The United States Department of Labor has begun to interpret the Davis-Bacon Act to require an employer to reimburse employees’ lodging expenses while away from home on prevailing wage jobs. This can create a substantial unanticipated assessment to an employer unaware of this interpretation.

Photo courtesy Jennings, Haug & Cunningham
Lough specializes in construction litigation matters, including construction industry employment issues.

Contractors and subcontractors performing work on federally funded projects are subject to the prevailing wage requirements of the Davis-Bacon and Davis-Bacon Related Acts. When those projects are in a remote location or small rural community, a contractor may find an insufficiently trained local workforce to staff skilled trade positions. As a result, regular employees who do not reside in close proximity to the project may get the assignment. Often, the most experienced, longest-tenured skilled-workers will campaign for the assignment.

For prevailing wage jobs, such as the Mariposa Port-of-Entry project in Nogales, Ariz., Camp Navajo Readiness Center in Bellemont, Ariz. and any of a variety of projects at Fort Bliss in El Paso, Texas, the Department of Labor publishes a wage determination. The wage determination tells the employer the hourly rate and benefit package (or cash equivalent) the employer is required to pay to employees. Because these wages and fringes are often significantly higher than those paid on non-Davis-Bacon jobs, employees gladly accept the assignment.

What the wage determination does not tell an employer, however, is that in addition to prevailing wages and fringes, the employer will be required to pay the employee for lodging expenses. This is true even if the wage determination includes zone pay for employees working outside their home area. Often, this obligation is not known until after completion of the work following a DOL audit.

An employer’s obligation to reimburse employee lodging expenses is generally a surprise since there is no provision in the Act or the Code of Federal Regulations related to the Act requiring the employer to make these payments. The DOL’s interpretation arises out of a provision of the DOL Field Operations Handbook. There are at least two problems with the interpretation: the provision of the Field Operations Handbook upon which the DOL relies does not say that the employer is obligated to reimburse employees for lodging expenses; and the Field Operations Handbook has not gone through the public comment process required of the regulations.

Because the employer’s reimbursement obligation is not published in the wage determination, the amount of the reimbursement payment is unknown and unknowable until incurred by the employee. The DOL has published no guidelines as to what “prevailing lodging” expenses might be.

The employer is left with a dilemma: include an estimated lodging expense for employees in its bid and risk not being awarded the work, or omit the lodging contingency from its estimate and risk a DOL audit and assessment. Neither alternative is acceptable and the latter may even subject the employer to debarment from federal contract work.

An employer may attempt to quantify its reimbursement obligation by conducting a pre-bid survey of average lodging costs in the jobsite area. That would provide the employer with an opportunity to advise employees, in advance, of the amounts to which the employee will be entitled for reimbursement. It can be left to the employee whether to spend more or less on lodging, but may provide a basis by which the employer can argue to the DOL that the reimbursement amount was established before incurred by the employee and is reasonable. Such an attempt may not cover the myriad of options that may be exercised by employees working for extended periods of time away from home. Employees may choose to live in RVs or fifth wheels at RV parks. Transient employees may simply relocate their primary residence to the location of the project. Groups of two, three or four employees may rent apartments. These varied options are not addressed by the DOL and provide the employer with little certainty of its labor costs at bid time.