performed for that week must
result in an "effective" hourly wage rate for that week that is
not less than the prevailing hourly rate for the type of work involved.
This computation must take into account overtime pay rates (i.e.,
one and one half) for all hours worked in excess of 40 hours per
week, pursuant to the Contract Work Hours and Safety Standards Act
(CWHSSA), where applicable, and pursuant to the Fair Labor Standards
Act where CWHSSA is not applicable.
The name, work classification, actual hours of work, effective hourly
wage rate, and wage payment for each such mechanic must be reported
and certified on the responsible employer's weekly payroll. Note
that the effective hourly wage rate for such mechanics may fluctuate
from week to week. However, the effective hourly wage rate may
not be less than the minimum prevailing rate for the respective
craft. In any case where the effective rate falls below the corresponding
craft prevailing wage rate, the responsible employer must compensate
the mechanic at no less than the prevailing rate on the wage determination
for that craft.
III. Owners of businesses working with their crew.
Owners of businesses working with their crew on the same HUD-assisted
job site may certify to the payment of their own prevailing wages
in conjunction with the prevailing wages paid to their employees.
This exception to reporting standards does not suggest that
such owners are not likewise entitled to prevailing wages for their
labor. Rather, it accepts the wage payment certification on weekly
payroll reports by the owner for his/her own wages as that certification
accompanies the certification offered for the payment of
prevailing wages to his/her employees. Such owners need only list
their name, work classification including "owner," and the daily
and total hours worked. (Such owners do not need to list
a rate of pay or amounts earned.)
IV. Owner-operators of power equipment.
Frequently, owner-operators of power equipment (e.g., backhoes,
front-end loaders) will contract for services at a rate for both
"man and machine." In these cases, the owner-operator includes liability,
equipment maintenance, and salary in an hourly or contract rate
for services. Because of the prevalence of such practice and the
inherent difficulty in ascribing costs for liability and maintenance
costs versus hourly labor salary, HUD and its program clients
may accept a combined ("man and machine") hourly rate on the responsible
contractor's certified payroll provided that such hourly rate may
not be less than the rate on the wage determination for the respective
power equipment operator.
Owner-operators of power equipment, like self-employed mechanics,
may not submit their own payrolls certifying to the payment of their
own wages BUT must be carried on the responsible contractor's certified
V. Truck drivers.
As outlined earlier in this Letter, a DOL administrative policy
excludes bona fide owner-operators of trucks who are independent
contractors from DBRA/CWHSSA provisions concerning their own
hours of work and rate(s) of pay. These truck "owner-operators"
must be reported on weekly payrolls but the payrolls do not
need to show the hours worked or rates - only the notation "Owner-operator."
Note that any laborers or mechanics, including truck
drivers, employed by the owner-operator/independent contractor are
subject to DBRA/CWHSSA provisions in the usual manner.
This policy does not pertain to owner-operators of
other equipment such as backhoes, bulldozers, cranes and scrapers
(i.e., power equipment as noted in paragraph IV, above).
These compliance standards shall take effect immediately. Any exceptions
to these standards must be approved in advance in writing by HUD
Headquarters Office of Labor Relations.
Any questions concerning this Letter may be directed to the
Office of Labor Relations at (202)708-0370 or, in the case of HUD
program participants, to the HUD Field Labor Relations Staff with
jurisdiction for your area.
the Office of Labor Relations on
the World Wide Web HUD Home Page
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