PREVAILING WAGE OVERHEAD RATE: WHY IT'S DIFFERENT AND HOW TO CALCULATE IT.
A contractor who uses the same overhead rate for prevailing wage and private work is either overpricing private work or underpricing prevailing wage work. Prevailing wage carries certified payroll administration, fringe benefit compliance, and wage classification overhead that private work doesn't. The correct approach is two overhead rates: a base rate for private work, and a prevailing wage surcharge added to the base for public bids. SPM builds separate overhead rates for clients who do both, and the prevailing wage rate includes all compliance overhead at the correct allocation.
The reason one blended rate fails is that the compliance cost is fixed per project rather than proportional to contract value. Three hours a week of certified payroll work costs the same on a $400K job as on a $1.2M job, so a blended rate overprices the large private jobs and underprices the small public ones. Calculating the surcharge from your own certified payroll hours takes an afternoon, and it settles the question for every bid that follows.
WHAT IT MEANS.
A prevailing wage overhead rate is your base overhead rate plus a surcharge covering the compliance costs only public work creates: certified payroll administration, fringe benefit compliance, and wage classification review.
WHY ONE RATE IS WRONG FOR BOTH.
The fringe benefit structure
On prevailing wage projects the wage determination specifies a base hourly rate plus a fringe benefit amount per hour, and the fringe covers health insurance, retirement, apprenticeship, and other benefits the determination requires. Contractors can satisfy it by paying cash on top of the base wage, by providing bona fide fringe benefits, or by a combination of both. Either way, the cash fringe payment or the cost of providing bona fide benefits is a direct labor cost on prevailing wage projects that doesn't exist on private work at the same base wage, and it changes the fully burdened labor rate.
The certified payroll burden
Prevailing wage projects require certified payroll reports submitted weekly to the awarding agency or the GC. Verifying wage classifications, calculating fringe compliance, producing the reports, and answering compliance inquiries takes 1 to 4 hours per week per prevailing wage project depending on crew size and complexity. At 3 hours per week at $55 an hour for an admin or controller, that's $165 a week, or $8,580 over a 52 week project. That burden is a fixed cost of prevailing wage work and it belongs in the overhead rate for prevailing wage bids.
The classification risk
Workers on prevailing wage projects must be classified at the correct wage classification for the work they're performing. A worker doing higher classification work who gets paid at a lower classification rate creates a back pay liability equal to the wage differential for every hour worked at the wrong classification. Wage classification errors on a 6 month project with a 5 person crew are the kind of compliance failure that produces a $30,000 to $80,000 back pay judgment. The administrative overhead of keeping classifications correct is a cost of doing prevailing wage work.
WHAT IT LOOKS LIKE IN DOLLARS.
Certified payroll administration takes 1 to 4 hours per week per project. At 3 hours per week at $55 an hour for an admin or controller, that's $165 a week, or $8,580 over a 52 week project.
Wage classification errors on a 6 month project with a 5 person crew are the kind of compliance failure that produces a $30,000 to $80,000 back pay judgment, because the liability is the wage differential for every hour worked at the wrong classification.
For a contractor running 2 to 3 simultaneous prevailing wage projects, the surcharge typically runs 1.5 to 3.0 points of additional overhead rate. Contractors with higher prevailing wage volume may carry a lower surcharge per project, because the fixed compliance costs spread across more revenue.
TWO RATES, THREE STEPS.
Certified payroll administration time, compliance software or service fees, wage determination monitoring, and classification review are prevailing wage specific overhead costs. Private work carries none of them, which is why they can't sit inside a blended rate and still produce an accurate bid.
Sum the prevailing wage specific overhead costs and divide by projected prevailing wage revenue. That percentage is the overhead surcharge, and it applies only to prevailing wage bids.
Base overhead rate plus prevailing wage surcharge equals the overhead rate for prevailing wage bids. Private work bids use only the base overhead rate. Two numbers in the bid template instead of one, and the estimator picks the one that matches the work.
Contractors who establish a bona fide fringe benefit plan, whether that's union health and welfare or a qualifying employer sponsored plan, can credit the bona fide fringe cost against the prevailing wage fringe requirement. That reduces the cash fringe payment required on prevailing wage projects and may be more tax efficient than paying the full fringe in cash. SPM coordinates with the CPA on fringe benefit structure for clients who do significant prevailing wage volume.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
Pricing
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
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